by Anu Hariharan7/15/2019
With special contributions from Nic Dardenne
One of the most common questions we hear from founders is “How do I manage my board?” It’s something that provokes anxiety, because this is the first time the founder/CEO is subject to external supervision, and the board has powers that include the firing of the CEO and the senior management. It is natural to feel this way. So, in this post, I’m sharing the collective wisdom of the YC community to help guide founders on best practices in managing a board––including running board meetings and overcoming board issues. Where possible, I’ve included specific examples – drawn from YC companies and partners – of how companies have handled board issues.
But first, what’s the purpose of a board? The main role of a board is to help guide the company through major decisions, such as hiring and firing senior management; approving corporate actions (e.g. compensation, stock options, and budget); and offering guidance on strategic decisions that impact the business longer term. As a legal matter, every Delaware corporation must have a board once it starts operating. At the start, this consists of the founders and the board functions mostly just as the technical body for approving corporate actions that must follow certain formalities (e.g. option grants). When people refer to setting up a board, what they usually mean is the process of adding outside directors, after the company raises money. These may be investor directors or independent directors.
If you need to have a board, who should be on it? Since the answer depends so much on the particular company and industry, we won’t spend much time on board composition in this post, but the short answer is that the investors who lead your Series A and Series B rounds will typically join the board (later-stage growth stage investors don’t tend to ask for board seats).
A smaller company will have 3-5 board seats and a public company board will have 7-9 seats. The composition tends to significantly change a few years before going public, beginning with recruiting independent board members. Later, as the company grows, specific topical expertise committees (e.g., audit and compensation) will also be formed.
But in terms of how to pick the right board members – for an early stage company – the #1 attribute you need is trust. And the only way you build trust is with time. We recommend getting to know partners at VC firms on your list at least 6 to 9 months before your fundraise. Mathilde Colin, the CEO of Front, shares her experience doing this here.
Before you add new board members, you should have a sense of their strengths, their weaknesses, and whether you would want to work with them for 10+ years––that’s how long some of these boards may last, given the median time to IPO. So, how do you get to know who these people really are beyond spending time with them? One thing you can do is check references with founders that those investors have worked with – just as with recruiting any talent.
Interestingly, many founders feel that this reference check and balance may be causing many VCs to be less transparent in terms of providing feedback with the founders they work with – since they’re afraid of getting bad feedback and losing their next investment opportunity – so a number of founders have started bringing on independents much sooner.
In their series B, Atrium founder Justin Kan added YC partner Michael Seibel––a former co-founder of his at Justin.tv. Similarly, the Brex founders (Henrique and Pedro) added TFG Founder/CEO Victor Lazarte, another founder from Brazil who has known them since the age of 16. The Faire founders (Max, Marcelo, and Daniele) added Brian Grassadonia, who leads Square Cash and was their former manager at Square. These are all examples of CEOs’ desire for deeply trusted independent board directors. Many of these relationships are likened to family relationships, where the family privately shares the kind of direct feedback no one else will. However this does not mean you add your friend to your board. You need someone you really trust, who is 100% independent, and has the ability to help both you and your team as you scale the company.
Below, I’ve tried sharing our advice for managing your board – from how often to meet, to the materials you need – in order to ensure a useful and productive group discussion.
At the Series A stage, most meetings tend to be informal (like 1:1s), ranging anywhere from bi-weekly to even bi-monthly. By the time you reach the Series B stage, however, you should establish a regular meeting cadence: Every quarter, with all meetings scheduled a year in advance to ensure all board members can attend. Ideally, only in person!
As the CEO it is your job to set and own the agenda for the board meeting, which can last about 3 hours.
Be careful not to treat board meetings as a status update meeting, but rather as a meeting where you can openly discuss strategic or tough topics. That’s why the best CEOs tend to allot only the first 45 mins for sharing highlights/lowlights and KPIs (Key Performance Indicators), and then use the rest of the time to deep dive on no more than 1-2 strategic topics.
Here’s an example agenda from the last board meeting I attended for Gusto (a company that offers payroll, benefits and HR for Small and Medium Businesses)––shared with their permission of course!
What this shows is that the company spends no more than 1/3rd of the time on the state of the business, and then the majority of the time on the strategic issues that shape its future. I also recommend identifying and aligning on key KPIs with your board members early as it helps the company standardize reporting across board meetings. It also “trains” board members to efficiently process the most important ones quickly – focusing on the “why” (why did or didn’t you hit certain goals?) – so they can turn to more strategic matters.
What really allows Gusto to pull off their strategic focus within their board meeting, however, happens outside the board meeting: (1) They do a lot of prep work on the areas where they’re seeking input. Ideally this is a topic you’re already discussing with your executive team so the materials can be leveraged for multiple discussions; and (2) They send out a pre-read version of their board deck at least a week in advance, collecting questions from each board member in a Google Doc three days before the meeting. The Gusto team then answers all those questions in the Google Doc by the morning of the board meeting, so the subsequent discussion inside the board meeting can focus on the two most strategic topics.
Getting through the entire agenda effectively requires strict time management. Consider assigning formal time-keeping responsibilities to a rotating member in the room.
The board deck is just a tool for discussion, not an end in and of itself. For the principles of what goes into a board deck, Bryan Schrier from Sequoia has a great post here.
This seems obvious, but is underrated: The structure of the board deck should align with the agenda of the meeting. For example, Gusto’s board decks are 30-50 pages long and typically have the following sections:
Companies usually start planning a month in advance for the board meeting. In the case of Brex, the co-founders, CFO, and Chief of Staff align on the list of topics at least a month in advance and kick off a process to pull the materials together. The CFO leads the charge, working with executives across the company to align on inputs and topics for discussion.
Here’s an example of a prep email sent by the Brex CFO to the team 28 days in advance of the board meeting, because obviously they are working on other things as well so they need that much time to prepare materials in between.
Post-Series B, most companies will have an executive leadership team that helps the CEO scale and grow the company. Note, the general counsel and/or outside counsel can also be invited as part of this. It is important for at least one of the GC and/or outside counsel to attend all your board meetings to capture notes and discuss any sensitive issues that require attorney-client privilege.
Since the board is tasked with scaling and governance, it is important for execs to get to know the board (and vice versa). There are two approaches here: (1) Ask your leadership team to attend the entire board meeting; or (2) Ask only those executives who have a section to present to the board join the meeting for a particular agenda item, for about 45 minutes.
The problem with the first approach of inviting all executives to the meeting is the board meeting can turn into a presentation vs. a discussion. It also becomes challenging for the founders and the CEO to discuss sensitive matters directly.
That’s why I prefer the latter approach, where specific execs join just for that agenda item (usually about 45 minutes). This approach achieves three things: a meatier discussion on the strategic issue at hand; the executives hear the board’s feedback directly; and more time at the end of the meeting for the CEO and the board to discuss other sensitive matters on their own.
Remember: The board meeting is not about selling to your board members. Of course, you want to show off great work and celebrate milestones. But, your board is already bought in, and the highest leverage on their time – and yours! – is in helping you get to the next milestone.
In addition to quarterly in-person board meetings, it’s a good practice to send a 2-page monthly update email (sample here) to the board at the beginning of every month. The email usually includes a summary of last month’s performance; a hiring update; a section outlining burning issues; and a section with specific asks for help.
Brex always makes two specific asks in their monthly emails: potential introductions to business partners/customers, and help with key roles they are looking to fill. In their monthly investor update, GitLab will ask for introductions to specific individuals at companies who can be potential customers — they also applaud specific investors who have helped them in the past, putting pressure on the entire board to do the same.
Getting into a good rhythm of sending monthly updates accomplishes three things: (1) Board members will go above and beyond to help you with your specific asks; (2) The board is better prepared for the in-person board meetings; and (3) It is a great way for you as the CEO to take a step back and reflect on the most important elements of your business and objectively measure how well you are doing as a company. Often writing vs. talking is more effective for showcasing your clarity of thought, and written narrative is more compelling in sharing ideas than bullet points and slides, as Jeff Bezos has argued about memos.
In fact, some CEOs may even use the board meeting as an opportunity to take a step back and write a letter to the board. For example, Peter Reinhardt, CEO of Segment, writes a 3-5 page memo that focuses on highlights, lowlights, and areas where he would like to spend more time vs. where he’s spending time today. He prefers the written format vs. slides in the deck as it allows him to reflect on the quarter and articulate the company’s future. More importantly, he focuses on his own strengths and weaknesses and what he could be doing better as a CEO.
Faire often uses the written memo format to discuss the strategic priorities during the board meeting. The memo sets the context for the discussion, articulates their decision framework, and explains why they are recommending a particular approach. They also write down all the uncertainties and blind spots they have when it comes to making that decision. Not only do these memos help the board prepare for the discussion, but they help the CEO create a record of the quality of their decision-making processes.
Most issues boil down to communication, which is why following the best practices outlined so far can help smooth the way. However, there are a lot of incremental opportunities CEOs may leave on the table when it comes to managing/leveraging their boards — as well as obstacles that come up from frictions or specific issues. I’ll share our collective advice on navigating these below.
Conflicting viewpoints are a good thing! The job of the board is to push you on your strategy and to ask questions that help you sharpen your thinking. As a CEO you should welcome conflicting opinions and should not feel pressure to get the board to come to a consensus decision.
However, if the conflict reaches a point where it is hard to move the conversation forward, offer to take the conversation offline and set up 1:1’s or small group meetings to understand the conflicting views. After understanding conflicting viewpoints, use a decision-making framework (as an example see one below) to guide the discussion.
A YC CEO recently shared how two board members had strong, directly conflicting opinions about the order in which they should pursue new products. The CEO took the discussion offline and came up with a decision-making framework (e.g. economic value, resources, cash needs, and competitive threat) to decide which path they were going to take. Coming up with the framework also made it quite clear which path was the right one for the company, and why. Sometimes the answer is not very clear but a framework is helpful when you decide to go against the board’s advice. Your board members will never be as close to the business to make that decision. While board members provide important input all CEOs should seriously consider, the CEO has the authority to make the best decision on behalf of the company. As long as you have a clear decision-making framework, your board members will understand when you disagree. Also with time if you are more right than wrong about your decisions, the board will be willing to disagree and commit to the path forward.
As you get a better sense of the areas where different board members can be most helpful – whether it’s helping recruit execs, offering fundraising advice, or other areas – don’t hesitate to follow up directly with them outside of board meetings on those topics.
Many CEOs seem to think it’s important to update every board member 1:1 on every topic. To which I say: NO! Not every board member needs to be in the loop on every topic or issue; it’s an ineffective use of everyone’s time, including yours. I also think it is a poor use of time to update every board member 1:1 before every board meeting. Unless there are sensitive topics that need to be discussed before hand, don’t waste time doing 1:1 calls with board members to get everyone on the same page. Allow your board members to challenge you and the team during the board meetings and encourage conflicting views to help flesh out your thinking.
Be cautious of board members who are trying to make decisions for you. A board member’s job is to help you think through the issues by offering tools or decision frameworks––not to give you all the answers on how to run your business.
In fact, great board members will often refrain from stating opinions; instead, they ask questions to help flesh out a CEO’s thinking. My fellow board member at Brex, Micky Malka of Ribbit Capital, does this: Even if the CEO asks for his opinion on, say, “What should our typical credit loss rate be?”, Micky would respond with examples of 10 startups in Ribbit’s portfolio and their trajectory along credit loss rates; share pros and cons of each approach; yet refrain from giving one definitive answer. In doing so, he empowers the founders to make the decision.
As mentioned earlier, backchannel checks are a great way to test for quality and helpfulness, so take the time to do this. But, if you still end up getting stuck with an unhelpful board member, the best way to handle this is to first meet 1:1 and share that feedback, constructively (not unlike running a feedback meeting with your peers or direct reports).
Be sure to focus on the issue at hand – don’t make it personal and/or scattered – and share specific examples from past board meetings where their feedback was not helpful. If you have a good relationship with other members of the board, you can also work with them to understand how to raise the issue with the unhelpful board member.
In some cases, board members may step in and give feedback to fellow board members. But be careful about a board member who tries to work around the CEO. One YC company recently faced this – the board member started having direct meetings with senior management without the CEOs knowledge and jumped to conclusions without full context. This put the CEO in a really tough spot. The CEO used this as an opportunity to have 1:1 conversations with other board members, gather feedback, and directly approach the board member who was being disruptive. It took about 6 months to get the situation resolved and trust was re-established. The CEO worked with the rest of the board to set up a decision framework on when and how the board can intervene. Use every challenging situation as an opportunity to improve your existing processes.
This one is really hard! The situation arises when a board member is destructive to the company – trying to meddle, micromanage, act like an operator running the company – and sometimes even leaking information to the press. If you have tried everything (such as talking to the board member directly) and are convinced that your board member is destructive to the company, then you have a couple of options. I suggest the following, either (1) Approach someone senior at the firm (where the board member works) and seek a replacement or (2) Add more board members (independent or via new investment rounds) who can be a sounding board and help address some of the issues.
If you pursue option (1), you will burn bridges with the board member and potentially the firm. If your company is not in good standing (i.e., metrics don’t look good, and potential doesn’t look great) then it will be hard to find a replacement. You will likely be stuck with your current board member. However, if your company is doing well then you have more negotiating leverage than you think. If your company is one of the best performing companies in the VC’s portfolio, the firm will work hard to find you the board member that you want.
If you pursue option (2), you can leverage other board members to push back when the unhelpful board member is giving advice that is not productive and could hurt the company. At the end of the day, you don’t have to listen to the board’s advice if you are convinced that it does more harm than good.
That said, as a founder and CEO you should work to understand the gravity of the situation. Board members have the right intent––their job and their incentives are aligned to set the company up for success. If all your board members are echoing the same feedback and you are not listening, then the problem is likely you. Some CEOs bring their executive coach to one or two board meetings to get feedback on board dynamics. This may also help calibrate your perception of the board members around the table. I have also seen a few CEOs seek bi-annual feedback from the entire board via the executive coach.
Many CEOs get nervous at the idea of board meetings. But they’re a good thing. They remind you that you are not alone. Your board of directors – when composed and managed well – is dedicated to your company’s success, which means they will challenge you to make better decisions but are on your side as long as you are being ethical and doing the right thing for the company. And of course, what is considered an effective board will evolve over time as the company matures. But, you can be intentional in building the right team of advisors up front, using the best practices outlined above. If knowing is half the battle, why not enlist the best help you can get?
Special thanks to Justin Kan, Sonal Chokshi, Ali Rowghani, Daniel Gackle, Adora Cheung, Craig Cannon, Gusto, Brex, Convoy and Faire founders for reading multiple drafts of this essay. Thank you to numerous YC founders for sharing their perspectives on this topic.
Anu is a Managing Director & Partner at YC Continuity. Previously, Anu was a Partner at a16z, where she worked actively with the management teams of companies including Airbnb, Instacart, and Medium.