Anticipating a New White Paper Addressing Venture Governance and the CEO Succession Challenge

A recent post on Brad Feld’s blog anticipates the upcoming white paper that I will be releasing later this fall on the subject of managing CEO change in venture companies.  The paper is close to finalized, and Brad’s post shares the contributions made by his partner, Heidi Roizen, to the project.

To provide a little more color on the scope of this white paper—the final title is also still a work in process—it  makes the case that the key to successfully managing CEO change in venture companies is to anticipate it constructively by distinguishing between late-stage symptoms and the early warning signs of its fundamental causes.

It is the result of collaboration between VC’s, CEO’s, and other technology industry investment professionals—each one of them will be acknowledged in the document.

Below, I have excerpted a few paragraphs from the paper to give interested readers a little flavor of what is to come—

“As a director, how do you know when it’s the “right” time to make this difficult choice?  Conventional wisdom has it that you make a CEO change when the company fails to “meet the numbers.”  If meeting the numbers is your benchmark, you’ve missed the fundamental causes and are looking at the symptoms of the disease when it’s already too late. …   

Venture capitalists can increase the chances for a successful CEO transition by watching for early warning signs of trouble ahead. Knowing when it’s time to change the CEO and acting decisively before the company is in acute crisis can mean the difference between success and bankruptcy.  It is the responsibility of the venture board to make the correct choice and to execute on that choice in a timely manner.

The simple truth is that replacing a CEO requires engagement, confrontation, follow-up, and resolution.  This type of confrontation is unpleasant, as it strains the personal relationships between individual board members, between the board as a whole and the extended senior management team, and, of course, between the lead director (a.k.a the “bad guy” or “enforcer”) and the exiting CEO.

This is not to argue that venture boards should fire CEO’s at will.  On the contrary, venture directors need to be very deliberate and systematic in assessing the CEO’s strengths and weaknesses and determining whether this change is, indeed, necessary.
When CEO skill deficiencies are identified, another alternative to replacing a CEO is to examine the executive team to see if the ‘yin’ to the CEO’s ‘yang’ exists, and explore whether that complementary executive staff member can play a more prominent role in shoring up the CEO’s weak spots (assuming the CEO does have other stellar qualities that would argue for their retention). Some boards focus totally on hiring the right CEO, but then abdicate on making sure that the right executive team is put in place.  While the composition of the executive team should absolutely remain the CEO’s choice, an informal interview process that engages selected board members can allow the board member to circle back to the CEO and identify the areas where the CEO is not hiring to balance their own weaknesses.  Conversely, beware of the CEO who clearly hires weak players and who restricts board member access to senior team members before and after they are recruited.”

My previous white paper on the topic of corporate governance was very well received and continues to generate positive comments from entrepreneurs and VC’s.   Based on the substantive interviews and discussions with fellow VCs and other domain experts in the areas of corporate change management and entrepreneurship, I expect this paper will be constructive, useful and relevant. If you are interested in receiving a copy of it when it is completed, please send me your email, and I will get in touch with you at that time.

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