Maintain Flexibility in Choosing the VC Board Chairman

A few weeks ago Brad Feld posted on the topic of separating the board chairman from the CEO position.  The post (link here) advocates that, as a best governance practice, VC-backed companies should move toward a normal policy of separating the chairman of the board from CEO position.  This is similar to the trend that has gained widespread acceptance among public companies.

The blog post outlines specific duties for the board chairman and also notes that a lead director should be identified on the board as a general focal point to aggregate the opinions of the other directors to raise questions and build consensus on various issues.

I agree with this as a desired objective and an optimal best practice, but I think that VC boards need to remain particularly flexible on the application of this point because reality often gets in the way of best practices.

In my experience, VC boards have a little more latitude on the Chairman/CEO split than other companies for several reasons.  First and foremost is the issue of strong VC and tech entrepreneur personalities.

Boards are small groups of people. In VC, they start out particularly small, growing from 3 people to 5 people and then to 7–  hopefully not much larger than that.  The problem with the blanket application of this best practice is that the theory may not map to the reality of the personalities on the board.

For example, your default lead director (the largest shareholder or leader of the last major financing round), who may be highly visible in the VC community and generally revered by everyone else on the board, may also be serving on 7 to 10 boards.  As a result, he or she may not be available to assume all of the chairman’s delineated responsibilities, attend all hands employee meetings, and generally be as involved as the titled chairman should be.  Making someone other than the CEO chairman, however, could personally offend the lead director and poison the personal dynamics of board meetings.

Hence, the alternative default would be to make the CEO the chairman of the board– maybe this is one reason why so many CEO’s also serve as VC-backed company board chairs.

Another possible problem could be caused by the appointed VC chairman who does not respect the rest of the board members as peers– consider situations where some of the board members are junior VCs from a co-investor where the investing partnership is just happy to be sitting at the table with "Him".  In this case, the chairman might feel that it is beneath him to proactively call the junior VCs and see how they feel about a certain issue.  The chairman might have concluded that, "they are going to follow my lead anyway, so why waste my time talking to them, I have more important things to do."  This leads to lack of communication and mis-communication, not to mention systematic board dysfunction.

The most important point is that SOMEBODY absolutely has to do all of the things listed in Brad Feld’s blog description of duties for the chairman and the lead director.

In my view, you need to pay attention to the specific personalities around the table before you scramble the omelette, and keep some flexibility as you go through the process of building your board. In the Levensohn Venture Partners portfolio, we have companies where the chairman is the lead VC, one where the chairman is a former CEO, and others where the CEO also serves as chairman.  Any one of these structures can work, depending on how the nuances are managed.  Start with a candid assessment of who is at the table, how are the individuals most likely to interact constructively with each other, and ask yourself "where are we likely to encounter problems?"  You should measure your board against the standard in Feld Thoughts, but implement what you think is going to work best in the field.





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