Board of Directors: The Chairman

Rob Shurtleff – a VC in Seattle with Divergent Ventures – whom I’ve gotten to know over the past year, dropped me a note with some ideas about a few posts in the Board of Directors series that Jim Lejeal and I have started writing. The first topic Rob suggested has evolved into the a post titled “The Chairman”. Through the magic of Writely, I’ve involved him into a group edit on this post – what has resulted is a collaboration between the three of us.

In the public company arena, more and more companies are separating the Chairman of the Board position from the CEO. It turns out that this trend has benefits for earlier stage companies too. We believe that all CEOs – regardless of their experience – benefit from having a lead director on the board. In general, it has been our experience that boards (and the board meetings) work better when there is a Chairman in charge other then the CEO.

Some specific roles for the the Chairman follow:

  • Collects input from all directors and management on the board agenda – this facilitates surfacing difficult issues.
  • Creates the board meeting agenda with the CEO.
  • Runs the agenda of the board meeting, holding items to schedule or extending the time spent on them if the consensus is to spend more then the appointed time on an item. This frees the CEO to focus on content and allows the Chairman to keep the meeting on track.
  • Hosts an executive session without management at the end of the meeting in order to gather feedback, surface issues, and frame constructive feedback for the CEO and the management team.
  • Reports any relevant feedback to the CEO.
  • Collects input from the board and from the senior management team for the CEO’s annual review, writes the review, presents it to the board for approval, works with the compensation committee on CEO bonus and changes in compensation, and finally meets with the CEO in a formal performance review.
  • Heads the search committee when hiring a new CEO.

In addition to being a focal point for the board, The Chairman can also be a critical mentor for the CEO. As a result, he should be a consensus choice of both the board members and the CEO. In addition, the Chairman should be a person who is made visible inside the company – such as attending and participating in all hands company meetings. The Chairman should make themselves easily available to employees (via in person, email, or phone) at any time. If bad things are happening within the company (e.g. date manipulation of stock options) employees should have a person on the board – namely the Chairman – that they are comfortable going to with any issues.

Some of the CEOs we have worked with have resisted this idea. Most have come to see it as a big plus. We’ve also found that – in most cases – boards also benefit from having a lead director as a focal point.

  • Separating the Chairman of the BoD is a very good idea, in fact, I think it is a necessity to good corporate governance.

    In Denmark (and–as far as I know–most EU countries) is it illegal to be both the CEO and the Chairman of the same company–these two roles are required to be separated by law. The reason for this is, of course, to prevent conflicts of interests and other types of abuse, especially of the shareholders of the company.

  • Excellent post. I had this situation at my last startup. It worked very well up to a point. I also look at part of the job of the entire Board is to help make the CEO successful, however he shouldn’t interfer in the strategic direction of the company. That’s the CEO’s job.

  • Dave Jilk

    I’d claim that the Chairman is ideally an independent director, rather than a major investor. Given that the purpose of the role is to facilitate the board’s activities, having a Chairman who may have a separate agenda from the CEO will make the board and board meetings even more political than they need to be. Particularly in a VC-funded company with more than one VC, I would think it would almost have to be an independent.

  • Lucinda

    awesome, incredibly useful post. in my last company i had a relationship with my chairman that was similar to what you describe, although without the formality. it worked extraordiarly well and probaly would have been even better with the structure you define here.
    i am now chairman for another start-up and i’ll be talking with the ceo about using this approach. i wish i’d had this kind of structure the first time i was a ceo – instead i had the founder as chairman, which was really in title only.

  • Garett Wiley

    I confess that I don’t find this idea controversial at all (I am an entrepreneur.) I think it would be interesting to generate some commentary on who, exactly, should be Chairman in an early stage company. Clearly, Sarbanes-Oxley and other developments are leading early stage companies to separate the Chairmain and CEO role. A good practice, certainly, for a variety of functional and corporate governance reasons as outlined in your post. However, more importantly, should the Chairmain role go to a venture investor or to one of the independent directors? Why and why not?

  • Rob

    Garett, i completely agree with Dave’s comment above.

    The ideal Chair candidate is an independent director, although i have worked with a couple of great chairman that were from the VC ranks. They happened to be very seasoned and had the time to devote to the job. You can’t be a good Chair and be on a bunch of boards, unless everything is running great and there aren’t big challenges, which doesn’t happen very often, even in great companies.

    More then any other quality, they could put themselves above the fray and work for the best interests of all the different constituencies. This takes talent, maturity and considerable innerpersonal skill.

  • In most of my startups, I’ve had both roles.

    Nevertheless, I agree with you guys: once there are any outside investors, the role should be split (If I funded my own startup, will keep both roles until outside money comes in).

    If possible, independent investor or advisor capitalist should be the chairman. VCs have a responsibility to their LPs which may conflict with chairman’s role.

  • Good description of how a chairman can help, but I confess that (at least in Europe) I’ve rarely seen a chairman that sufficiently disciplined and process-oriented to run a board as effectively as you describe. So the actual benefits of having a chairman, especially in growth companies, are typically less obvious. Perhaps we need to wait for a larger class of experienced Directors/chairmen.

  • If the Chairman is an independent director, and puts in the time commitment that it takes to truly support the CEO and the team (one day a week-ish ?), then yes that contribution can be extremely positive.

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