I expect The Chairman post I just put up will be controversial.  If you have a different perspective, or a bad experience with a board that has a chairman, please feel free to weigh in.

Also – I’m still thrashing around a little with Writely and its blog posting feature, so if you got two copies of the post in your feed (one starting with the title “Rob Shurtleff – a”, please ignore that one – the correct post is “Board of Directors: The Chairman.”

And – no – not all of the boards I sit on have a 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.

Jim Lejeal and I have worked together for almost a decade – I was one of the investors in his last company – Raindance Communications (now part of West Corp) and am an investor in his new company, Oxlo Systems. Jim also has a lot of experience as an angel investor and a board member for startup companies. In response to my other posts on boards, Jim suggested that we co-author a “Board of Director” series similar to several other series – such as the Term Sheet series, the Letter of Intent series, and the 409A series that Jason Mendelson and I have written. A few emails later, we had a rough outline. We hope you enjoy it (and feel free to suggest topics.)

In understanding the role of a board and blogging about good board meeting practices – we thought it would be beneficial to start by reviewing some basics surrounding the notion of “being a board member”; specifically a board member’s fiduciary duties.

A board member’s fiduciary duties are based in or upon what’s called the business judgment doctrine. This is a case law derived concept that, through time (a long time actually) has declared two primary duties: the duty of care and the duty of loyalty. Recently, there has been some discussion around two more duties (specifically – the duty of candor and the duty of good faith) which we’ll cover in a later post.

The business judgment doctrine is essentially a concept in business law that outlines the notion that a court won’t review the actions of a corporation’s board of directors in managing the corporation unless someone suggests that the directors 1) violated their duty of care or their duty of loyalty or 2) made an irrational decision.

In direct terms – this means a court won’t play 20/20 hindsight and rethink a board’s actions or decision if it’s reasonably clear that the board made rational decisions and acted within the notions of their fiduciary duties. Implied in this are standards of conduct that, having been broadly explored in many courts, are generally well understood (although this doesn’t prevent endless shareholder lawsuits around directors responsibility, especially in situations where a public company fails and there is a meaningful director & office insurance policy in place.)

We decided to start here because being a board member means doing work. And it’s work that has real risk associated with it. Taking a board set without being familiar with these fundamentals is sort of like performing a laproscopic gall-blader removal procedure after two years of medical school – you might be able to get through it, but it won’t be pretty, and the patient will probably be miserable. While the fundamental risk dynamics – especially today with the legal and regulatory overhand of Sarbanes Oxley – differ between public and private companies, the responsibilities are the same. That said, our perspective and experience derives primarily from private companies (although both Jim and I have been on public companies boards) – that will be the focus of this series.