Startup Boards. Brad Feld
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a significant impact on costs.
The cost of indemnifying directors and officers.
Defense costs only or defense and damages? Watch for limits and exclusions. The broader the coverage combined with limited exclusions translates to a high premium.
Exclusions state things not covered by the insurance policy. These can include misconduct, blatant fraudulent acts, willful breaches of laws, or criminal conduct. Also, certain exclusions can eliminate coverage when one director sues another, or the corporation sues the director.
Selection of counsel: In some policies, the D&O insurance company has the right to select defense counsel, similar to your car insurance company picking the shop that can repair your car when you have an accident.
The process of filing claims, approving defense expenses, or conditions of denial of coverage need to be understood clearly.
Ensure that the corporation's general liability coverage insurance policy does not duplicate the coverage with the D&O policy. It's easy to get overinsured and pay too much when your insurance broker is eager and not acting in your best interest.
An insurance broker will identify the insurance provider and offer a quote. Your board should be actively involved in studying the various options and the selection of an insurance carrier. Don't change coverage or let the policy lapse without input from your board.
Note
1 1. Seth Levine, “Joining the B Team,” VC Adventure, May 18, 2016. https://www.sethlevine.com/archives/2016/05/joining-the-b-team.html (accessed January 17, 2022).
Chapter 4 Board Member Roles
A board without defined roles will never be as effective as one that has defined roles, even in its simplest structure. There are different ways to assign roles to directors and rotate them through these roles. Being clear about roles and expectations is critical, so board members know their responsibilities.
Chair or Lead Director
Boards need a leader. Historically, this role has been titled “chairman,” although we prefer to shorten it simply to “chair.” More recently, as the debate over the split between chair and CEO has intensified, a new construct, a “lead director,” has emerged. For most purposes, “chairman,” “chair,” and “lead director” are interchangeable.
While a founder or the CEO is often also the chair of the board, there are plenty of situations where you want a board chair to be different from the founder or CEO. For some investors, this is a requirement for them to invest.
If your lead investor has experience as a board chair, that's often a good solution. However, many VC investors have no experience as a board chair, lack an understanding of the role of a board chair, or have a history of overplaying their role as board chair. You may run into the VC or potential board member who says, “I'll only serve on your board if I can be the chair.” Be wary of this and do your diligence into the person as a potential board chair.
A board chair's role differs from that of the other board members and requires subtle and deft interpersonal skills. The following are characteristics of a good board chair:
Ensures Alignment: The board exists to help the company be successful. But definitions of success vary. A good chair keeps an eye on the big picture and ensures each meeting is a step in the right direction by working with the CEO on the meeting agenda. When someone gets off track, derails a meeting, has a divergent agenda, or causes other random disruptions, the board chair refocuses the board meeting.
Is a Good Facilitator: The board meeting is where information is shared and decisions are made. People want to be heard, yet loud voices often drown out quieter ones. Some board members focus on showing how smart they are, while others lock horns around trivial issues. A good chair allows all voices to be heard, draws out the quieter participants, and gets all the relevant information on the table while driving the discussion to a decision.
Is a Proactive Communicator: A good chair manages all one-on-one communications proactively with the CEO. While any board member can choose to mentor and guide the CEO, the chair has special responsibility for synthesizing all of the feedback and delivering it to the CEO consistently.
Helps the CEO Set the Board Agenda: While the CEO will set the agenda for each board meeting, the chair helps by collecting feedback from other directors about what they want to cover. The chair then helps the CEO create an agenda that will effectively engage board members in a vibrant discussion.
Manages the Clock: Board members are busy people with significant and conflicting demands on their time. It's essential to begin and end the meeting on time, conforming to a predefined agenda and moving the conversation along when it stalls.
Maintains Culture and Hygiene: As an advocate for the company, the chair creates and maintains a positive and constructive culture, especially in times of challenge and stress. Wasting time, allowing a hostile dynamic between board members to become the norm, alienating individual board members, or overemphasizing individual flaws are not helpful.
Helps the CEO Process Board Feedback: The chair is responsible for gathering feedback from other directors by taking notes in Executive and Closed Sessions and spending time with the CEO after the meeting to debrief that feedback.
Following are some thoughts from Karen DeGolia (Vontier, Board Chair), who has been a chair or lead director multiple times.
The role of a lead director is to make sure that the board is completing its work of governance, making sure the agenda properly reflects what the company needs to communicate or get approval for, as well as what the directors want to know. It also involves working with the CEO to make sure that the interaction between the CEO and the company is effective, helpful, and productive for all parties.
The lead director often becomes a very trusted confidant for the CEO, which is somewhat of a lonely job. As CEO you can't really confide in most of your direct reports on every topic and the chair or lead director is the person that you can confide in. It's really important for the CEO and lead director to have a great interpersonal relationship that allows that CEO to actually be vulnerable and share what they think is working well or isn't. The lead director can collaborate to find good solutions to assist the CEO in their work.
An effective lead director needs to have excellent EQ (emotional quotient) because you need to be able to understand where the different parties (directors or management) are coming from and help work through discussions to resolve issues in a way that makes everyone feel that they've been heard and that all elements were considered. It's important to understand where people are coming from and make them feel that the time that they commit to is productive and valued. That takes a fair amount of listening and humility.
Finally, a good lead director realizes that it's not about them. In order to be successful, the lead director should walk into a room with a team, rather than a power, mindset.
Karen DeGolia, Vontier, Board Chair
Executive Chair
The executive chair is a chair who is an active member of the management team rather than an outside director. Often the executive chair is a founder of the company and can often be the largest non-investor shareholder in the business. It can also be a founder who was previously the CEO but has handed that role to another founder or hired someone to be the CEO. An executive chair can be a full-time or part-time employee of the company, but in either case, has a significant role in some aspect of the company.
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