Beyond the Boardroom Buzzwords: Navigating the Complexities of Startup Governance

In light of the governance challenges that OpenAI has encountered recently, media scrutiny of venture boards – those steering venture capital-backed companies – has intensified, unleashing a flood of guidance on the inner workings of board dynamics. However, I find myself at odds with much of this advice. It mixes structural board components, such as member recruitment and meeting management, with team-building tips, such as creating a safe environment and nurturing trust. And often there is an unhelpful sprinkle of basic director role advice, such as directors should be aligned, provide a friendly challenge, and hold the management to account.

This resulting menagerie of tips is quite confusing. Too abstract and difficult to apply, particularly, when I find myself not looking forward to certain board meetings, where input from the board is frustrating because it is more of common sense than insight, and I feel drained afterward, thinking the whole ‘board thing’ is just not working.

To grab the reader’s attention with quick and simple solutions, most startup board advice gives a false impression that venture boards are easy. As the recent debacle with OpenAI has shown, boards are anything but easy, and far beyond the grasp of ‘5 tips to make your board more effective’.

Making Sense of Board Advice: The Startup Governance Stack

Venture boards are complex decision-making systems overseeing a high-risk race from startup to growth. What happens on venture boards is a result of a nuanced interplay of people, shareholder power structures, and the board’s operational processes. To untangle this, and to get better at deconstructing the jumbled advice, I found it useful to think about startup governance as a stack, drawing inspiration from my tech dev days at Accenture:

“Stack – is a layered structure of components that work together. A basic tech stack typically has front-end components, back-end components, and some middleware.”

So, the Startup Governance Stack would look like this:

Back-end: Investment Terms

The foundational layer is comprised of investment terms that dictate board composition and power dynamics. Preferred shares, voting rights, and liquidation preferences are all powerful motivators of director behaviours, impacting board decisions and the direction of the company.

Middleware: Board Processes

These are formal and informal ways of guiding how the board works, from board packs to meeting conduct. We have decades of research and practice on the effective operation of the board from the experiences of corporations, non-profits, and family-owned firms. These principles are transferable, and equally apply to venture boards, but must be 'fit for purpose' of the startup’s stage of development.

Front-end: Board Members

The people are, arguably, the most critical layer of the stack. Each director brings unique skills, experiences, and values, to the boardroom. Together, the board, as any other group of people, also develops a certain level of cohesion, interpersonal relationships, and own culture of learning, adapting, and how things are done. These group norms, in turn, have a huge influence on the motivation and satisfaction and overall group’s ability to work together as a board. The board is not a team, but that’s a topic for another blog post.

The Governance Stack: Go-To Sorting Hat

I read a lot about startup boards, and I find the Governance Stack is my go-to ‘sorting hat’ of the multitude of tips and advice that I come across. It helps me figure out which layer the tip addresses, and then think about the bigger picture of how it would interact with the other layers.

The Governance Stack is also helpful when I look for guidance, especially after experiencing a challenging boardroom situation. The search for help becomes more straightforward, and the results more useful and applicable, when I focus my search on an individual layer of the stack or its components. For example, Board Intelligence has some best-in-class advice about board packs, meetings, and all other board processes. Intended and unintended consequences from the investment terms are rarely talked about because of confidentiality, but several cases are vividly described by Evan Epstein in his podcast Boardroom Governance. Advice about people on boards is best found in real life. My Women on Boards peer support and learning group is a great resource where I go for a mentoring conversation about all people-related challenges.

The boardroom dramas at places like OpenAI, WeWork, and Uber have really sparked much-needed conversations about how startups run their boards. And that's a good thing. I just hope the board advice out there also soon evolves beyond superficial buzzwords and team-building platitudes, and starts getting deep about the tricky stuff that goes on behind those closed doors.