I think communication is a critical factor in the success or failure of a startup.  I guess I would phrase it as “over-communication”, with over-communication typically being associated with successes.  Prior posts have touched this topic, namely 3 Up / 3 Down and The Weekly Update.

Most of the written communication falls on the CEO of the company, but there is one practice that should fall on a director who is not the CEO.   It does not matter if this director is the “lead” director or chairman.  In short, after each board meeting, a director should promptly write an email to the entire board (including the CEO) with follow-up and action items coming from the meeting.  The email is typically short and often just a set a numbered points.  Importantly, the numbered points are not just for the CEO and his/her team to perform.  They may also task other board members.

The goal of the post-board meeting email is to make sure that everyone is on the same page.  This is really helpful for the entire board team, including of course the CEO.  Hopefully your board meetings (assuming you have outside board members) conclude with 2 “executive sessions”.  One with the CEO and no other management team members (and that might mean excusing another board member if he/she is also on the management team; and it certainly means excusing any other non-board member attendees who are present, except for contractual board observers, if any) and then a final session without the CEO and just the non-management board members.  The post-board meeting email should also appropriately address any issues surfaced in the final executive session as well.  This is a way of reporting back to the CEO.  Sometimes it is not appropriate to address all issues in this group email, particularly on points that are critical of the CEO and thus often handled one on one.

When I have been asked to write the post-board meeting email, I often run a draft by one other director before sending it off to everyone.  Nice to get another set of eyes to catch any missed items, etc.

Good practice to consider.

I was talking with one of the CEOs that we work with the other day about the “weekly update”.  See https://ithacavc.wordpress.com/2011/02/28/the-weekly-update/.  This post presents a variant to it.  Don’t get me wrong, I still love to get weekly updates and still love the purposes they serve.  The critical purpose on top of my mind this morning is “unity”, as in getting the entire team unified on an ongoing basis.  The team is not just the board, but the whole management team as well.  I encourage CEOs to send their weekly updates to their management teams (sometimes editing is necessary, but not often).  The “unity” purpose falls under “amazing communication tool” that I wrote about in my earlier post.

3 Up / 3 Down is a variant of the weekly update (perhaps call it the little sibling – not quite as mature as big brother or sister).  In total it might be 6 sentences (yes, even a recovering lawyer like me can do that math).  On Sunday night, as a way to start off the week with a unifying message to the team, I am suggesting that CEOs (or other person in charge of the update though typically it is the CEO) who have been unable to write a full one page update (and the best updates are not longer than one page IMO), simply write down the 3 things that make them feel up and the 3 things that make them feel down…….and then press “send”.   Obviously the points should relate to the business.  And my guess is that this should take between 5 and 10 minutes max.  Once sent, the board of directors will know what is on the CEO’s mind, the management team will know as well and the CEO will be building unity (among other things).

Now that I have suggested this, I am going to start doing it by sending my 3 Up/3 Down to my venture fund partners.

Hypo:  you are CEO at a venture backed company and you receive a term sheet from a potential investor that has unacceptable terms.  Do you share the term sheet with your board or do you try to negotiate it first and then disclose?  Not always an easy decision.

This is just one hypo out of many that address the same question, namely, when, as CEO, should you share a given piece of information with your board of directors (and let’s assume your company is venture backed and you have VCs and independent directors on your board)?

Let’s set the basics on two issues.  First, board members owe fiduciary duties to shareholders (and critically to common shareholders).  In order to exercise those duties (in particular the duty of care and duty of loyalty), board members must be fully informed.  For example, if the company is moving down a path with one party (for example, a strategic partnership) and then another alternative presents itself (a competing strategic option), the board will need to understand both alternatives in order to properly make decisions.

Second, the board is the ultimate decision maker at company on strategic issues and non “day to day” issues.  The board hires and fires the CEO.  The board hires and fires other officers (think VPs) after recommendations from the CEO.  The board approves financing and sale terms.  The board approves approves “important” agreements with third parties.  The board approves overall strategy and spending to execute.   The board approves “significant” deviations from budget.  These are just some examples.

But, what is “important” and what is “significant”?  In other words, what should the CEO necessarily present to the board members?  Unfortunately there is no bright line test, and answer falls into the same category as the infamous US Supreme Court text about pornography – “you know it when you see it”.  That is not always helpful to a CEO because different directors have different senses of sight.  And different CEOs will have different views of appropriate level of board member engagement.  Some will engage often on most issues and some will inform later on most issues.  And some will be in between.

If I were a CEO of a venture backed company, here is a disclosure test that I would try:  if i were a board member (and not CEO) would I like to know the given information from the CEO?   Just put yourself in the non-CEO board members’ shoes.  Keep in mind that disclosure can be painful for the CEO because disclosure will lead to questions and answering questions can be a time sink.  Yet this can be curtailed by qualifying the disclosure.  For example “here is a competing term sheet with some unacceptable terms as follows [X, Y and Z].  I am going to try to negotiate and see where it gets us.  It would be more productive to discuss after that happens, but if you have any input in the meantime, feel free to give it”.  Here the CEO has basically told the directors to stand down, but has also fully informed them.  To me that is a win-win.  This is important as I have seen situations where directors have wet noodled a CEO for not disclosing early enough.  The disclosure essentially protects the CEO from criticism and allows the directors to do their job.

So, not surprisingly as I am a board member for many companies, I think that disclosing early and often is safer and the more prudent course.  People will differ for sure on this point, but over communication to your board is rarely a bad idea.

This topic is complex, and I bet there will be more disclosure on it.