Board Members | Hacker News Reader

Board Members

blog.samaltman.com

75 pointsBIackSwan33 comments

I feel a bit foolish for asking, but what exactly do board members do?

Does each board member have one vote? I assume events (key hires, acquisitions, investments) are brought to the board for a vote, and need to pass with a majority. Is there ever a case where a single-founder could have multiple board seats? Do board members vote on product/marketing decisions?

Great question!

And then why can't this model of board (of Directors) be reconsidered and perhaps reinvented? What makes for the need to have a board and what other alternatives to a board does an entity have?

I'm sure someone here knows about the underlying concepts about Companies & Corporations and can answer this.

It's a requirement of Delaware corporate law to have at least one board member. In theory, the board is there as the elected representatives of the stockholders, to make sure that management is acting in the best interests of the stockholders, and to replace management if that's not the case.

In other kinds of entities, like an LLC, the company can be managed directly by the members (stockholders), but that's not very efficient for larger organizations, since you'd have to get votes from the whole group of stockholders for everything instead of just having a small group vote at regular meetings.

The board is responsible for approving all major company actions that aren't delegated to management. In practice, this is mostly: approving option/stock grants for employees, approving financings, hiring and firing senior executives, setting budgets and financial plans, and overseeing the work of management to make sure they're doing what's best for stockholders, and generally talking with management about strategy and plans. They also typically give a lot of help with important hires and making introductions for financings and sometimes business deals. There's no formal vote on other stuff like the product/marketing decisions you asked about, but that would be discussed at board meetings and between them as well, and board members give lots of advice on these topics.

Board members almost always have just one vote each, because its a pain/legal expense to set it up otherwise, and folks hold just one seat each.

Follow-on question: do the shareholders usually have the power to redraw the board? Say you own 60% of the company but only 1 of 3 board seats -- could you overrule the board members or fire them if you felt it necessary? Does the board ultimately answer to the shareholders?

I imagine that this equity and board seat distribution could easily happen with a solo founder.

Yes, the board is elected by the stockholders.

Absent an alternative structure, default corporate laws provide for the directors of a company with only one class of common stock to be elected by majority vote of the stockholders.

However, there are all sorts of alternative structures that can alter this default. For example, it is common in a VC-backed company that preferred stockholders are given the right to designate a specified number of board members. The right is usually laid out in the company's certificate of incorporation or a voting agreement among the stockholders.

Source: I am a startup attorney.

Do they get paid by shares or salary? I mean is it a viable alternative to having a "job"? I see many people around sitting on multiple boards of companies.

It's not a full-time job by any means. It's often semi-retired people in their '50s or so.

If you are a investor in the company you usally don't get paid, just your trip expenses.

If you are an external member, somebody strategic to the company, you get paid either by meeting or some shares. Usually all board members in public companies are paid with cash.

No. VCs always get preemption rights, and always refuse to give up their board seats once they get them.

Replying to the OP a few threads up:

> I assume events (key hires, acquisitions, investments) are brought to the board for a vote, and need to pass with a majority.

There's an extremely common founder misconception that board seats are required for investors to be able to have a say in whether acquisitions and investments happen. But it's not true!

The normal pre-emption rights that every investor gets are what's used for these cases. Board seats are not required for this and unrelated to this.

In more mature companies there will be certain levels of decision delegation, usually tied to CapEx approval or the like, that require board approval vs. senior delegation vs. mid-level delegation. For example, it may be that mid-level managers can approve $10k spend, VPs can approve $1m, EVPs can approve $10m and the board must take anything higher.

This usually dovetails in with project management stage gates, in that for the project to progress to a latter stage, it must pass the financial stage gate to secure funding for that stage. To get that funding then triggers the aformentioned approval process.

Other decisions that may go to the board are executive team hiring, or the approval of major policy.

In start-ups, that's obviously going to be different but hopefully that paints the idea of what a board does. It's essentially a semi-democratic leadership structure for companies, rather than having a single founder run the show. By diversifying that decisionmaking process you, in theory, avoid the big blunders falling on a single person.

This is solid advice. I had one of my mentors put it a really elegent way : "Your board should consist of people who fix your weaknesses". Don't have a lot of business contacts? Get a board member who has a huge network. Lack marketing knowledge? Get a board member for that. In a lot of ways its like getting venture capital; wherein you should gather venture capital from experts in the domain you are trying to enter/execute in. Although Im not currently building a board my current venture, this is always one thing that I struggled to find information on: building a board. Maybe I should get a board member who knows how to make a great board...

Strange article. Is this meant primarily for YC companies, or generally? Sounds like advice that's only applicable if you're dealing with very reputable top-tear investors.

My experience: Giving investors substantial control doesn't just give them an ability, it gives them a liability to their LPs. If something goes wrong in the startup, and everyone knows that the board members could have potentially taken drastic steps such as firing the founders to possibly prevent the bad situation, even if the possibility is very small, then that responsibility weighs heavily on the VCs. Giving them substantial control, gives them a big responsibility to fix problems and only a loaded gun with which to fix them.

Just a guess, Sam's advice seems like a classic type of VC advice - do riskier things, because although it will likely end up bad for you individually, we're well diversified and it increases expected value for our VC portfolio as a whole. Suppose that's a big part of the reason why he's the spokesman for YC now.

> Finally, board members stick with the company when things really go wrong, in a way that advisors usually don’t.

Nice choice of wording, they stick with the "company".

> As a side note, bad board members are disastrous. You should check references thoroughly on someone before you let them join your board.

That sounds like more than just a little side note!

Here's the other side of the debate:

http://www.paulgraham.com/control.html

http://blogs.wsj.com/accelerators/2013/06/17/steve-blank-don...

http://venturehacks.com/articles/one-way-control

http://venturehacks.com/articles/board-structure

I tend to think about this topic as an 'independence spectrum' where YCombinator seems to suggest your independence should be somewhere in the middle.

The spectrum is this:

Being an employee -> being a founder with no majority in the board of your own company -> being bootstrapped, full control

I remember when pg wrote the piece 'you weren't meant to have a boss' which was extremely heavily against 'being an employee', while this piece by Sam Altman seems to be against full control as an 'extreme case'. (For me it is not extreme at all, on the contrary, it is the most natural thing on earth, as natural as the examples in pg's piece about "you weren't meant to have a boss")

I symphathise with having full control, although I can see that you have to make compromises in life; (that's the reason I am an employee now, but at least I have full control in my side project :) )

I can't help but think that, even if YCombinator is the same it has always been, I honestly do not understand the culture they are trying to foster. Is it that you weren't meant to have a boss, or that smart investors make good bosses (have a whole group of them, even if it costs your company money). I have noticed the average programming chops of a YC founder has gone down a lot, and I thought that was a group core value, and remarkably close to mandatory.

I hope YC is both a financial success and changes the lives of the founders in the program for the better. But it isn't something I would apply for anymore. I feel like, as someone who wasn't popular in school, but loved lisp, I am no longer part of the in-group, because I don't have experience with Finance or Sales.

> It’s a good idea to keep enough control so that investors can’t fire you (there are a lot of different ways to do this)

Such as?

Different classes of stock is the Google and FB way, IIRC.

http://blogs.wsj.com/deals/2012/02/01/at-facebook-governance...

As I understand, Sam would rather that you not do what Zuckerberg has done. Zuckerberg can't just not be fired because of the things he's done in terms of how he has set up the governance structure, he can also acquire whatever company he wants, block sale of any part of Facebook, etc. with or without the support of the board. Sam, I think, does not want you to have this power. So the question still remains.

It's religious zeal verses rational waffling. If big Z is perfect forever, there's no issue at all. He will, by default, do whatever is best for his company in any circumstances. That approach can be amazing or howard hughes like.

On the other hand, you dilute power between an array of smart talented people. Any action requires consensus. In the best case, you get congress when passing a "think of the children" resolution. In the worst case, you get congress with pretty much any other piece of legislation.

For all of Howard Hughes unusual personality traits he was until the end a very good business man. It will be interesting to see if the big z gets close to Howard.

I wonder why making all stock non-voting don't tend to be used.

I think it's simply that it's harder to find buyers for that kind of stock. And finding buyers for stock in a high risk enterprise is already a pretty difficult task.

I like what Sam says here, but how would the founders know the new board member is the right fit for a particular startup..would you interview(if so how?) or ...? would love hear what Sam has to say about that.

Yes, you "interview" board members like you would executives. You also check references, like Sam suggests. It's like hiring anyone else.

Apparently YC has an internal "bad investor list", as well as a huge network of easily accessible founders who've dealt with the majority of the investors in the area before.

Presumably, us normal outsiders would have a tough time approaching this level of background checking. I wish something like this bad investor list could be done publicly too.

As for interviewing VCs as the primary method, that must be a joke. They're professional salesmen and always act like your best friend when you're signing. VCs mostly get to where they are for 2 reasons - great deal flow or great personal sales technique, mostly the later.

If you're in YC, the YC network refers you to them. There's a shit-list, and a preferred-list.

The best alternative to a board is bootstrapping your company.

You likely do know better and can seek advice anytime you like, but giving up votes and your destiny is another story.

I'm sure some can be fantastic, of course, if you get the right mentor situation and they are well connected and sharp (and correct, believing in you, caring about you, not motivated by investment, etc...).

the second someone tells me that there has been an incredible shift of power and they are no longer in control, my bullshit meter shoots up off the charts. especially coming from someone who is the one holding the purse strings.

can someone who is on the opposite side of the table from Sam Altman provide a counter example to this power shift? I'm interested in hearing both sides.

It's certainly true in most respects that founders have acquired increased leverage.

Mostly due to 1) a million dollars isn't what it was in 1995 2) since 2000 the Fed has been almost constantly pumping liquidity into the US economy, this has made capital far more readily available 3) it has become very cheap to develop and launch products; the cost to manage a million users has plunged over the last ten years 4) knowledge is far more widespread about the industry, practices, etc. among entrepreneurs 5) funding options, systems, networks, have become far more widespread

Today there are dozens of angel networks that are easy to access for tech startups, in basically every major city in the US. In 1995 that simply wasn't the case.

The further along you can develop your business, the greater leverage you have with venture capitalists. Today you need them more to accelerate growth than anything else.

The negative example, that I've been seeing a lot of lately, are very aggressive liquity preferences by VCs. Perhaps I'm just noticing it more, rather than the terms getting worse.

I often get asked "How many Board members is the right number?"

My standard response is that "an odd number is required, and 3 is too many."

That's the kickoff point for explaining that the right question isn't "How many?", it's "Who?" Who is right for your Board?

I agree with sama that an even number isn't usually an issue if it's the right people.

whenever anyone mentions pg i think of paul gauguin

I found it a bit odd that an article on great board members (advisors with teeth) was only reviewed by one person. While there was nothing groundbreaking or surprising in this helpful post, it would have been nice to see it reviewed by one or two other founders and board members, preferably from outside the direct YC family, since this talks in generalizations about what does and does not work.

EDIT: Of course, I do feel a bit spoiled asking for this, as so many of PG's and sama's essays do have a long list of reviewers at the end. And this is of course much less than an essay (which I like). I welcome counter-opinions :-)

This post's title is a bit ambiguous. I originally thought it was a biography about Sam Altman as a YC board member or something and only stopped to actually read it after it got some more upvotes.

How about something like "Choosing Board Members for Startups"?

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