What Kind of Support Does a CEO Need?
A venture capital firm recently announced a promise to always vote on the side of the founders of companies it funds. It's a bad idea, but one that offers good lessons for the board-CEO relationship.
Sometimes all a new CEO needs is a little trust. A sense that a board has your back.
That’s an easy idea to support, but one venture capital firm has taken this notion to a remarkable extreme. Last week Felicis Ventures announced that it would pledge to always side with the founders of the companies it backs. There are limits, of course—like if the founder was accused of fraud, for instance. But Felicis managing director Ayden Senkut says this approach helps keep the firm competitive in new go-go culture for Silicon Valley startups.
Moreover, Senkut says, this kind of rubber-stamp support bolsters the relationship between between an entrepreneurial CEO and the backers with a seat on the board. “It creates positive reinforcement where the founders are more receptive to feedback,” Senkut told Reuters. “It sets the dialog in a much more positive way.”
There are structural concerns with this kind of arrangement: Will all the limited partners who participate in a fund always agree with codifying automatic support for a CEO? Is doing so a breach of a board’s fiduciary duty? (And for anybody who figures this is just rich people playing with rich-people money, remember that a lot of public-pension dollars are attached to VC funds.)
I’m more concerned, though, with the philosophical issues this practice reveals. Senkut and others say this arrangement just puts into writing what’s been standard practice among Silicon Valley startups. And that’s worked out well for Felicis, which was an early backer of companies like Rovio, the creator of “Angry Birds,” and Fitbit. But it also threatens to bind a board to bad decisions, and perhaps encourages a CEO to more freely make them.
The New York Times hinted at the problem in its story on the move: “Venture Capitalists Coddle Entrepreneurs as Royalty.” When lots of people are clamoring for a new CEO’s attention, the article explains, a firm needs a way to attract visionaries. One source likened the situation to an “arms race.”
Association executives, I’m sorry to report, don’t have supporters falling at their feet in the same way. But there are a couple of lessons a CEO might take from Felicis’ move.
One of them has to do with Senkut’s comment about helping leaders be more sensitive to feedback. This is difficult for a whiz kid fresh out of Stanford, and it’s not necessarily easier for a seasoned association executive. A board chair doesn’t—shouldn’t, I’d say—have to make promises to a CEO that he’ll always be supported. But a leader is more willing to hear feedback and criticism if he or she knows that there are a few bedrock principles upon which both sides agree. (This can be as simple as committing to regular conversations.)
Another lesson involves taking the long view on leadership talent. Association CEOs stick around longer than corporate ones, and associations rarely have to deal with executive turnover that companies like Twitter have experienced thanks to concerned investors. It’s in both sides’ interests to keep leaders in charge for a while, at least long enough to take a crack at implementing a more ambitious vision. It’s the CEO’s responsibility to articulate that vision; it’s the board’s to do what it can to support it. Gestures of support for a CEO in those moments matter, even if they’re not contractual promises.
But there are no guarantees. Visionary ideas sometimes fail. And while acknowledging that failures happen sometimes is one thing, standing as the figure who reflexively supported the failure without pushback is quite another. CEOs and boards should do everything they can to build trust and support for each other. Just be careful about what you put on paper.
What do you do to cultivate that support with board leaders? Would carte blanche board support empower you to do things you otherwise wouldn’t? Share your thoughts in the comments.