"When should a director opt to leave the Board of an early-stage company?"
"When should an management member or employee opt to leave an early-stage company?"
I get asked these questions periodically, typically informally over a mentoring glass of wine.
Unquestionably difficult questions, particularly for early-stage firms where stakeholders have material emotional and/or financial investment. Aside from commercial topics such as business growth potential, the decision process involve subjective assessment of trust and ethics of the management team and/or fellow board directors.
There are no absolute truths and there are no easy answers but the following questions can help to surface and assess related concerns ...
1. Secrets. Does the management team appear to withhold or alter key business information?
The
timely availability of accurate, consistent data on key business
metrics is essential to the effective running of a business. Financial
reporting, customer issues, business development, operational metrics,
sales pipelines, staffing matters and the like are all appropriate for
regular discussion by management team and directors of a business. In large corporates then data distribution is likely controlled however in an early-stage business then transparent disclosure within the company is both appropriate and expected. Clear, consistent definition of key metrics ensures clarity and comparability across periods.
2. Conflicts. Does the CEO, CFO, Director or other key stakeholder have material conflicting interests?
In an early-stage company then people necessarily wear different 'hats'. Perhaps the CEO/executive or their partners is best-friends with a key supplier, or a significant investor performs the role of CFO, or technology services is sourced from a company related to a stakeholder. All quite common in early-stage businesses. Appropriate disclosure, arms-length terms and agreement by stakeholders is essential, as is periodic monitoring of the conflicts as circumstances evolve.
3. Disconnect. Are all key stakeholders materially striving to achieve the same outcome?
Anyone
who suggests that stakeholder in an early-stage company have completely aligned objectives is, at best, optimistic. Optimal strategy involves choices and is subjective. As is the rate of business development. Time horizon
objectives, such as exit, often vary. Collective discussion and agreement of these important issues is fundamental to the existence nevermind success of a business. The presence of dispute or fuzziness on key business growth is a big red flag.
4. Cliques. Does a subset of management/board meet privately from the full group?
People meet with like-minded peers all the time. Topic-focused sub-committees can be really effective. Great. But if an unathorized subgroup of stakeholders meets on a regular basis and related information or key output does not feed back to the full group (management team or board) then questions are inevitable. If sessions are ongoing then discussions must surely have substance, or why meet? Whether concerns are real or simply perceived, there is genuine risk that the subgroup could somehow act in a way that is unaligned or even detrimental to the interests of all stakeholders. Decision-making should be by a management team and its board, not by a self-appointed clique.
5. Ethics. Are there any grounds to question the business practices or judgment of a key stakeholder?
Obvious but important. Should you have credible doubts then seek appropriate comfort. Get advice or ask peers in your network. If doubts persist then don't get involved.
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