👋 Hi, it’s CJ Gustafson and welcome to Mostly Metrics, my weekly newsletter where I unpack how the world’s best CFOs and business experts use metrics to make better decisions.
OpenAI Q4 Board Meeting
Contrary to popular belief, there’s no Illuminati behind the board room curtain (with the exception of maybe OpenAI).
Much of my career has been in the service of board meetings - as the Chief of Staff preparing the CEO’s opening slides, to the FP&A Director building the annual operating plan for approval, to (finally) the CFO presenting the company’s latest financial results.
With this experience, I’m here to share what goes on before, during, and after board meetings.
This is our first of three posts on board meetings.
Part I: Roles and Responsibilities (THIS POST!)
CEO
CFO
CPO / CTO
VCs
Strategic Investors
Board Observers
Independents
Corporate Secretaries
Committees
Part II: Materials and Metrics
Templatizing your materials
The CEO’s Materials
The CFO’s Materials
Strategic Readout Materials
Reminders, Before You Hit Send…
Part III: Meeting Structure
Closed Door Session
13 Deadly Mistakes to avoid at your next board meeting
Subscribe now, or your investors will discover your ARR is really CARR.
CEO
Chairman
The CEO is typically the President and Chairman of the Board
Chairman is also a common role for a former CEO who’s transitioned out of the day to day of the biz - like Brian Halligan of Hubspot or Jeff Bezos of Amazon.
The (current) CEO facilitates the discussion
We’ll cover the materials a CEO typically covers in next week’s post, with an emphasis on:
Splash Slide of Top Metrics
What’s Working / What’s Not Working
P&L and Cash Burn
So is the board the CEO’s boss?
No, they are no one’s boss
They do oversee the CEO, but they are not a boss in the conventional sense of the word
This is a more intuitive concept for Founders than non founders
The people who have trouble with this concept are those who climb the corporate ladder and become a CEO - “professional CEOs”
If you’re one of those lucky souls who made it to the “boss” level of the career video game, as a default you’ll want to treat the board as a boss, since you’ve been used to having a boss for [20] years
The board does, however, hire and fire the CEO on behalf of shareholders, when appropriate
They also determine the CEO’s compensation package
The CEO may have “super voting” shares if they are a founder
Mark Zuckerberg and Evan Spiegel are examples of founder CEOs with extraordinary voting power, which essentially ensures they’ll never get fired
Professional CEOs typically have run-of-the-mill common shares, like the rest of the rank and file employees (just a lot more of them)
CFO
The CFO is responsible for updating the board on the company’s financial performance
They are also responsible for leading the Audit Committee, and sometimes the M&A Committee
They will generally facilitate (with the help of the CEO) discussions around:
Acquisitions
Letters of intent (LOIs)
409a valuations
Stock option grants
So does the CFO work for the board?
No, the CFO works for the CEO. Full stop.
The CFO has a fiduciary responsibility to the shareholders, and many of those shares do sit in the hands of the board
But a CFO does not report to the board; he / she consults and updates the board
The CFO is probably the second closest to the board, other than the CEO; but they are not the CFO’s boss, even if they recruited the CFO
Don’t get it twisted
CPO / CTO
The CPO / CTO is responsible for updating the board on the company’s technology roadmap
They are also responsible for leading discussions around adjacent market opportunities
Why? Acquisitions rarely work out if the technical side of the house isn’t motivated to make it work, and truly sees the tech opportunity
Otherwise it’s a bunch of corp dev junkies chasing cars like a wild dog in the street - they wouldn’t know what to do with it if they caught one
It’s important to note that:
This role in the board room may be filled by the CEO if they are a technical founder
If it is the company’s CTO / CPO, they typically don’t attend every board meeting, and are brought in for quarterly updates on roadmap or strategic discussions around M&A and partnership opportunities
VCs
Investors
Represent the preferred share holders
Preferred shareholders have certain rights
Liquidation preferences: they get paid first if the company is sold for less than the latest valuation
Voting power on key issues
Deal blockers on M&A (sometimes)
These shares come at a premium to common shares, because of those special rights
Each preferred round (e.g., Series A, Series B, Series C…) usually comes with adding at least one new board member
Sometimes VCs will also negotiate for an Observer Seat (more on that below)
It’s important to note that a VC is definitionally conflicted
They have a fiduciary responsibility to all shareholders, but notionally represent their class
They go against the first when they wipe out common upon liquidation scenarios
Strategic Investors
Source: Broker Chooser
Companies / Corporations on the cap table
This is usually a company from your ecosystem who’s partnership accelerates your product roadmap, your sales (as a big customer), or both
It may also represent a corporate conglomerate who wants to keep an eye on you in the hopes of buying the whole thing if you hit certain milestones
They typically don’t have the hardcore financial return profile of investors
While they don’t want to lose money, they are more interested in the synergies your company has with theirs, rather than simply the financial outcome
They have the ability to do A (us) + B (you) + C (synergies) = D (a shit ton of money) that VCs can’t tap into unless they orchestrate a roll up themselves
Strategics do the lion’s share of M&A. I interviewed Anand Sanwal, CEO of CB Insights, on this exact topic here
Board Observers
“Victorian Children”
In the words of Dave Kellogg, “Board observers are like Victorian children: they should be seen and not heard”
Observer seats are hotly negotiated, which is somewhat of a moot power move, since they don’t really get a voice
Also: if you have one board seat, you have one board seat - don’t try to steal ONE board seat and bring THREE people to the meeting
So what’s the point?
The point is to give the observer some reps at board stuff
Most VC observers are up-and-coming members of the VC’s investment team; observer seats can serve as training wheels before prime time
They can also be helpful from the VCs perspective if the board member is on a ton of boards and needs some air cover
It’s also common for VCs to offer up their board observers to the company’s CFO, FP&A team, or Corp dev team as an extra set of hands on special projects (e.g., M&A targets, churn, new product launches)
Editor’s note: It’s so nice when you get a former McKinsey lackey doing TAM work for you!
The Independent
Represent the Common shares
Independents hold common shares, just like employees
They are there to protect the interests of the Common shareholder if the Preferred shares try to make a move that’s in conflict to their interests
For example, there could be an exit scenario where preferred shares have a liquidation preference which wipe out common - like an acquisition
It’s therefore the implied role of the Independent board member to vote on behalf of “the little guy”
The Coach and the Mentor
The more conventional view is they are a current or former operator, and can serve as a mentor / coach to the CEO
It’s lonely at the top - the independent can be a great sounding board when the CEO doesn’t want to look weak / overwhelmed / unsure in front of their institutional investors
Most independent board members are very successful founders or execs in their own right
As such, they typically have done pretty well financially
Note: Therefore, they shouldn’t have the majority of their wealth tied up in your company - that would skew their view
Finding the right Independents
Investors can help find your independent, but the Independent shouldn’t “work” for the VCs
Sequoia will give you one hell of an independent director
But they should also be free thinking enough to voice their own opinions
Levels of Independence
Some independents are more independent than others
As we mentioned above, they should speak their mind, even if it makes the VCs uncomfortable
Speaking of that:
Beware of the Electro magnetic field
You see this sometimes…
I’m a CEO of an investor’s company
They plug me in as a board member on another portfolio’s company
And I’m an LP in three of their funds
Who do you think I’m going to side with???
Corporate Secretary
Lawyer stuff and note stuff
This is usually your Chief Legal Officer, or if you don’t have one, your corporate counsel, like Cooley or Wilson Sonsini
The idea is that they are cheaper in the long term when they generally know what’s going on at the company
And most of the time, they don’t charge for this time commitment
They also take kickass notes so you don’t have to type up all your shit in a MSFT Word doc after
Committees
Nom / Gov Committee
Identify and nominate new board members
Evaluate the skills, experience, and diversity needed on the board to complement its existing members
They also think about succession planning for old members rolling off
Compensation Committee
Approve the cash and equity compensation for the C Suite (CEO, CFO, CRO… and any major hire)
Audit Committee
Help pick the auditor and review the financial statements each quarter
Transaction Committee (when getting bought)
Guide the organization through bids, Letters of Intent, and sizing up exit opportunities
They may also work directly with investment bankers if the company is running a sale process or preparing for an IPO
M&A Committee (when doing the buying)
Guide the org through acquisitions they go out and make
Determine price range they are willing to bid and if the target is a solid fit
ESG (Environmental, Social, and Governance) Committee:
Psych! ZIRP phenom
Informal committees that may also exist:
IPO readiness
Are you able to reliably predict the business performance?
Hold mock earnings calls
“Kitchen Cabinet” for disasters (e.g., COVID, wars, Google wakes up one morning and decides to move into your space)
President’s Jackson and Truman were famous for having this close band of advisors on speed dial / carrier pidgeon
Next week we’ll dive into meeting materials and templates.
BYOPPL (Bring Your Own PowerPoint License)
Want more on board meetings? This series relies heavily on this awesome podcast I recorded with Dave Kellogg. He’s the GOAT of board prep.
