In my many years of serving of public and private boards, I’ve often pondered the question of how a board member really gives first priority to representing the shareholders en masse.  Even in the largest public companies, a director’s own company may be a vendor or customer, in which case influence can be wielded or there can be aftershocks if a front-line relationship just goes sour.

I was once asked by my fellow board members of a public company to step in as interim CEO.  I was the only person handy with business development experience, and it was a relatively convenient time for me to take this on.  Needless the say the company was in some distress to cause the board to decide to replace the existing CEO and make some other radical moves.  My first day’s priority was to fire a few other officers in order to trim expenses.  As it happened the CFO was on vacation during all this, and upon his return one day later he was able to lobby the pure financial investors on the board to dump me and put him in the seat.  Money talked, and I walked.  That was probably my only lifetime experience as “CEO-for-a-Day” and was an event that had no big impact on me one way or the other.  That was some years ago, the CFO could not build the top line, no surprise, he’s gone, and the stock has since spiraled ever downward.  Who knows if I could have done any better, but I certainly felt that the most powerful board members, who had only financial experience, were just looking out for their own investments and giving no thought to the bigger picture.  A company with fast sinking revenue cannot be run just by the numbers.

Some years prior I was in a similar situation on the board of a bank where we felt the need to replace the CEO.  I was tapped for that role, even though my mind was uncluttered by any prior banking experience except at the board level.  The chairman and I went to the regional head of the OCC, our regulatory agency, and asked if I would be allowed to serve as CEO.  The exact answer we got from the woman in charge was:  “ I don’t give a shit as long as you keep your loan to deposit ratio below 80%.”  With that memorable pronouncement I became a banker.  That story played out better.  Revenue was also the problem there, and I was quickly able to double the size of the bank and allow it to become profitable.  And, in about 9 months I was able to find a real banker to take my place.  (I worried about deposits, but being naturally entrepreneur friendly, I relied heavily on other officers with bona fide credentials as lenders to make the tough calls on that side of the balance sheet.)   That bank had a happy outcome for investors when sold to a larger bank a few years later, and I think the record will show the board did the right thing through that entire process of leadership changes.

During the recent cram-down decade this issue of board roles was made even more difficult by the presence of institutional venture investors on boards of companies that ran out of money and had no bargaining power in new rounds of financing.  I sat on both sides of the table in many a situation like this, and the investors always gave more weight to their duties to their own limited partners than to the welfare of the company in question.  They did often come to the rescue, given that their alternative was normally a total loss, but the early round institutional investors who could not stay in a higher stakes game usually took it in the shorts in this process.  Generally key management was protected by new options or stock grants.  Bad circumstances were viewed as the culprit more so than bad management, and the investors usually wanted to keep dancing with the team in place. I think now we are returning to a era of ever-increasing valuations as startups progress through their life cycles, as we are seeing so vividly in Consumer Internet plays in the Valley.

It is often said that entrepreneurs and investors should do equal due diligence on each other.  It all eventually comes down to personal relationships when the choices are difficult.  Doing the right thing is important, but the hard part sometimes is figuring out what that is.