So, given the recent OpenAI shinanigans, I thought it might be a good opportunity to pass on some knowledge. You need to have a plan for managing your board of directors.
I believe that my board should absolutely be able to fire my ass if I go batshit insane and start collecting my urine in jars and making antisemitic comments on twitter. But, I want it to be a unanimous decision, not a one man coup.
To enable this legally as the chairman/ceo of a Delaware-C, you are able to alter your voting bylaws. I was advised to plan for a board of 5 members, me and my co-founder and 3 external members. This is solid advice. The trick is to assign, via bylaws, extra votes to specific board roles. I, as chairman get 3 votes, cofounder gets 2, and the other 3 get one vote each.
So, I can be convinced by the board using facts and logic to do something and when I’m obviously wrong, i can be unanimously overruled.
This openai rediculous ouster is exactly the type of situation I was concerned about when I proposed the idea. I’m 100% transparent about this and it seems to act as a great filter. Our lead outside board director is absolutely outstanding.
The only issue is this is you would have to recuse yourself from the vote to fire you
So basically make sure you have (N/2)-1 votes for yourself, where N is the total number of votes across all positions, and a majority vote (not just 50-50) is needed to oust you?
Also interesting in that the way you set it up here means that you and your co-founder, if voting together, can push anything through by majority vote.
I believe that my board should absolutely be able to fire my ass
So, how will they do it in the setup you had proposed or implemented? You + your co-founder have voting control over any decision, be it firing the CEO or buying a corporate jet.
I will second the sentiment of managing your board - something any co-founder should focus on early on the path to stardom (or oblivion, as the case may be).
ㅑ
Zuckerberg had built in something similar since the start. of Facebook on the guidance of shawn parker who’d been fired by his board. The problem as noted is that VCs investing will flag this as it differs from the standard arrangement. In that case, you can 1) find capital friendly to you that doesn’t mind (difficult fund raising environment currently) and/or be oversubscribed with your rounds bc your product/growth is so big the investors don’t make it an issue.
I discussed this at length with my attorneys when setting up my C-corp for my startup. 2k in legal fees later the consensus was that this will make it extremely unattractive to investors and nobody except superstars will be able to pull this off. Anything more than one member = one vote is looked down upon.
why?
Because they don’t trust you to have more of a say in what to do with the money they invested than them. They want to be equal.
There are other ways to achieve this outcome. Granting of extra votes is probably the right mechanism. Classifying appointment / dismissal of CEO as matter Requiring unanimous approval may be ; but, per above comments, that is a big ask. You could also try having an exec employment contract w the company itself.
This here. Most of this is resolved in the operating agreement or similar around what the board can and cannot do with simple majority, quorum, unanimous, etc voting.
Huh? This is literally standard.
No it is not.
Lol.
This is absolutely normal. I’ve been part of multiple startups, defunct to unicorn. This is standard.
This is in the interest of who the board represents, not you though. If you’re willing to listen to the board you would anyway? It’s reasonable to grant this power to the board as part of a an incoming shareholders’ ask, but would you volunteer it?
Shareholders Resolutions trump board resolutions too, so you’d need to factor that in.
Nope :)