Rob Shurtleff – a VC in Seattle with Divergent Ventures – whom I’ve gotten to know over the past year, dropped me a note with some ideas about a few posts in the Board of Directors series that Jim Lejeal and I have started writing. The first topic Rob suggested has evolved into the a post titled “The Chairman”. Through the magic of Writely, I’ve involved him into a group edit on this post – what has resulted is a collaboration between the three of us.
In the public company arena, more and more companies are separating the Chairman of the Board position from the CEO. It turns out that this trend has benefits for earlier stage companies too. We believe that all CEOs – regardless of their experience – benefit from having a lead director on the board. In general, it has been our experience that boards (and the board meetings) work better when there is a Chairman in charge other then the CEO.
Some specific roles for the the Chairman follow:
In addition to being a focal point for the board, The Chairman can also be a critical mentor for the CEO. As a result, he should be a consensus choice of both the board members and the CEO. In addition, the Chairman should be a person who is made visible inside the company – such as attending and participating in all hands company meetings. The Chairman should make themselves easily available to employees (via in person, email, or phone) at any time. If bad things are happening within the company (e.g. date manipulation of stock options) employees should have a person on the board – namely the Chairman – that they are comfortable going to with any issues.
Some of the CEOs we have worked with have resisted this idea. Most have come to see it as a big plus. We’ve also found that – in most cases – boards also benefit from having a lead director as a focal point.
Every now and then someone asks why I spend a chunk of time in the summer in Homer, Alaska. Amy took a few pictures that tell most of the story.
That’s the view from the living room. Now – turn your head right.
On a clear day, you can see Mount Iliamna. That dude is 200 miles away and rises about 10,000 feet out of the ocean. Now – go left.
Voila – the Grewingk Glacier. Make sense?
Niel Robertson just pointed me at retrievr. It’s pretty cool – you do a quick sketch and it searches Flickr and matches it to images. You can also upload a picture and it’ll do the same type of match. Of course, none of my sketches seem to have much correlation to the images it returns, but I’ll attribute that to the sketcher (me.)
Alan Shimel, the Chief Strategy Office at StillSecure, is podcasting up a storm. Alan’s up to podcast #6 and giving my friend Scott Converse and his ClickCaster podcasting service a good workout. If you are into security software, want to listen to a lively debate, get nostalgic for Long Island by hearing Alan’s accent, or even hear music from the CTO of StillSecure Mitchell Asley, tune in. Seriously – great stuff Alan.
My partner Greg Galanos led the first round investment in Danger, the company that makes the T-Mobile Sidekick. I’ve loved it since the day the Sidekick 1 came out and – over the past five years – have tried pretty much every other mobile / data device and always come back to my Sidekick.
I got my Sidekick 3 a few days before heading to Alaska. I didn’t expect it to work up here (my Sidekick 2 didn’t work last summer – T-Mobile’s service wasn’t strong enough.) Imagine my surprise when I showed up and it worked perfectly. I’ve had two weeks of it now and it is a simply awesome product.
Greg pointed me to a great review of the Sidekick 3 on the hiptop.com site. The author totally nails why this is such a great product. The brilliance of the company has been that they’ve known their demographic and stuck to it (hint – I’m not in the demographic.) Amazingly, with each interation, the product adds more distance from the alternatives.
After several years of trying to explain to people the difference between a Sidekick and a Blackberry, I finally settled on a straightforward analogy. Sidekick: Blackberry = Mac:Windows. That kind of says it all.
Jim and I are using Writely to collaborate on our Board of Directors series. I had some character interpretation problems between Writely and Movable Type – they were similar to problems that I had posting from Flock a few weeks ago. Basically, ampersand based HTML codes come across fine in the HTML, but get interpreted / built incorrectly by MT. Thanks to the magic of Google, I found the problem and a potential solution in about 18 seconds. This is a test, to see if the problem is fixed. The following apostrophes should look correct: “This is a test’s of the apostrophe’s warning system’s.” The grammar should not be correct.
Unfortunately, I can’t figure out how to get the title or category “right in Writely.” Maybe tomorrow.
Jim Lejeal and I have worked together for almost a decade – I was one of the investors in his last company – Raindance Communications (now part of West Corp) and am an investor in his new company, Oxlo Systems. Jim also has a lot of experience as an angel investor and a board member for startup companies. In response to my other posts on boards, Jim suggested that we co-author a “Board of Director” series similar to several other series – such as the Term Sheet series, the Letter of Intent series, and the 409A series that Jason Mendelson and I have written. A few emails later, we had a rough outline. We hope you enjoy it (and feel free to suggest topics.)
In understanding the role of a board and blogging about good board meeting practices – we thought it would be beneficial to start by reviewing some basics surrounding the notion of “being a board member”; specifically a board member’s fiduciary duties.
A board member’s fiduciary duties are based in or upon what’s called the business judgment doctrine. This is a case law derived concept that, through time (a long time actually) has declared two primary duties: the duty of care and the duty of loyalty. Recently, there has been some discussion around two more duties (specifically – the duty of candor and the duty of good faith) which we’ll cover in a later post.
The business judgment doctrine is essentially a concept in business law that outlines the notion that a court won’t review the actions of a corporation’s board of directors in managing the corporation unless someone suggests that the directors 1) violated their duty of care or their duty of loyalty or 2) made an irrational decision.
In direct terms – this means a court won’t play 20/20 hindsight and rethink a board’s actions or decision if it’s reasonably clear that the board made rational decisions and acted within the notions of their fiduciary duties. Implied in this are standards of conduct that, having been broadly explored in many courts, are generally well understood (although this doesn’t prevent endless shareholder lawsuits around directors responsibility, especially in situations where a public company fails and there is a meaningful director & office insurance policy in place.)
We decided to start here because being a board member means doing work. And it’s work that has real risk associated with it. Taking a board set without being familiar with these fundamentals is sort of like performing a laproscopic gall-blader removal procedure after two years of medical school – you might be able to get through it, but it won’t be pretty, and the patient will probably be miserable. While the fundamental risk dynamics – especially today with the legal and regulatory overhand of Sarbanes Oxley – differ between public and private companies, the responsibilities are the same. That said, our perspective and experience derives primarily from private companies (although both Jim and I have been on public companies boards) – that will be the focus of this series.
No – I haven’t read it yet (just the summaries.) Yes – I probably will (read it.) However – until then – Chris Pirillo has the best word on the Friendster patent so far.
The partners of Union Square Ventures (Fred Wilson and Brad Burnham) recently had a “Union Square Session” on “Innovation, Entrepreneurship, and Public Policy.” In these sessions, they get together some of the smartest people they know around a topic to spend a day talking about a set of issues – in June, one of the subjects of the “Innovation, Entrepreneurship, and Public Policy Session” was patents. I was on the road and wasn’t able to join them, but I was interested to see what came out of it.
There’s a short summary up on the Union Square Ventures website titled “Do Patents Encourage or Stifle Innovation.” Fred referenced my post “Abolish Software Patents” and his subsequent post “Patently Absurd” as starting points for the discussion.
While the summary is interesting, the actual transcript of the session is fascinating if you are interested in this issue. It’s relatively short (16 pages – less than 15 minutes of reading time.) In it, you see three different perspectives: academic, legal, and entrepreneurial in conflict generally about the patent system, whether or not it is an effective and appropriate mechanism for protecting intellectual property, and how it could be improved.
My original post focused specifically on software patents and my ranting against the patent system continues to be limited to software patents. While some of my perspective can be generalized, I don’t know enough about the fundamental dynamics of other industries (such as biotech) to either have a strong feeling or any credibility discussing these areas. However, I believe I do with regard to software (I’ll leave you to be the judge of that.)
After reading the transcript, I came away feeling more strongly than ever that software patents should be abolished. All the counter arguments – especially about creating a liquid market – sail right past the key point of the difficulty with software patents – a requirement that the patent be non-obviousness or that there be no prior art. I’ll restate the central point of my original argument – I’ve carefully read hundreds of patents (yes, parts of my life are extremely tedious and boring) and most – if not all – of the software patents that I’ve read fail either the non-obvious or the no prior art requirement.
However, once a patent is granted, it’s now a property right and the only way to deal with it is to pay for the right to use it or to litigate against its validity. For a young, cash strapped, entrepreneurial company working on new innovations, paying for the right to use something that you believe shouldn’t have been patented in the first place is effectively the equivalent of a regulatory burden which is well known to stifle innovation. Your alternative to litigate in advance of creating your innovation is impractical – it’s almost certain that you won’t have the financial resources to do this. For a large, cash rich company that employs lots of lawyers, creating more property rights (e.g. patents), even if they are bogus, is now part of their business process.
All of the current argument in favor of software patents presume that software patents are legitimate. If 99% of them were, my argument wouldn’t be valid. However, my guess is that – if subjected to a deep, open, and all inclusive review approach like the one that John Funk recently proposed – less than 1% of software patents would stand. Even if I’m wrong and it’s 80/20 or even 50/50, I believe my point holds. If your property is illegally or inappropriately gotten, you should not stand to profit from it. If you think you should because of “the system” or the lack of expertise / ability / time / whatever of the current patent system, just go read Atlas Shrugged again for a doomsday scenario.
I think this is a hugely important debate that will have a profound impact on the software industry over the next 20 years. I know I’m taking an extreme position – that’s deliberate – in an attempt to really generate debate on this. Interestingly, the reaction from people deeply involved in this issue – including several academics and lawyers – seems to be split 50/50 – half of them tell me how naive I am; the other half nod their heads up and down vigorously. Whenever there’s such a split in consensus, I think it means I’m on to something.