Anyone watching Silicon Valley companies lately knows that every disruptive breakthrough that redefines a market can turn around and disrupt their own growth if no one is paying attention.
Uber’s absentee board for much of Kalanick’s tenure is one example. The litany of privacy concerns and questions now plaguing Facebook is another.
Indeed, the things that make tech entrepreneurs great at disrupting industries can also plant legal landmines if no one on the inside is watching their back.
By the time we read about these stories in the news, it usually feels like someone inside should have seen it coming and done something – and that means either no one did (which is scary), or someone did and didn’t do anything about it (which is scarier).
Here’s what boards should be paying attention to for disruptive companies.
1. The Charisma Trap
All too often, charismatic founders ride on charm and chutzpah. That plays great in the media, but not so great in the world of governance. It’s the board’s responsibility to make sure that the glad-handing and bluster that plays well with the camera is backed up by legally sound paperwork and best practices. Founders aren’t supposed to know all of that stuff – the board is. And it’s the board’s responsibility to speak up, not get swept up. Uber could have saved itself a lot of bad press and a year of backsliding if they had taken action early on Kalanick, or even seen it coming and stepped in long before it became an issue in the media.
2. Pushing the Envelope Too Far
Facebook is the current poster-child for this, but they are certainly not the only one. Have they finally pushed the privacy envelope too far to keep growing and save face? We’ll see. What we do know is that they repeatedly get in trouble for not putting the privacy of their users first. That’s the kind of thing the board should be pushing for – and it falls squarely in the lap of the modern general counsel.
3. Skipping Stakeholders
Stick around the Concinnity blog long enough and you’ll hear us talk about how important it is to mind the stakeholder gap. A disregard for stakeholders is an abdication of the basic responsibilities of a board. Every Board of Directors has a responsibility to identify who all of the stakeholders are in the organization and make sure that their interests are taken into account when decisions are made. With disruptive companies, it can be easy to ignore one or more sets of stakeholders in the name of speed and progress. Don’t. Executives, employees, customers, and suppliers all deserve a voice. It’s the board’s responsibility to give them one, and make sure the company leadership is listening.
4. Not Preparing Culture to Grow
Startups have a reputation for emphasizing fun, flexible work cultures. That is great for internal team morale and cohesion, but it cannot come at the expense of planning for the structural and systematic requirements of growth. If a company succeeds, growth follows. And with that growth comes a larger staff and a team that will rapidly grow beyond the initial group of 10 or 12 employees. When the company hits 100, things will change a lot. When they hit 1,000, they’ll have changed again. The board can play an important role in emphasizing that the internal culture needs to adapt along the way, not ignore what’s happening and hope for the best.
5. Letting Legal Lag
Growth will also mean governance realities and challenges most startup founders don’t even know exist. People start disruptive companies because they dream of making a difference, not because they dream of filing paperwork or dealing with SOX regulations. It’s not the job of executives to learn all that stuff -- It’s the board that needs to sound the alarm and help prepare the leadership to do what is necessary so that they can keep leading and growing the company.
Disruption is not doomed to fail.
Disruption can indeed be well-supported and done right.
The key is a strong board full of smart people who know their role and are willing to speak up.