Corporate governance is all about proper roles and responsibilities. This is true for technology companies and for all kinds of companies. In technology companies it is particularly important for two reasons.
First, high growth companies tend to focus on growth. That tends to trump all else. As an HBS professor of mine once said, “You can have, growth, margins, and controls. Pick two!” Growth can sometimes undermine governance and controls, because companies may view it as an impediment. A good example is Facebook. Do you think it’s a coincidence that their slogan at one point was “Move fast and break things”?
Second, technology companies often dramatize the importance of the founder and CEO. The myth of the inventor who started his or her business in a garage continues to this day. It is terrific to foster a culture of innovation. But sometimes that creates a situation where a board is reluctant to impose governance controls on that technology founder.
WeWork is a recent example of a company that paid a price because its board did not impose proper governance. Its founder was both CEO and Chairman. And he was allowed to engage in related party transactions, e.g. the sale of his own real estate to the company, the sale of corporate trademarks to the company, and more. These factors played a price in WeWork’s sudden decline.
In my view, one key to good corporate governance starts with separating the CEO and Chairman position. Sometimes in early-stage companies there are exceptions, but in general it is a best practice to divide the roles. When one person runs the company, he or she often benefits from the checks and balances that come from an independent board. Having an independent chairman helps to achieve that goal.
Another key is to implement checks and balances elsewhere. For instance, when a company’s CEO has a related-party transaction, someone independent should review that transaction. I was on the board of a company whose CEO hired his tax advisor to negotiate a tax issue with the government that affected both the company and him personally. He did so without consulting the
I love founders. The whole raison d’etre of Cambridge Capital is to partner with founders and entrepreneurs. Great founders bring energy, passion, and drive that help achieve what would otherwise be insurmountable hurdles. We are founders ourselves. I’ve started four companies. At Cambridge, I’ve tried to build a firm that gives founders the kinds of resources that would have helped me in my first company. That includes access to customers, a network of industry leaders, help with recruiting, support with acquisitions and investment, and sounding boards. I think these trends are all about giving founders the tools to help their companies maximize their potential.
–Benjamin Gordon, Cambridge Capital
For more on this topic, including an interview I did with Yahoo! Finance and CorpGov, please click here and here.
