Governance & Board

What board membership and observer rights actually mean, the real duties and liabilities involved, and how to be useful in the room without overreaching.

What a board seat actually obligates you to do

Lessons

• A board seat, an observer seat and information rights are three very different things — Board directors vote and carry legal duties. Observers attend without voting. Information rights give access to figures without any role in decisions. Knowing which you hold defines what you can do and what you owe. (9 min)
• A director appointed by an investor owes duties to the company, not to that investor — Board directors generally owe fiduciary duties to the company and its shareholders as a whole. An investor-appointed director who puts their fund's interests first can breach those duties, which is the central tension in startup governance. (12 min)
• A board seat can carry personal legal risk, especially when a company approaches insolvency — Directors can face personal liability for certain failures, and the risks often rise when a company is close to running out of money. Directors' and officers' insurance and indemnities reduce but do not remove that exposure. (11 min)
• Good board members ask the question nobody else will, then let management run the company — An effective board member prepares, focuses on the few decisions boards actually own, asks hard questions early, and resists the urge to manage the company from the boardroom. (10 min)
• Decisions that are not recorded are difficult to rely on later — Board minutes, written consents and maintained records are what prove a decision was properly made. They matter most in disputes, financings and sales, when everything is examined. (10 min)
• The hardest board decision, and the one most often made too late — Replacing a founder chief executive is rare, disruptive and sometimes necessary. Boards tend to delay it, and the cost of delay is usually larger than the cost of the decision. (12 min)

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