CEOs — Protecting Your Flanks

Big Red Car here. So The Boss is back from the beach and is back to work full time. No more fun raising hell with the housesitter. Do NOT tell The Boss.

So The Boss is working with a couple of CEOs in regard to their position with their companies. They get into an interesting discussion about what a CEO should do and how she should do it to protect her flanks in her position as CEO.

It’s hard out there for a CEO

Let’s look at some “facts”:

1. Only about one in thirty startups receive venture capital funding. This does not mean to imply they do not receive bootstrap, friends & family, angel investor funding. For the purposes of this lesson, let’s just say that very few companies actually get out of the cradle when it comes to funding. No funding, no CEO.

2. Of those who receive venture capital funding approximately seventy five percent — 75% — will crash and burn.

3. Of those who are funded by venture capitalists approximately eighty percent — 80% — will replace their CEOs in the first four years.

Let me be clear — the above “facts” are not necessarily provable but have been in the literature from time and will receive an “amen” from most knowledgeable folks. The purpose is solely to say — “It’s hard out there for a CEO.”

Protect your flanks

CEOs, given the difficulty of hanging onto their jobs, are rightfully concerned about how they can structurally define, appraise and defend their performance. It is a delicate balancing act and one that CEOs should think about and act upon as quickly as they can in their tenure.

Many CEOs are in their first such assignment and really have no clue as to how to run a business. That is what everyone bargained for when they made the investment. Do not apologize for your lack of experience. Again, everybody knew that going into the deal. A CEO has to get up to speed quickly but lots of folks have done exactly this and you can also.

A small dose of Vision, Mission, Strategy, Tactics, Objectives, Values and Culture will help you get your sea legs and to find your way. Don’t fret — it IS hard work but you CAN do it.

You must also make a commitment to protect your flanks from the very beginning.

Where are my flanks, Big Red Car?

Oh, beloved CEO, you will have folks throwing rocks at you internally — co-founders who want your job, folks who are jealous, folks who just do not like you — and externally (impatient investors, the market place). You will have no shortage of detractors.

At times, you may even doubt yourself.

What are the rules, Big Red Car?

Please remember you are dealing with a very high likelihood that you will be replaced as CEO given the way we began this conversation. Your role as CEO will be defined by specific documents which will provide the source of your authority and the methodology of your replacement.

They include:

1. Articles of Incorporation;

2. Corporate ByLaws;

3. Shareholder/investor agreements;

4. Basis of employment, job description; and,

5. Employment Agreement.

Each of these documents will have different impacts on your employment status and some may have none other than verifying the creation of your position. Others, such as the Employment Agreement, may have a direct and definitive impact on your tenure as CEO. They are tailor made — you being the tailor, mind you — to deal with your employment by your company.

Important considerations

Here are some important considerations to ponder.

What exactly is your job as CEO and what are the reasonable expectations for your performance?

How is your performance to be appraised? Who does the appraising?

Who controls the voting shares of the company? For how long?

Who controls the Board of Directors of the company and how is the Board constituted?

Can you be terminated “without” cause and, if so, under what conditions?

If you can be terminated for “cause” is there an opportunity for notice and cure?

Is there a defined severance package to be paid to you in the event of your termination?

What are the “change of control” provisions of the Employment Agreement? How is change of control defined?

What happens to your stock and options in the event of a termination as CEO?

As you can see, the termination of a CEO can result in some very thorny problems and considerations. It will happen and the right time to deal with them is long before they become current topics of concern. Do it now.

In the weeks ahead, we will be revisiting this subject in great detail. If you have any questions, send them to [email protected] and The Boss will get you some answers.

Remember, it’s hard out there for a CEO. Deal with it. Now. Spend some time protecting your flanks.

But, hey, what the Hell do I really know anyway? I’m just a Big Red Car.