Julius Bachmann


January 2, 2024

European boards have an ego problem. Here's how to fix it

OpenAI's snafu over Sam Altman could have been avoided

Julius Bachmann

9 min read

The recent turmoil at OpenAI, where Sam Altman was ousted and then dramatically reinstated as CEO, serves as a stark reminder of the crucial role boards play in steering technology companies.

Yet, you do not have to travel to faraway Silicon Valley to observe this kind of spectacle. You can find dysfunctional boards right in our backyard. Right now, here in Europe, similar boardroom dramas are unfolding, albeit with less media fanfare. 

Dysfunctional boards are a global challenge, especially pronounced in the scaling phase of European startups. Board dynamics play a pivotal role in shaping the future of high-growth companies, influencing everything from key hires and strategic decisions to investor relations​​​​.


What is a board and why is it important?

A board in a venture-backed company is a collective of shareholder representatives tasked with overseeing major business decisions. These boards, which may vary according to local laws and often hold legal mandates, are typically established after a company’s first institutional investment round. Some companies also form smaller advisory boards, composed of a select group of significant investors, to provide focused guidance.

Boards play a critical role in the growth and success of a company. They are not just a byproduct of investment rounds, but key drivers in decision-making processes related to hiring, strategy, funding and budget allocation. 

Beyond this, board members leverage their extensive networks to assist in sourcing key executives, potential investors, clients and partners, and play a pivotal role in mergers and acquisitions. They serve as influential advisors and sparring partners for founders, especially during pivotal phases of a company’s evolution, providing expertise and connections essential for expansion, mergers and acquisitions, financing and strategic hires.

So when is it adequate to begin thinking proactively about a board? Probably after the Series A, even though non-executive directors, specifically an external board chair, make sense only later. 

“Timing is crucial when deciding to put a board in place and often a very early stage founder cannot always justify the strategic decisions they are making with hard data. It can be difficult for a third party on a board that is not in the business day to day to provide the necessary guidance. This is why having a board in a pre-seed round might not be ideal.” says Videesha Boeckle, general partner at āltitude.

Boards in Europe vs. the US

We are still in the very early stages of board work in Europe. The self-image of boards and what is required in terms of professional team work, diverse composition and role clarity lags far behind what we are expecting of founder and management teams in European startups. 

I am a big fan of boards when they take their work seriously. Still, I have observed too many instances in which boards fall prey to one of the following five challenges that hinder their performance. 

Board challenge #1: Lack of team mindset among board members

One of the sad observations I have made during my time as an investor is that board meetings are viewed as meetings in the calendar, at most as an institution… but never viewed as a team. 

Why is that a problem? Having the awareness that you are part of the team opens your awareness for all the behavioural dynamics. It surfaces the need to talk about roles and responsibilities as well as procedures beyond what has been prescribed through corporate law and shareholder agreements.

The first and most important shift is to recognise that a board is a team. As a CEO, you need to demand the same level of professionalism that executive teams are subjected to. This includes clear roles, professional processes and awareness about the dynamics in the team, both for the official members and observers.


Board challenge #2: Risk avoiding or value generating?

Most boards have a risk perspective rather than an opportunity perspective. This is especially true for public money investors and inexperienced private investors who only hold a small number of investments — on which they cannot afford losing their capital. 

The more professional investment funds are in the cap table, the more the board conversation turns to the question of “How else can we support the company’s growth?”. 

But the dynamic of the board can be set by a single, loud individual. This might be a business angel who has funded the company early on, has enough time to spend on private investments and is vocal about their opinion. Managing individual expectations and emotions becomes critical for CEOs to facilitate the overall board dynamic.

“It’s crucial to adopt an inherently forward-thinking mindset on boards. While learnings from prior achievements should not be neglected, the (near-term) objectives shift significantly as the company enters a new chapter. A newly assembled board is an opportunity to realign and focus on highest-priority targets to hit,” says Felix Wolf, general partner at Spacewalk VC.

The top CEOs in my (coaching and investing) portfolio frame board discussions proactively — and often in one-on-one meetings days before the board meetings.

Michael Schuster, former partner at Speedinvest and now a venture partner at Cathay Innovation disagrees: “I personally find this a questionable practice that has become a role model. Not only does it take more time from all participants, so its inefficient, but also it creates a star-shaped conversation pattern between the CEO and the board members, and not a team atmosphere, where the whole board works towards a goal. You would never consider doing this with a management team, why would you with your board?”

Boards are bound to have misaligned interests, especially across investor representatives.

Tobias Jahn, partner at Hitachi Ventures, advises CEOs to set a focused agenda: “It works well if one or two focus topics (e.g. market entry in a new geography) are on the agenda and board members come prepared for these. Have a note-taker, so you can focus on the discussion and follow up on the assignments for each board member.” 

“The best boards we see are prepared, proactive and drive data-driven decisions with high urgency to enable founders to move with pace. These boards are filled with diversity (across many dimensions) to enable an open and controversial discussion. Ultimately, they help founders arrive consistently at high-quality decision-making,” adds Alexander Schmitt, partner at Lightspeed Venture Partners.

Board challenge #3: Alignment of interests, strategies & experience

Throughout the lifetime of a venture-backed company, entrepreneurs often bring on different types of investors to their cap table. 

From pragmatic angel investors and hands-on early-stage funds in the beginning to international growth investors and a variety of “stage foreign” investors, such as crossover hedge funds and limited partners, participating in sidecar deals: all these investors follow different strategies and target different return profiles for their portfolios. This plays out in difficult boardroom conversations.

I have recently facilitated a number of board and executive team conversations in a larger European scaleup. They were at odds with regard to their fundraising and exit strategy which erupted over the question of whether to hire an experienced pre-IPO finance and operations executive.

It soon became clear that the misalignment originated from very different expectations in the board. It consisted of an early-stage fund that had been part of the company for years, growth investors who had more recently joined and a limited partner with a PE mindset who had participated in a recent growth funding round. 

The return profiles of all these funds were vastly different and therefore their agendas went in all sorts of directions.

Boards are bound to have misaligned interests, especially across investor representatives. It is a side effect of raising external capital over multiple chapters of the company’s journey. Making everyone aware of this risky dynamic is the most important mitigation step. On top of that, experienced CEOs often meet with board members individually ahead of a board meeting to ensure that diverging interests are kept in check.

“The best way to deal with misaligned interests is to prevent them from occurring in the first place, for example by discussing financial and strategic objectives between existing and future board members before concluding a financing round that changes the board composition,” adds Christian Saller, general partner at HV Capital.

Board challenge #4: Different roles and responsibilities

In my early days as a venture capital investor, I would only participate in board discussions as a board observer. 

Many companies have board observers, although that’s not a given. Observers are allowed to take part in (and contribute to) meetings and are copied into all correspondence. 

They help senior board partners — who often have 10 or more board seats — to prepare for meetings and keep abreast of recent developments in companies.

Board observers are often younger investors who tend to be more accessible to the founders in preparation for critical decisions or for off-the-record questions. The board observers then internally brief their senior partners in advance of a formal meeting. While observers have no voting rights, they have way more influence than meets the eye. This means for founders and CEOs that a lot of the influencing work can be done informally through board observers.

Which brings us back to the team question: if we start to focus on the “board team” more, who are the real members? Just those who are formally making decisions or should we include everyone who’s in the room?

HV Capital’s Saller shares his experience: “I have seen very few board decisions where votes needed to be formally counted. Most of the time, boards arrive at a common decision through a deliberative process. The real weight lies in the persuasive discussions that unfold both before and during the meeting, which count more than formal voting power.”

Board Challenge #5: Ego and competition among board members

One of the seminal moments in my VC career was the end of a board meeting in the autumn of 2019. We had some of the most reputed investors in the room, both high-profile angels and top-tier funds. The meeting dragged on for almost three hours… not because we’ve made so much progress but because for every single agenda item, everyone needed to state their opinion. Everyone’s ego slowed down our conversation.

And this is only the start: venture investors live in a state of competition. They may invest in the same healthcare AI company but bet on different founders in the procurement automation market. In the heyday of the recent bull market, it was not all too uncommon for investors to even invest in slightly competitive companies in the same market.

This leads to tension in the boardroom. How open can I be if the motives of my co-investor might not be cooperative?

“Like with top-level management, founders should set clear expectations for each board member and — more importantly — also hold them accountable to those. This includes their behaviour in the boardroom.” shares Lightspeed’s Schmitt. 

Both ego-driven and passively competitive behaviours are delicate to address after the fact, when things have gone wrong and board members stand to lose face. The most productive solution I have seen is to address this challenge early on and collectively sign a “board charter” that describes the role and working mode of the board and points out the risk for misalignment.

Addressing the challenges

Many companies fall short of professional board work, especially when there are no experienced investors with international or later-stage experience. It is the founder’s responsibility to drive the board transformation and to institute the necessary changes — especially in the early stages of the company. 

After all, investors sit on many boards, founders only have one board to manage. And they depend on it.

Julius Bachmann

Julius Bachmann is an executive coach based in Berlin focused on working with entrepreneurs. He is also cofounder of JRNY.