Let’s begin by dispatching the myth that start-up boards are either irrelevant or inevitably dysfunctional. That is lazy thinking, and it is wrong. Governed well, a board is not a cost; it is a strategic force multiplier.
Yet, ask many founders about the utility of boards and you will hear tales of woe, often punctuated by specific, and entirely valid, complaints: disengaged directors who add no value, investor directors who are insensitive to the value of management’s sweat equity, and the pervasive feeling that investors care only about money, show no empathy and are indifferent to the execution challenges management faces.
Ask venture capitalists and independent directors about their own board experiences and you will hear the mirror image: founders who refuse to be held accountable for promises they did not deliver, who disrespect their investors, who are obsessed with retaining control and who do not understand basic dilution math.
Entrepreneurs who treat boards as a necessary evil and investors who treat board service as an entitlement carrying no responsibilities are equally guilty of undermining good corporate governance. These perennial, conflicting narratives fuel two opposing schools of thought about the effectiveness and the overall utility of corporate boards.
Two Schools of Thought and a Changed Financing Landscape
Since Y Combinator introduced the SAFE in 2013 — a structure that did not exist before then — the broader market has followed. At the pre-seed stage, SAFEs now account for roughly 90% of U.S. deals; U.S. startups on Carta raised $10.4 billion across 50,316 such pre-priced instruments in 2025. At the seed stage, where a priced equity round is a genuine alternative, roughly 64% of rounds are raised on SAFEs and a further 10% on convertible notes, against about 27% raised as priced equity — the one structure at this stage that conventionally seats an investor director and a fiduciary board. The shift is structural rather than cyclical: The post-money SAFE — now the standard form of the instrument — rose from just over 60% to nearly 90% of all SAFEs between 2021 and 2025.
By the SAFE’s designed-in legal status, pre-conversion holders are contract counterparties rather than stockholders, no fiduciary duties run to them and no investor-director seat is issued. Consequently, a substantial and quantitatively significant population of venture-backed companies now operate for extended periods — often with cumulative outside-capital raises into the tens of millions of dollars — without any formally constituted fiduciary board.
The “good board” school views the board as a catalyst of value creation through active oversight: empowering entrepreneurs, optimizing management performance and enforcing accountability. In this construct, great boards help founders and their teams navigate around the potholes instead of falling blindly into them. Directors who are experienced investors tend to see the hazards more clearly than many management teams do, drawing on prior experience.
The “bad board” school sees the board as a necessary evil — the price of financing — and treats active boards as unwelcome impediments to founder creativity, a brake on momentum and a general inhibitor of the breakthrough innovation so often celebrated as “creative destruction.” In this view, passive boards are preferable, and boards generally are an unnecessary waste of management time spent placating short-term, unimaginative, return-obsessed check writers.
The proliferation of SAFE notes at the seed financing stage has, in effect, obviated the ground rules of independent oversight and management accountability at a company’s inception. The consequence of kicking the can down the road on valuation should not open the door to disregarding the fiduciary obligations central to corporate hygiene.
Transparency and Engagement
I have learned from painful experience why the Good Board school deserves our advocacy. Over more than three decades, I have watched boards destroy value through passivity, power games and denial in the face of crisis. I have also seen — and helped build — boards that saved companies, mentored first-time CEOs into strong leaders, and created value for the investors who placed their trust in me and my co-investors.
The difference comes down to two words: transparency and engagement.
An engaged board, led by a strong chair, brings clarity where there is chaos. It challenges the CEO without undermining him or her. It brings lived experience, pattern recognition and accountability into a room that too often runs on intuition and adrenaline. Transparent, open communication is the beating heart of that dynamic. The best boards are neither rubber stamps nor warring factions; they are active fiduciaries. They give voice to the hard truths, they bring in the right executives and they make the difficult decisions before it is too late.
The reality, across both public and private companies, is a wide variance in the application of governance best practices. Some boards are highly effective. Some are dysfunctional. Most are not as effective as they could be. And high-profile public boards reputed to be “professional” have devolved into crisis and scandal with a regularity that has spiraled into a chronic condition.
Two propositions sit at the center of my thinking. Relative to a great CEO, a board adds far less value. But a bad board can subtract far more value than any CEO can contribute — and it can do so very quickly. That asymmetry is precisely why directors and CEOs must communicate honestly and openly to manage expectations, and why the hard questions must be handled first, not last.
Stewardship and the Duty of Inquiry
While early-stage companies can survive without formal boards, the moment a CEO or a group of founders accepts investment from a third party, they become stewards of that capital. Stewardship is a word used far too rarely in discussions of why board governance matters, yet it sits at the very core of fiduciary duty.
Stewardship is the discipline of saying “no” to the present on behalf of the future. Boards exist to steward the future against the temptations of the present. In a world where governments increasingly loot tomorrow to purchase today’s applause, boards may be among the last institutions still willing to defend the long term.
As stewards of other people’s money, directors carry duties of oversight and inquiry that are independent of management. Active inquiry is not meddling, and it is certainly not optional.
Bad Actors Are Not the Institution
Some will argue passionately that many boards are ineffective, and I will heartily agree. But let’s not confuse individuals behaving badly with the board’s intended purpose. Let’s not be misled by those who cannot learn from a difference of opinion, or who fear constructive dialogue because it risks exposing them as something other than the smartest person in the room. Denying a board’s value, or denouncing the need for independent oversight of the CEO, is nonsense. If you want to build lasting enterprises, boards are not optional. They are essential — provided, of course, that you build the right one and manage it as though it matters.
The Cautionary Tales Respect Neither Geography Nor Legal System
Board oversight failures do not discriminate by legal system nor geography. Opening the time-capsule vault in the United States, Tyco, Enron and Hewlett-Packard come quickly to mind. More recently, across publicly traded companies, boards have been accused of oversight failures, misaligned incentives or outright governance breakdowns: the multiyear controversy over the Tesla board’s independence in approving its chief executive’s compensation; renewed governance criticism at Volkswagen, where four former executives were convicted in the diesel-emissions case in 2025; the board backlash at Australia’s ANZ Bank in 2025 following record regulatory penalties; and the abrupt leadership and board upheaval at Nestlé, whose chief executive was dismissed and whose chairman’s departure was accelerated in 2025. Across 2024 and 2025, companies including Boeing, TD Bank and RTX were cited in ethics and compliance retrospectives for leadership and governance failures that cascaded into regulatory action or reputational damage.
The pattern is just as visible in high-growth, venture-backed companies, where board dynamics and venture-capital oversight are tightly intertwined: WeWork and the board failures surrounding Adam Neumann; the collapse of FTX; the board composition and oversight failure at Theranos; and the boardroom litigation that engulfed Uber, including Benchmark’s 2017 lawsuit. These are signposts, not indictments.
What Effective Boards and Directors Do
With those cautionary tales as markers, let me define what I believe a board requires to function effectively — to be a Good Board.
Effective boards establish a clear and mutual understanding of expectations between the directors and the CEO. They conduct a formal annual evaluation of the CEO’s performance and hold routine executive sessions among the nonexecutive directors. They are composed of directors who work as a team and genuinely want to be in the room together — directors who communicate openly and honestly, who resolve differences of opinion constructively and quickly, and who hold one another accountable.
Effective directors know and understand their responsibilities. They arrive informed, knowing the industry and the company’s position within it. They do not attack the CEO or fellow directors who are simply answering their questions. They participate in free and easy communication outside the boardroom, and they are willing to offer an outlier perspective as individuals rather than retreat into the comfort of the group.
They can put themselves in the shoes of the company’s various other stakeholders before taking consequential action. And they never engage in self-dealing or in schemes to enrich themselves or their funds at the expense of the employees and smaller investors in the company.
How Boards and Directors Fail
Ineffective boards display the opposite habits. They fail to communicate, inside the boardroom and outside it. They suffer from “denial syndrome,” failing to act and to decide. They cannot reconcile diverging viewpoints, they avoid conflict and they routinely hold excessively long meetings — running past three hours with no strategic planning or other extraordinary agenda to justify the time.
Ineffective directors pursue their own agendas and place their own interests ahead of the company’s. They feel compelled to speak and to be heard regardless of whether their comments are relevant or useful. They become disengaged — often after a strategic disagreement — once they conclude that their opinion no longer matters. They fail to resolve disagreements quickly and constructively, they do not maintain regular attendance, and they deliver one message inside the meeting and another through their conduct afterward, a passive-aggressive pattern that quietly corrodes trust. Most corrosively of all, in venture capital, they defer to a lead investor who discourages constructive discussion from the rest of the board. Smaller firms, afraid of being shut out of future deals, decline to break ranks.
The Timeless Misalignments
Why not? Because the challenges of small-group dynamics are timeless. We are dealing with individuals and organizations carrying inescapable misalignments.
First, entrepreneurs naturally want to retain control and as much personal share ownership as possible of the companies they found — the well-documented “Rich versus King” dilemma.
Second, venture investors naturally want to maximize their financial returns, and they frequently negotiate legally binding, guaranteed board representation tied to their holding period for as long as the company remains privately held. They are, consequently, the first to move to replace an underperforming founder.
Third, strategic corporate investors are motivated principally, if not entirely, to maximize what is best for their corporate mothership for the duration of their engagement with the start-up. At the individual sponsor level, achieving those objectives is often tied directly to annual cash compensation, and the sponsor’s tenure is usually short, cut off by the seasonal rhythm of corporate reorganizations.
After a long career of service as a corporate director, I never have to look far for fresh case studies illustrating bad board behavior rooted in these misalignments.
Selection, Process and Education
It is wrongheaded to cite such examples as an indictment of corporate boards. Directors who choose to ignore their responsibilities or who do not take them seriously should not be permitted to serve. Companies must implement proper governance process from the start, and they must appreciate the importance of selecting the right capital and governance partners.
Governance challenges arising from ego-driven conflict between individual directors, from institutional conflicts of interest and from fundamental economic misalignments are inescapable. It does not follow that boards are, therefore, bad. On the contrary: Because every company has multiple stakeholders, these conflicts must be called out and actively addressed on an ongoing basis, before they damage the company’s prospects for success. All of them can be mitigated, many can be resolved, and some can be avoided altogether through proper director selection and the application of best practices, including something as simple as educating each director on their fiduciary duties at their very first board meeting. Above all, the directors chosen to serve must embrace their responsibilities as directors seriously.
Capital Is Governance Wearing a Price Tag
For start-ups, board composition is most often determined — and reorganized with the least friction — during financing rounds. The governance implications of how entrepreneurs approach fundraising are profound, and they are certain to shape a company’s future development.
Unfortunately, many entrepreneurs insist that valuation matters most and that the identity of their investors matters least, without understanding the future implications of that choice. The “valuation first, partnership last” approach is championed vocally by billionaire celebrity entrepreneurs and by a small group of venture capitalists who favor sharp-elbowed founders. It celebrates creative destruction in the name of innovation, “moving fast and breaking things,” creative chaos, and a roster of other reductionist memes. In this version of corporate evolution, boards are merely unnecessary brakes on relentlessly driven, brilliant visionaries. For this school of thought, every board is bad.
The bad board advocates gleefully ignore that, for most companies, placing valuation above the careful choice of partners holds only until the board meeting where they learn, too late, that capital is governance wearing a price tag. Valuation is what founders negotiate; governance is what they inherit. Too many discover — after the ink dries — that they sold stewardship at a discount they never bothered to price.
The myth of the all-knowing founder, appealing as it is to so many, is not brilliance; it is a governance vacuum. When certainty replaces accountability, boards stop governing and start applauding. Vision does not require omniscience. The moment a founder confuses insight with infallibility, the company stops learning and starts breaking. Founder exceptionalism is moral hazard with better public relations: private upside, socialized downside and a board too intimidated to intervene. Outcomes do not justify governance failures; they obscure them — until the bill arrives. History is littered with companies that worked right up until they didn’t. The most dangerous moment in a company’s life is when its board begins mistaking charisma for competence and silence for alignment.
The Discipline of Stewardship
The purpose of the board is to actively oversee — to question, to investigate and to recommend corrective action. Its most important implementation power is the right to hire and to fire the CEO. That is what fiduciary duties are all about, and on this point the duty is unmistakably clear.
Director stewardship and oversight create a natural — and, in my view, necessary — tension between management and the board. Managed responsibly, that tension must unmistakably mean management in the interest of all the company’s stakeholders.
Stewardship is the discipline of protecting the future from the arrogance of the present, and boards exist precisely because brilliance is not the same as infallibility. A Good Board does not come together magically, and certainly not haphazardly; good boards are built deliberately and must adhere to process. When boards defer to founders who claim to know what no one else can know, they do not enable innovation — they abandon responsibility. Good boards steward institutions so that vision can survive its own excesses.
Choose your capital partners carefully. Populate your board wisely.