I wish there was a CEO camp—a place we could go to learn all the things we should know to run a VC-backed, high-growth SaaS software company. We could swap archery for CAC ratios, canoeing for three-year roadmaps, and basket weaving for…actually, it would be cool to learn the craft.
The closest thing we have to counselors is a company’s board of directors. The core mission of a board is defined as “ensuring the company’s prosperity by collectively directing the company’s affairs, while meeting the appropriate interests of its shareholders and stakeholders.” In the VC world, these boards wear several hats and are often your largest shareholders and the ones who have invested real dollars into your company.
When Boards and Investors Fall Short
A CEO can fail their company in many ways. They can miss growth targets, lose too many customers to churn, and spend more than budgeted. When these things happen, a CEO can lose their job. But what about the board and investors? What happens when they fail at their core mission of protecting the company, as we have seen at Uber, Wells Fargo, Volkswagen and now SoFi?
The recent article about SoFi in the New York Times is about something both appalling and utterly preventable. Mike Cagney, the finance company’s CEO, is Silicon Valley’s new poster child of arrogance and misogyny. In front of his staff (and his wife, the company’s CTO), he regularly engaged in inappropriate conduct with employees including sexual advances. And he hired executives with similar qualities, like a CFO who openly offered bonuses to women if they would lose weight.
Shockingly, the board had known about Cagney’s actions for years. But this was a culture that not only discredited women who spoke up. Board-sanctioned retribution silenced the victims.
How are boards letting this happen time and time again? These are the same boards doing their due diligence on potential investments, requiring audits and governance in funding documents, and carefully considering how to make use of funds when they arrive.
Ethics at the Center of Business
Corporate cultures and individual employees suffer when companies lack a fundamental commitment to ethics. A sound governance model can drive ethics to the center of business and through every layer of the organization, especially the top. Today’s venture capitalists and private equity firms would be wise to help drive this governance in the companies they’re investing in. Consider the financial hit that unethical companies can take when things start unraveling.
The following guidelines can help VCs and PE firms establish a framework of transparency and accountability in the companies they’re investing in:
- Require the formation of an Ethics and Compliance Committee at the board level alongside Audit and Compensation.
- Require a non-investor or independent board member on this committee.
- Require this committee meet at every board meeting (without the CEO or any other executive present) and get an update from the company’s head of Ethics and Compliance.
- Select a full-time employee as the head of Ethics and Compliance. In a larger company (250+ employees), this can and probably should be a full-time role. Within smaller companies, it can be an HR Manager. This person should never be the CEO, CFO or a founder of the company.
- Establish a communication channel that is clearly understood by all employees as a direct (and totally private) pathway between them and the selected Ethics and Compliance leader. Early on, it can be a simple email handle that only goes to the lead; as a company matures, these channels will as well.
Now comes the most important part:
- The Ethics and Compliance lead must respond to every issue that comes into this channel. The lead then informs the reporting party that they received and are investigating the case and that the company will not allow retaliation in any form.
- The Ethics and Compliance member performs a full investigation without informing any named parties. If the report involves a founder or member of the leadership team, they immediately inform the head of the Ethics and Compliance Committee.
- If the report involves an allegation of retribution against an employee for a past report, they immediately inform the head of the Ethics and Compliance Committee.
- At the quarterly board meetings, which are always attended by the Ethics and Compliance Committee, the head of Ethics and Compliance shares a report that shows data on all cases reported, the types of reports, which cases have been closed out, and what actions were taken. The Board Committee is responsible to inquire about root cause (if not presented) and specific actions taken (beyond disciplinary action; rather, what the organization is doing proactively to learn from the situation, educate the workforce, and prevent a similar situation in the future).
- The company, regardless of size, should build a retaliation monitoring program to ensure there is a consistent culture of trust and those involved in an investigation (reporters and witnesses) are not suffering from overt or subtle retaliation.
Walking Our Talk
So, does Convercent play by these rules? Actually, most of them. Yet as I write this, I realize that in forming our Ethics and Compliance Committee, we have two investors and no independent member. We will fix this at our next board meeting.
Can sexual harassment happen at Convercent? I’d like to emphatically say, “NO!” But I know I can’t. As our company grows, we will add more people to help us accomplish our dreams and goals. As carefully as we are in hiring, we can’t guarantee that it would never happen here.
Still, our “Code of Ethics” and “six values” are at the core of who we are. Sexual harassment will never be tolerated, employees are always asked to speak up, and we will take each and every report seriously and investigate them thoroughly. Our Ethics and Compliance Committee will be notified immediately if an executive staff member is named, and notified quarterly on all other claims.
Running Your Company…Wisely
The importance of establishing a process for employees to have a safe place to speak up can’t be overstated. If questionable circumstances arise, shouldn’t the firm’s partners who have entrusted them with their financial backing be informed of the investigation? I believe so.
We live in a business environment that requires hard work, risk taking, boldness, innovation and more—where success can be immensely rewarding and failure downright soul crushing. Since 2011, SoFi has raised $1.9 billion from investors and was recently valued at $4.3 billion. Will the momentum continue, given the recent scandal? Time will tell.
Adding the above ethics and compliance framework to “CEO camp” isn’t difficult. It’s easier than audits and more fun than due diligence. And it’s decidedly better than nosediving the trajectory of your business.