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VC Bill of Rights – Article 5: The right to replace the CEO for not getting the job done February 2, 2010

Posted by Lawrence Lenihan in Uncategorized.
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The last paragraph is the Article 5 of the Entrepreneur Bill of Rights is most important – if you don’t think you should be held accountable for your performance, don’t take any funding!  If the entrepreneur is not getting the job done, it is the responsibility of the VC to find someone who can.

Once you take money from an investor, you take on a moral obligation to do everything possible to generate a return for your investor and your other shareholders.  You do not have a right to lifetime employment.  Of course, the easiest route to lifetime employment is to build value for your shareholders – that is the best way to keep your job!

A VC is a fiduciary for the money his/her Limited Partners invest with him/her.  In addition, the VC is a fiduciary to all the shareholders if he/she sits on the board.  If the CEO is not performing and this lack of performance is damaging the company, the VC and every other board member has a strong fiduciary obligation to remedy the situation by replacing the CEO/entrepreneur if that is what they determine to be the best course of action.  But, the only way this process can happen smoothly, is if a framework has already been established that enables the objective measurement of the CEO’s performance.  If this framework has been established up front, any future decision or discussion on this topic should not be a surprise.

On the other hand, the VC does not have the right to replace the CEO if the CEO is getting the job done.  Not even if Steve Jobs wants to come in and run the company.  Of course, a discussion between the entrepreneur and VC would occur and the entrepreneur might decide to step down, but in my mind, in the end, that is the decision of the entrepreneur alone.

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