LITMIR.BIZ

       Will they attend all board meetings for free or at a discounted rate?

       Will they maintain all corporate records?

       Whom do they represent—the company, the board, investors, or the CEO?

       Will they advise the CEO on relevant matters in managing the dynamic between the board, investors, and the CEO?

       Will they advise the board on governance matters, especially where the board and their financial interests as investors diverge?

       Will they participate in an annual board performance review?

       Represent the Company and Stockholders: Counsel must provide a neutral and dispassionate perspective regarding legal matters and transactions. In many venture-backed companies, outside counsel is often the only person in the boardroom without a material financial interest in the company. Transactions often have conflicting interests between classes of stock, investors with different liquidity time horizons, and management vs. investment interests. Outside counsel facilitates open discussion of potential conflicts and helps structure transactions that maximize alignment while being explicit about conflicts.

       Participate Appropriately in Board Meetings: Board meetings are a time for developing strategy and, except in the most material transactions, not for analyzing detailed and nuanced legal risks. The responsibility for keeping the dialogue at the strategy level lies with both outside counsel and the board. While outside counsel can be the guilty party for hijacking the agenda, board members often suggest concerns with “legal issues” to avoid conflict with management on more fundamental business concerns. If outside counsel is at the board meeting, they can help dismiss these attempts to avoid real issues.

       Engage with Management and the Board Collectively and Independently: Outside counsel should build relationships with the board and management. The CEO should encourage and facilitate these relationships. Non-management board members should demand direct access to counsel and be responsive to outside counsel's requests for engagement with them on matters, especially those involving management conflicts of interest.

       Coach Management on What Should Go to the Board: This may be the first time an entrepreneur has worked with a board, and they need coaching on when and how to engage with a board. Some issues should be dealt with in a properly convened board meeting, while others should be discussed between the CEO and individual directors outside the board meeting. Boards should expect outside counsel to help the CEO with these judgments.

       Keep the Cap Table Clean: Emerging-growth companies have complex cap tables with multiple classes of stock, options for employees, and advisor equity and warrants for debt financing and partner incentives. The average emerging-growth company has a more complex capital structure than most small public companies. Consequently, outside counsel should help maintain good capitalization and other corporate records, including minutes and records of board and stockholder approvals.

       Be Open to Criticism, Don't Be Defensive, and Request Constructive Feedback: Lawyers pride themselves on having a high degree of precision. At the same time, business transactions aren't perfect, exigencies often drive sub-optimal results, and outright mistakes sometimes occur. Your outside counsel should be open to hearing those concerns, and your board should have a mechanism to provide this feedback. Generally, everyone learns something from a well-developed feedback loop. And, as with all feedback, provide it early.

       Never, Ever, Bend the Truth or Be Anything Less Than Transparent: I rarely have observed an attorney lie, but many are willing to be less than transparent. You should demand absolute transparency with outside counsel. When they live up to this obligation, they shouldn't be criticized by the board or management if there is a disagreement.

      1 1. Data from Steven Kaplan and Per Stromberg, “Financial Contracting Theory Meets the Real World: Evidence from Venture Capital Contracts,” Review of Economic Studies 70 (2003): 281–315. An interesting paper on the importance of independent directors is authored by Brian J. Broughman, “Independent Directors and Shared Board Control in Venture Finance” (July 18, 2011). Indiana Legal Studies Research Paper No. 1123840. Available at SSRN: http://ssrn.com/abstract=1123840 or doi:10.2139/ssrn.1123840.