legal, equity, business-structureMy friend and I created a product and now we want to turn it into a startup…myself and him are tech oriented so we would want to leave the CEO position for someone with a little more experience in the business side of things….
Any info would help.
CEO’s have a “boss” called “the Board of Directors.” Directorship is not an easy task, and CEO’s usually have no voting rights on the board. Although, frequently CEO’s sit on boards and may even also be the chairperson.
CEO’s do not vote on how to run the company. Directors usually do not tell them “how to run the company.” In small companies these lines are usually very blurred, though.
The Board of Directors is responsible for representing shareholders. Shareholders vote on the board members. The board members vote on the CEO. The CEO runs the company. If you’re worried about how a CEO “votes” then maybe this helps clarify how most companies are structured.
So… if you hire a CEO and that person has minority ownership of the company, then you can always vote them out. However, what’s the point of having a CEO that you boss around? No CEO would really want the job (or do it very well) if their subordinates act as their boss. Also, then you really don’t have a CEO, you have an employee or maybe a personal assistant. So you want to think carefully about how to structure this. From the sounds of it, you want a marketing and/or sales person, maybe not a CEO.
Even so, if you go down that road, a real world example of this is Yahoo - where the CEO is not the majority shareholder, but one of her subordinates is. And he’s happy to be technical and let someone else “run the business” because he knows that protects his share value better than if he ran the business. And he focuses on technical problems, not finance, marketing, sales, etc.
EDIT:
To specifically answer your 3 questions:
CEO’s do not have voting rights. Voting rights are determined by share ownership.
There is no “automatic voting system” for CEO’s. I further explain the role of CEO below.
CEO can be in title only. Some companies are run this way. Titles are merely to help other people understand who to talk to when problems or opportunities come up.
To try to clarify:
Businesses do not succeed if they are “run by committee” or else that is how businesses would work everywhere. Right now you sound like you are talking about “votes” to decide to take a particular action, decide product direction or even daily spending. That should not be voted upon. That is where a lot of startups end up in trouble.
The CEO’s job is to make some of those decisions. That is the purpose of having a CEO. It requires a tremendous amount of trust and responsibility. However, early on especially, the CEO should heavily consider the consequences of going against the expert opinion of another key officer. Usually, CEO’s listen carefully and closely to key people. They can’t know everything, so they should rely on the expertise of those around them.
Generally, the board will meet quarterly to assess the state of the company. It is at these times that they can vote on whether the CEO needs to be replaced. Usually, they will ask questions and provide feedback on their observations of the business activity (like, “why did we not pursue XXX as a possibility? It seems to me that would have offered YYY benefit.”).
This is what I mean by the “board votes on the CEO”. Your question seems to frame the issue more like voting on a day-to-day basis for the direction of the product, etc. A good CEO will delegate authority where appropriate, but make decisions when they need to be made. If you think your opinion should “override” the CEO (or even both of your opinions when it comes to “voting on issues”), then you have the authority of a CEO (or co-CEO’s). As such you should not try to hire one because it will only frustrate them and you, most likely.
A well-seasoned startup CEO may understand their role to be more advisory, but that really sounds like a board member. In which case you should consider hiring board members.
Consider this example: Your CEO starts talking to investors. The investors get interested. Later, they find out you and your partner have “all the voting rights” - and really your CEO is just a “figure head.” Now it gets complicated. The investor probably doesn’t want to keep your CEO (they will want a real one). They have to now negotiate an investment (including determining the new voting structure based on share ownership) AND negotiate the termination or demotion of your so-called “CEO”. It looks like you made things harder, not easier, for an investor.
You don’t have to concern yourself with the issues you raised in your OP.
The CEO is merely an employee. The CEO’s employment is at the discretion of the board of directors. And the board, in turn, is elected by the shareholders. Usually, though not always, each share of shareholder stock entitles its owner to one vote.
The term "CEO" means nothing in formal corporate governance. The state registrar of corporations knows about "officers" like president and VP.
The only rules about what kind of corporate control a "CEO" has relate to what they insist upon before they take the job. Two votes? No. Whatever you, the new hire, and your existing investors (board of directors) agree on? Yes.
Do not, repeat not, give a CEO, or any other employee, a contractual severance package. Nobody is worth that to a small company. Go with "at-will" employment. If they won't do it, you don't want them.
If such a person demands a raise at some point, think about it and negotiate before giving it.
If they demand that their raise be grossed-up so it looks like an after-tax raise, fire them on the spot. If you can't fire them, quit and move on. You'll save a lot of heartache trying to rescue your business from somebody who's trying to loot it, and live to start something new.
If you find they're misusing company credit cards, see the previous paragraph.
This is the voice of experience talking, sad to say.
If you're in the US you might want to check out SCORE. This is a fine way to get free, confidential, and objective advice about running your business. A SCORE person will be able to advise you on hiring an executive.
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