Phase 2: Shared Governance

The Moment Everything Changed

You took investment. Or you appointed your first external director (maybe because a significant customer or grant provider needed to see ‘formal governance’). Either way, something fundamental shifted - though it may not have felt like it at the time.

Here's what actually happened: you gave up control of your own company.

Not majority ownership, necessarily. Not your vision, your strategy, or your ability to lead. But control - the legal authority to make decisions unilaterally - that's gone. The board now has it. And the board is no longer just you.

There's something else you need to understand: as CEO, you now have a boss. It's the board, which almost certainly includes you as a director.  But that's not the same thing as being in charge.

This is genuinely hard to absorb, especially if you still own the majority of the shares, and especially if the business is performing well and you feel like you know exactly what it needs. The law doesn't care how much you know or how right you are. Once there's a formal board with external directors, governance authority belongs to that board, collectively, and the CEO reports to the board.

The good news: this is how it's supposed to work. A well-functioning board is not your adversary. At its best, it's the team working on your business while you work in it.  That team has legal accountability, real skills, and a genuine stake in your success.

The goal of this section is to help you understand the new structure clearly enough that you can make it work for you, rather than against you.

You might be feeling:

• "I still own most of the company - how can I not be in control?"

Ownership and governance authority are different things. A majority shareholder who is not a director has no legal authority over the company's decisions.

• "The investor director has veto rights - doesn't that mean they're in charge?"

Veto rights are a constraint on specific decisions, not general authority. The board still governs collectively.

• "Everything takes longer now."

Yes, it does. That's the trade-off for shared accountability. The question is whether the board is adding enough value to justify the friction.

• "I feel like I'm under scrutiny all the time."

You are. That's the job of the board. The answer is not to resist it. It’s to provide information well enough that scrutiny becomes a source of confidence rather than conflict.

What you’re feeling is completely normal. Talk to other founders who have navigated this stage of their company’s growth. Talk to your mentors or advisers. But understand that fundamentally, this shift to shared governance is a direct result of your company’s success.

1. What Actually Changed - and What Didn't

What changed:

1. Authority is now collective.

No single director (including you) can make a binding decision on behalf of the company. Board decisions require a majority vote, with each director holding one vote. Once a decision is made, all directors are required to support it, even those who voted against it. In reality, most board decisions are made by consensus rather than voting.

2. The CEO reports to the board.

This is the structural shift founders most underestimate. As founder-CEO, you are accountable to the board for the performance of the business. The board can hire and fire the CEO. If that's you, they can fire you.

3. Delegation is now explicit.

The board decides what authority it delegates to management, and can revoke that delegation. Nothing is assumed.

What didn't change:

Director duties are identical to Phase 1. They do not change.

Every director, no matter what type of director they are, owes the same duties to the company.  Act in good faith, act with care and diligence, don't trade recklessly. Crucially, investor-appointed directors owe their duty to the company, not to the investors who appointed them. That cuts both ways: you, as founder-director, owe your duty to the company, not to yourself.

2. Who's at the Table - and How They Got There

The composition of your board is defined by your Shareholders' Agreement. Read it, and understand it, preferably before you sign it!

In New Zealand, the most common early-stage structure is a board of two to three directors, but this may increase to up to five in some circumstances.

As subsequent investment rounds happen, more directors may be added. At some point, the founder director role may be disestablished - that's the trigger for Phase 3:  Independent Governance.

3. The External Director Value Exchange

When you appoint an external director, you are asking someone to put their name, their reputation, and potentially their personal assets on the line for your company. Understanding what that means, and what fair treatment looks like in return, matters.

What they're committing

Time is the visible part: monthly meetings, papers to read, occasional calls between meetings, and the background cognitive load of carrying responsibility for the company.

Less visible is what they're staking. Every external director takes on personal legal liability the moment they accept the role. If the company trades recklessly, breaches its obligations, or fails to meet health and safety requirements, directors can be personally liable. That liability doesn't sit with the company. It sits with them individually. And they are accepting it for a company that is, by definition, early-stage and carrying real risk of failure.

A note on D&O insurance

D&O (Directors & Officers) insurance should be in place before your first external director is appointed. A standard policy will cover defence costs and certain civil claims arising from decisions made in good faith. What it won't cover includes fraud, deliberate breach of duty, regulatory fines, and reckless trading claims.

Most importantly: health and safety liability cannot be insured against as a matter of law. Under the Health and Safety at Work Act 2015, directors have personal duties as officers of the company. No policy covers this, regardless of the premium. Experienced directors know this. If yours don't, they need to.

D&O insurance is worth having, but it is not the safety net it is sometimes assumed to be.

What directors are typically paid

Current NZ practice is to offer some remuneration for early stage directors, though some boards are completely voluntary. Bottom line - you get what you pay for!  Typically, the preferred approach is a mix of cash and equity, if the company is sufficiently well funded to support small amounts of cash.

• Cash: Typically $500-$1,000 per meeting, or an annual fee of ~$8,000-$12,000
• Equity: Usually options rather than shares, in addition to any cash payment, to the combined value of approximately $25,000 (assuming no cash payment)
• The Board Chair often gets ~1.5x to 2x the fee paid to other directors.
• Investor directors: Paid the same as other non-executive directors. Fees may go to their employer if they work for the investment company which appoints them.
• Founder directors: No board fees. Your board role is part of your contribution to the company - it is not separately compensated on top of your salary. This surprises more founders than it should.

What good treatment looks like

The financial return from being an early-stage director is modest relative to the risk and time they are committing. The founders who attract and retain genuinely good directors understand that the relationship has to offer something beyond the fees: papers worth reading, circulated on time; meetings that start and finish as scheduled; a CEO who is straight with the board even when the news is difficult.

Treat your external directors well. The quality of your board is one of the most consequential inputs to whether your company succeeds. You get the board you deserve.

4. What the Board Actually Does

The board's job is to govern the company - not to run it. Running it is the CEO’s job, within the constraints of a “delegated authority”. Keeping that boundary clear is one of the most important disciplines in Phase 2.

In practice, every director (including you as founder-director) is responsible for:

• Reading and understanding the board report and financial accounts before each meeting
• Participating in collective decisions, with robust discussion of the options
• Assessing solvency at every meeting - at minimum, a CEO statement that the company can meet its financial obligations when they fall due
• Ensuring the minutes accurately reflect who was present, what was discussed, and what was decided

The non-executive directors should take ownership of the board's mechanics: agenda, minutes, action register, annual board work plan. As CEO, your job is to give them accurate and timely information to work with.

The delegated authority framework

One of the first things a new board will want to establish is clarity on what decisions belong to the board and what's delegated to management. This is called a Delegated Authority Framework or Delegated Financial Authority (DFA).

The thresholds below are illustrative for a very early-stage company. Your board should agree specific figures and review them regularly as the business grows. Reserved matters (RM) require board approval and the support of the investor director - the specific reserved matters that apply to your company will be defined in your Shareholders' Agreement.

Note: an out-of-budget expense commitment triggers the approval threshold at the point the commitment is made - not when the invoice arrives or payment is processed. And no, you cannot split a $6,000 purchase into smaller amounts to stay under the CEO threshold. Boards notice.

The board/CEO boundary

The clearest way to think about it: the board decides what and whether. Management decides how. When a board starts telling the CEO how to do their job, that's micro-management and a governance problem. When a CEO starts making decisions that belong to the board, that's overreach and a different governance problem. Both happen. Neither is acceptable.

5. Running a Board that Actually Works

The mechanics of a functional board are not complicated. What makes them hard is consistency - doing them even when the business is under pressure, even when you're time-poor, even when a meeting feels like it's getting in the way of the work.

6. Governance Under Financial Stress

Almost every startup hits a point where the money is running out. If you haven't been there yet, the odds are good that you will be. This is not a sign that you've failed - it's one of the most common experiences in the startup lifecycle. What matters is how the board responds when it is happening.

Under financial stress, governance doesn't pause. It intensifies.

Directors become more exposed

As a director, your personal liability is most acute when the company is at risk of insolvency. The duties you took on at appointment - not trading recklessly, not incurring obligations the company can't meet - become active risks when cash is tight. Every director on your board carries the same exposure. That changes the dynamic at the table.

When runway compresses, directors will increase their scrutiny.

This isn't personal, and it isn't overreach - it's their fiduciary duty in action. Their own legal exposure increases alongside yours.

What changes in practice

In normal operations, a monthly board meeting and a monthly set of financials is sufficient. Under financial stress, that cadence is no longer adequate.

Expect and accept that your board will want more frequent contact. Weekly updates are common. Daily cashflow reporting is not unusual when the company is genuinely close to the wire. This is not micro-management. It is the board doing its job under conditions where decisions have a shorter time horizon and higher stakes.

As CEO, your role is to provide accurate, timely information, even when the news is bad. Especially when the news is bad.

A board that is surprised by a cash crisis has less time and less goodwill to help you solve it. A board that sees it coming has options.

The solvency question

At every board meeting under financial stress, the solvency question needs an explicit answer: can the company meet its financial obligations as they fall due? If the answer is uncertain, that uncertainty needs to be on the table, not managed away.

Directors who allow the company to continue trading while insolvent are personally liable.

That applies to you as founder-director as much as anyone else at the table.

Shareholder loans to bridge to raise

When a company needs cash while it is working to raise capital, bridge financing - typically a short-term loan, sometimes from existing investors - is a legitimate and common tool. It is not a governance failure. It is a board decision, and it requires board approval. The board should understand the terms, the conditions, and the plan for repayment or conversion before approving it. The way the loan is arranged may be impacted by the requirements of the Shareholders’ Agreement.

A down round - raising capital at a lower valuation than the previous round - is also more common than founders expect, and carries real cap table consequences.

Again: board decision, full director alignment required before it proceeds.

The honest version

Financial stress tests every relationship on your board. Some directors handle it well - they've seen it before, they stay calm, and they help. Some don't - they become reactive, protective of their own position, and harder to work with precisely when you need them most.

You cannot fully predict which you've got until you're in it. What you can control is the quality of information you provide and the consistency of your governance process. Boards that are kept informed make better decisions. Boards that are surprised make worse ones.

7. Board Relationships - When It's Working, and When It Isn't

A board is a group of people with different motivations, different risk tolerances, and different levels of experience sitting together and making consequential decisions. Relationships matter as much as process. And when they break down, the impact on your ability to run the business is real.

The good news: most board relationship problems are not outside your control. They feel that way, especially when the difficult person was appointed by someone else and you have no direct power to remove them. But founders consistently underestimate how much influence they have, and overestimate how much they must simply absorb.

What a functional board looks like

A good board operates as a team. Directors disagree - sometimes strongly - but they do it in the room, not outside it. Once a decision is made, everyone supports it. The chair manages the dynamic so that all voices are heard and no single director dominates. The CEO is informed and prepared. Information flows in both directions, and trust is built incrementally over time.

When this is working, you'll feel it. The board meetings are useful. Directors hold each other to account, not just you. The conversation moves between strategy and risk and performance without getting stuck. You leave the room with clarity, not more confusion.

When it isn't working

Board dysfunction is more common than anyone involved will admit. A director who is consistently difficult, who relitigates decisions already made, who uses board meetings to pursue an agenda that isn't the company's, or who simply doesn't do the preparation - these are real problems, and they are more damaging the smaller the board is.

The chair's job is to address dysfunction. That is genuinely true. But the chair is sometimes part of the problem, sometimes conflict-averse, and sometimes simply unaware that their management of the dynamic isn't landing. In practice, it often falls to the founder to push for the conversation to happen.

What you can actually do

• Talk to the chair. If the chair is not the problem, this is your first move. Name what you're observing specifically - not a general complaint, but concrete behaviour and its impact on the board's ability to function. Ask whether they share the concern. A board performance review - which should be signalled in every director's appointment letter - is a legitimate tool to help surface the actual issues.
• Talk directly to the director. This feels harder than going to the chair, but it is sometimes more effective. Most people don't know how they're landing. A direct, respectful conversation gives them the opportunity to respond before it escalates. You may also find that they are unhappy in the role but reluctant to resign because they don't want to let down the company or the shareholders who appointed them.
• Go to the shareholders. If a director appointed by an investor is damaging the business, those investors need to know. They have the power to remove and replace that director. This is not a betrayal - it is exactly the mechanism that exists for this situation. Most investors, when presented with a clear and evidence-based picture of how their appointee is affecting the company, will act.
• Get a mentor or coach. This is the option founders most often overlook, and the one that can make the most difference. A mentor or coach who is not involved in the business, has no financial stake in it, and is there solely for the founder gives you something none of the other options do: a safe place to think clearly before you act. Board relationship problems are emotionally loaded. Having someone in your corner who can help you separate the signal from the noise, prepare for a difficult conversation, or simply reality-check your own behaviour - that is genuinely valuable. It is not a sign of weakness. It is good judgment about where to get help.

A note on your own role

Every founder has encountered a difficult director. Every investor has encountered a difficult founder. The due diligence you do before you sit at the same board table is your best protection. You need to know who your investors are appointing and why, what their track record is in difficult situations, whether you can work with this person under pressure. Once you're in the room together, you are managing the relationship you created.

Also, it's worth asking honestly: is the difficult dynamic coming from the other side of the table, or partly from yours? A founder who is defensive with information, resistant to accountability, or who treats the board as an obstacle rather than a governance function creates problems just as real as a difficult director. The board's job is scrutiny. Your job is to make that scrutiny productive.

8. When the Founder is No Longer the CEO

At some point in the growth of a successful company, the skills that made you a great founder may not be the same skills the business needs in its CEO.

This is not a failure. It is, in fact, one of the clearest signals that you've built something real.

The founder who recognises early that product development or technical innovation or customer relationships is their superpower - and that scaling an organisation, managing a leadership team, and reporting to a board was not - is ahead of most. They support the board in finding the perfect CEO to run the company, while they stay deeply connected to the business in the role that actually suits them. They often end up happier, more effective, and more valuable to the company than they were trying to do a job that didn't fit.

The harder version is when the founder doesn't make that call themselves, and the board makes it for them. This happens. It is one of the most difficult moments a founder can experience - being told by the people you invited into your company that you are no longer the right person to run it. The governance process that enables this is the same one you agreed to when you appointed those directors. That doesn't make it easier. But it is how it is supposed to work.

Whether the transition is your choice or not, the structural reality is the same.

What changes - and what doesn't

As a founder who remains on the board but is no longer CEO, your governance authority is unchanged. You are still a director. You still owe fiduciary duties to the company. You still have a vote at the board table. You still have the right - and the obligation - to hold the new CEO to account.

What you no longer have is operational control. You do not direct the team. You do not set priorities. You do not override the CEO's decisions, even when you believe you know better. The CEO reports to the board, not to you individually.

Who should sit in the founder director seat?

Here is something most governance guides don't tell you: the right to appoint a director to represent founder interests is yours. The obligation to fill that seat yourself is not.

As a founder, you may be exactly the right person to sit on your own board - engaged, committed, and adding real value to the governance conversation. But you may not be. If board dynamics are difficult, if your strength is not governance, or if you would be more effective in an executive role focused on the work you're actually good at, appointing someone else to represent your interests at the board table is a legitimate and often underused option.

That person should have real governance experience and skills - not just someone you trust personally, but someone who can hold their own at the board table, understand the legal framework, and represent your interests effectively by doing what’s best for the company. You retain your shareholder rights and your appointing power. You are exercising that power, not giving it away.

This is worth thinking about carefully at any point in Phase 2, but particularly at this transition - when you are stepping out of the CEO role and reconsidering where you add the most value.

The challenge for the new CEO

Bringing in an external CEO when the founder remains on the board - and especially when the founder remains in the business in an executive role - is one of the most structurally complex situations in startup governance.

A new CEO who walks into a company where the founder is still present, still respected by the team, still deeply knowledgeable about the product and the customers, and still on the board has a genuinely difficult job. The formal authority sits with the CEO. The informal authority often still sits with the founder. The team watches to see who actually makes the decisions. If those signals are mixed, the CEO's ability to lead is undermined before they've had a chance to establish themselves.

The board's responsibility here is to protect the CEO's ability to do their job - including, if necessary, having a direct conversation with the founder-director about the boundary between governance and operations. That conversation is the chair's to initiate. But it often requires the CEO themselves to identify that it's needed.

9. What Happens if You Don't Embrace Shared Governance

Shared governance only works if everyone at the table genuinely accepts what it means. For founders, that acceptance is often the hardest part. This is particularly true if you believe, sometimes correctly, that you know the business better than anyone else in the room.

But resisting the model while nominally operating within it creates its own category of damage. These are not hypothetical risks.

For you, as founder

The founder who is fighting their own board is carrying a weight that compounds over time. The energy spent managing, resisting, or working around governance - instead of running the business - is energy the business doesn't get. The stress is real. The isolation is real.

Founders in this position often find themselves unable to talk openly to anyone: not the board, not the team, not investors. The combination of high stakes, eroded trust, and no safe outlet is a reliable path to burnout.

Reputation follows. The startup ecosystem in New Zealand is small. How you behave under governance pressure - whether you are straight with your board, whether you honour commitments made at the table, whether you handle conflict with integrity - is observed and remembered by the investors, directors, and advisors who will encounter you again in the future.

For the board

Directors who find themselves in a governance structure that isn't functioning will eventually leave.

Experienced independent directors have choices about where they spend their time. A board where the founder is consistently working against collective decision-making, withholding information, or relitigating settled decisions is not a board anyone stays on by choice. Turnover of good directors at a critical growth stage is a serious setback - and replacing them, if it's even possible, signals dysfunction to future investors before they've asked a single question.

For the company

A company with a dysfunctional board is a company making worse decisions than it should. Strategy suffers. Capital allocation suffers. The leadership team - who are closer to board dynamics than founders usually realise - loses confidence. Recruitment becomes harder. And when the company needs its board most - during a capital raise, a crisis, or a major strategic decision - the trust required to move quickly simply isn't there.

In the most serious cases, the company fails not because the market wasn't there or the product wasn't good enough, but because the governance structure collapsed under the weight of unresolved conflict. That outcome is genuinely avoidable.

The shared governance model exists because it works - when everyone at the table accepts what they signed up for. The founder who embraces that, even when it's uncomfortable, gives their company the best possible chance of getting through Phase 2 not just surviving, but thriving.

10. When Phase 2 Ends

The Shared Governance phase of your journey ends when founder presence is no longer part of the governance structure.

• The primary trigger is the departure of the last founder director from the board - whether through resignation, removal, or a decision by the founders themselves not to fill the seat they have the right to appoint.
• A secondary trigger is a shift in appointment and removal rights significant enough that founders no longer have meaningful influence over board composition, even if a founder director technically remains.

The marker, as always, is authority - not emotion, not relationship, not how long you've been involved.

What comes next - and what it means for you

When the last founder leaves the board, the company enters what would be Phase 3: Fully Independent Governance. The board operates without any director whose primary mandate is to represent founder interests. Governance authority rests mostly with independent directors appointed for their skills, independence, and judgment.

For the company, this is a significant structural moment. For you as founder, the practical change is smaller than you might expect.

You are now a shareholder. That status carries real rights - to receive financial information about the company, to vote on matters reserved for shareholders, to participate in decisions about the future of the business at the shareholder level. Those rights don't disappear when you leave the board. What disappears is your seat at the governance table and your direct influence over how the company is run.

If you've done Phase 2 well - built a capable board, developed a strong CEO, and structured your own transition thoughtfully - this moment is not a loss. It's the point at which the company has genuinely outgrown its dependency on any single founder. That is, by any measure, a success.

Most founders who reach this point are surprised by how little they miss the governance work. What they built, and the value it represents, remains. The board meetings, the paperwork, and the weight of collective legal accountability do not.

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Governance for Growth Workshops

https://www.angelassociation.co.nz/aanz-events/

Debra runs Governance for Growth workshops with the Angel Association (AANZ), designed for founders, investors, and aspiring directors navigating early-stage companies.

These sessions cover what a board actually does, how to form one, director responsibilities under the Companies Act, and how to run effective board meetings — all grounded in real startup conditions.

Workshops run across New Zealand and are priced for accessibility ($50 per founder).