ICYMI — This year for Black History Month I’m using my platform to educate other women, and black and brown entrepreneurs about some of the hardest lessons I’ve learned in business. Although I can’t go back and change time, I’m hopeful that you can take my losses and turn them into a win for your company.
This is the second article in the series and this article is about dealing with compromising situations when it comes to your board, or board members from another company. The first article is about being mindful of billing, contracts, and evaluating different programs. You can read the first article here.
I’m a doula and midwife in residency and, in parallel, I’m the Founder of Wingwomen, a FemHealth Startup dedicated to providing virtual and in-person Gynecology, Family Planning, and Doula Support. The company was ideated out of my lived experience with Preeclampsia in 2021.
Like most entrepreneurs, as my company started to grow, it became imperative for me to look for community and funding sources for my company.
Eventually, I stumbled upon a group called CSL via an online search. After a few years of trying to make contact, eventually, and completely by happenstance, I was invited to pitch Wingwomen onstage at one of their events.
This opportunity is where my story and today's lesson begin.
The group, led by a woman named Andrea, was full of movers and shakers. For a couple of years, I engaged with her community and often had conversations with her about some of the feedback and issues I was facing with investors. Some things were straightforward — bad product market fit, they had a competitor in their portfolio, too early, not enough traction, not deploying capital, but other things were less so — perhaps they were developing another product, misalignments of goals, poor chemistry, etc.
After seven to eight months of telling her what was going on, none of the issues had improved. So one day, the woman suggested that I would benefit from a mentor. Via text, she asked if I had heard of a company named Mahmee, and I explained that I had. I also disclosed that some people may consider us competitors given the vertical of maternal healthcare, and the nearly identical service list.
I didn’t hear from Andrea for a couple of days, but when she re-emerged, she said she reached out to a close friend, and they already made an agreement privately that she would mentor me. She gave me the name of Ms. Coleman via text and simply said she was a good friend. After a quick Google Images search, I saw she was with Dignity Health, and I immediately recognized her ( I didn’t know her personally, but had seen the face before). So based on my trust in Andrea, I accepted the offer to connect.
Shortly thereafter, we were able to connect on the phone. The beginning of the conversation was straightforward, she mentioned she and Andrea were in constant communication and she was happy to do a favor for her good friend. She asked what my business problems were. What I planned to do to address them. And to give her background on some of the historical information about the business and plans etc.. Finally feeling a sense of relief that someone was taking the time to work with me; without hesitation, I opened up and talked through some of the hardships I had faced, and the feedback I had received. I talked about what was next for us. I talked about my personal story and what I wanted to do in my career.
After a pause, she offered some feedback on my answers. We talked a bit more because she wanted me to clarify some of my responses. After critiquing my outlook, only then did she decide to disclose the fact that she was a board member for Mahmee, which is considered a competitor company.
Although words can’t quite convey the feeling of embarrassment, betrayal, and disbelief I felt at that moment. You might be able to infer how you, as the founder of your company, might feel if you were to have found yourself on the phone with a “mentor,” who serves on a competitor's board, who waited to disclose the relationship until after they obtained information about your company.
After the disclosure, the woman offered up that she still wanted to move forward with the mentorship. I declined, but she stressed the importance of having allies and implored me to think about how turning down the offer might impact my career.
I declined again. After more back-and-forth about the fact that accepting her offer could be seen as a breach of her responsibilities to her board, and the fact that I would never receive the actual benefit of a true mentorship given the relationship between companies; we got off the phone.
I followed up with Andrea and asked why there wasn’t a disclosure about the conflict of interest, especially since she was keenly aware that a problem could arise. I received no response. In the months that followed. I afforded her the benefit of the doubt by reaching out, just in case I was overreacting, but I still received no response or apology.
As a founder or CEO, you’ll get to a point in business where you’ll stop doing all the reaching.
If a person, mentor, or investor respects you enough, they’ll find a way to salvage the relationship or clarify their position in a timely fashion. And if they don’t; you’ll still be okay.
This L ( loss) was hard to take, but the experience taught me a lesson in discernment and the value of knowing when to walk away.
Understanding Fiduciary Duty
If you are a first-time founder, or you are not used to working in a corporation with a board, you might not know that most venture-backed businesses have a board of directors and that the board of directors has a fiduciary duty to that company.
A fiduciary duty is a legal and ethical obligation that requires individuals to act in the best interest of another party, placing the interests of that party above their own. When it comes to a board of directors, members owe a fiduciary duty to the company and its shareholders. This duty is comprised of three primary components: the duty of care, the duty of loyalty, and the duty of good faith.
Duty of Care: Directors are expected to act with the same level of care and diligence that a reasonably prudent person would exercise under similar circumstances. This involves actively participating in board meetings, staying informed about the company’s affairs, and making informed decisions.
Duty of Loyalty: Directors must prioritize the interests of the company and its shareholders over their interests. This duty prohibits conflicts of interest and requires disclosure of any potential conflicts that may arise.
Duty of Good Faith: Directors are expected to act honestly and in good faith in all their dealings with the company. This duty ensures that directors make decisions with the genuine belief that they are in the best interest of the company.
Example of Fiduciary Duty with a Board of Directors:
Let’s consider a hypothetical scenario involving a tech company, XYZ Tech Inc., and its board of directors.
Imagine that the CEO of XYZ Tech proposes a merger with another company, ABC Software Solutions. The board of directors, including independent directors and those with executive roles, needs to evaluate this proposal. They must thoroughly review all relevant information, consider potential benefits and risks, and make a decision that they genuinely believe is in the best interest of XYZ Tech and its shareholders.
If a director on the board has a personal interest in ABC Software Solutions, such as holding significant shares in the company, they must disclose this conflict of interest to the board. The directors should recuse themselves from voting on the merger proposal to avoid any perceived or actual breach of the duty of loyalty.
In this example, the board’s fiduciary duty requires them to act diligently, prioritize the company’s well-being, and ensure that their decisions are made in good faith without any personal biases that could compromise the best interests of the company and its shareholders.
What I Learned So You Don’t Have To
As it relates to my experience, not only would it have been unethical for me as an officer of my company to accept her offer, but it could be seen as a breach of fiduciary duty for the board member to extend the offer. Fiduciary duty binds board members to explicit guidelines. Oftentimes, companies also have board insurance to protect the interests of the company and to ensure the company is insured in the event of a misrepresentation. If you should find yourself in a situation like this, here’s what you should know.
Know Your Competitors & Their Allies
The longer you’re in business, people will know who does what, who is funded by whom, and who is allied with whom. I’m not saying this to be harsh, but it’s your responsibility to know or obtain this information for yourself. If you’re proactive and able to network or seek information from the community of entrepreneurs you can usually get pieces of information that will help you navigate. Do not assume all funds list every company they invest in, in their online portfolio. Do not assume all rounds of funding are disclosed when they close, and do not assume all board members will publically state that they are on a particular board. The mistake I made in this scenario was not knowing Andrea and the board members were allied. I also didn’t know that by asking them for help, I’d find myself in this situation. You can avoid this, by having strong intel about your industry or going to someone who will provide honest feedback.
Ask For Disclosure Up Front
After this call, I reached out to a long-time advisor. We talked through the experience and the piece of advice she offered to me was that it is an industry norm for professionals working in the medical field to always make, or ask for, financial disclosures upfront.
Although this isn’t an apples-to-apples example, generally speaking, the individual with the financial interest; or financial interest and/or entity creating the actual or potential conflict; should disclose this upfront. Since the officer was made aware of me and my company first it was up to her to decline the relationship or make a disclosure before proceeding with the conversation. So as you are navigating professional relationships and conversations, make it a habit of asking for disclosures upfront. You cannot assume the other party will disclose on their own accord.
Declining is Always an Option
Engaging in a mentorship with a board member from a competitor might create conflicts of interest or compromise one’s ability to uphold the duty of loyalty. When uncertainty arises about whether accepting such an offer may breach fiduciary duty, it is advisable to err on the side of caution. Declining the offer upfront demonstrates a commitment to maintaining the highest ethical standards and avoiding potential conflicts. It also ensures that the individual’s focus remains undivided, prioritizing the fiduciary duties owed to their own company. Reengaging with the board member as a mentor might be considered in the future, especially if circumstances change, such as when the individual is no longer on the board of the competitor or if legal obligations permit such mentorship without jeopardizing fiduciary responsibilities.
Get Your Own Mentor
As well-intended as some people are, they may not be ideally positioned to help you find support. This experience taught me the importance of deeply vetting relationships with advisors, mentors, and employees before moving forward. In a situation like this, some might argue that the middle person is the one at fault, however, I posit a different perspective; which is that no one can evaluate people for you the way you can do it for yourself. Where possible, I would suggest going directly to the source to find your team. And if you must go through another party to reach someone outside of your network, treat the early interactions like blind dates. Don’t do what I did, and rush in and hope the person will hold you in a high enough regard that they will not put you in a compromising position. As an example, if your friend wanted to introduce you to their friend for a blind date, you’d research that person thoroughly before agreeing to connect. You’d be 8 months deep on their Insta account before exchanging numbers. Use that same caution in business. I’m not implying that you should treat everyone like a love interest, but vet them like someone you’d entrust your heart ( or your company) with.
Cultivate Relationships With Investors Before You Fundraise
Aside from the details about navigating the rules of board leadership, the other resounding theme of my experience is the importance of relying upon your own to scale your company. When you don’t, you’re at the mercy of someone’s kindness to help you get ahead. While it is true that some people will genuinely help you; people are in business to make money, or to help their friends make money. In hindsight had I cultivated some of the relationships with the investors I pitched before raising, I might have avoided being turned away from people who were not a strong fit for me as a person, or for my company. Investment relationships can last up to 9–10 years, and a warm intro isn't enough to enter into that kind of relationship. So be mindful that you need to do the legwork before you start sharing decks or asking for investment.
In closing, I offer one last piece of guidance that keeps me in check — Having an idea is what makes you a founder. The ability to make money with it makes you a CEO. But knowing the law, and having the network to execute is what makes you investable.
*On February 8th, 2024, counsel for Andrea Hoffman and Culture Shift Labs contacted me and asked me to consider removing a paragraph in the article. I agreed to redraft the paragraph. Those changes are reflected in this version on 2/9/24 at noon est.