The Good, the Bad, and the Ugly
(After a run of posts on Europe, capital models and macro mechanics, let's come back down to the ground floor. This isn't an opinion piece, it's the blunt conversation I have with founders over coffee before they sign a term sheet. Drawn from years on boards across sectors and geographies rather than any textbook, so take it as a practical knowledge/experience sharing note. Governance is the most ignored line item in private markets, and the one that can kill softly more often than one thinks).
When most people hear "governance" they reach for the legal machinery: the board pack, the committee structure, the protective clauses in a shareholders' agreement. I mean something broader.
Governance is simply how consequential decisions get made, and how those decisions stack up against the long-term value of the company. That happens as much on the cap table, at the negotiating table and on the shop floor as it does around a boardroom. Above all it's a human game — judgement, ego, incentives, and the willingness (or refusal) to pick up the phone. If you want a tidy, sanitised framework, you'll be disappointed. Governance lives in behaviour, and behaviour is messy.
THE FIRST LAW OF BOARDS
In his short, savage little book The Basic Laws of Human Stupidity, the economic historian Carlo Cipolla lays out five laws on human stupidity. Three matter here. The first: Everyone always and inevitably underestimates the number of stupid people in circulation. The third: A stupid person is a person who causes losses to another person or group of people when he or she does not benefit and may even suffer losses. And the fourth: Non-stupid people always underestimate the destructive power of stupid individuals.
Boards obey the three laws. There are far more poor boards in circulation than founders assume when they raise, and “stupid” boards do exponentially more damage than anyone prices in at signing. A genuinely excellent board is the exception, not the base case. Walk into a fundraise believing a board is a neutral, mildly helpful body that convenes four times a year, and you've already fallen into Cipolla's first law. Assume instead that governance is the part most likely to be quietly broken, and make your prospective partners prove otherwise.
THE BAD AND THE UGLY
It helps to split the field into three: the good, the bad, and the ugly. Survival depends on telling the last two apart.
A bad board member is merely unhelpful — disengaged, under-prepared, reading the pack for the first time in the room. Irritating, energy-draining, but a resilient company manages around them.
An ugly board member is a different animal, because the harm is active. This is the director who has quietly reduced fiduciary duty to two reflexes: demand financials at every turn, and cut costs to look disciplined. Let's be fair — cost discipline is survival, and a board that ignores it fails in its own way. But ugly governance isn't cost management; it's reflexive cutting divorced from any growth or commercial logic, the act of cutting mistaken for the job of governing. This person will ultimately undermine the value of what he/she ought to defend and grow.
And the damage rarely stays in the room. This is Cipolla’s fourth law mentioned above. This is the director who slow-walks approvals, goes silent the moment a signature is needed, and leaves management exposed mid-sentence in front of a lender, a regulator, a co-investor. The harm is way deeper than one might think. Multiply that across two or three directors and the company seizes up.
There's a subtler cost almost nobody names: the tax on the cap table. When a director demands disproportionate reporting, endless bespoke data and management time to soothe one fund's anxieties, doesn’t rationalise decisions, doesn’t act in anyone’s best interest (i.e. is stupid) those costs aren't paid by the capital the person represents — they're paid out of the company, which is to say out of every shareholder's pocket, including the ones who never got a seat and never asked for any of it. One investor's nerves or its director nomination becomes a tax levied on all the rest.
THE GOOD
Set that against the upside, because a genuinely good board is one of the highest-leverage assets a company can own, and it never shows up on the balance sheet. Experienced operators carrying real scar tissue give a founder two things money can't buy: the confidence to move hard when the moment comes, and the discipline to kill an expensive mistake before it kills you.
You don't need a mythical "perfect" board. You need something far more basic: a genuine, shared willingness to see the company win. That single thing builds an open culture where no question is treated as naive or off-limits — and the best answers in a boardroom rarely arrive through a tidy chain of command; they come sideways, from an unexpected question nobody planned to ask.
Two corners of the market have managed to inadvertently live this to the highest standard. Impact and purpose-led businesses have taken plenty of stick over financial returns, but they got one thing consistently right: their governance is genuinely human and on point. Directors engage deeply on company matters and go as far as treating the resilience of the management team as a real risk to be managed, not a soft afterthought. Traditional growth companies should steal that without embarrassment.
Family businesses are in part also a place to find some thought-provoking models. Plenty are still a mess of succession politics and unspoken grievance, but the best of them run governance most funds would envy: a charter that separates who owns, who runs and who simply belongs, how decisions are taken, and what are key family business and group values; a forum where a cousin's complaint is aired before it becomes a lawsuit; succession mapped a decade out rather than at the deathbed, decisions are bound by long term values and outcomes. Most of these playbooks never go public, and it's a real loss they aren't taught in a single business school.
Besides how decisions are made and how the company evolves, there is a humble test that measures where within the spectrum of “the good, the bad and the ugly” a company’s board is: if the people on your board can't comfortably go for a drink together after the most brutal, contentious meeting of the year (the CEO with the directors, the CFO with the audit chair) you don't have a “board”. You have a “standoff”.
Diligence the Capital
All of which leads to the single most useful thing I tell founders: do your diligence on the money with exactly the rigour the money is doing on you.
Take references on the fund, then take separate, forensic references on the individual who'll hold the seat, because they're not the same thing. A top-tier fund can hand you a destructive director; a modest one can hand you a brilliant one. Talk to the founders they've backed, especially the ones whose companies did not go to plan. That's where you learn how someone behaves when reality punches the business in the face. And don't take the cheque until that box has a large, unambiguous tick beside it. Valuation is the number founders obsess over; the board seat is the thing they wave through. It's almost always the wrong way round.
On this topic, diligence cuts both ways. Just as capital protects itself before wiring, a company should vet its capital before banking it — choosing the right director (an independent seat, sometimes), and agreeing how the board will run before the money lands, not after.
Governance Beyond the Boardroom
Governance doesn't stop at the boardroom table. As companies have evolved it has crept outward, to cover almost every relationship and tool that moves the business — and this is where you find the governance failures nobody talks about openly, because they're awkward.
A few that are more common than anyone admits:
Employees who earn equity but don't understand it. They're shareholders now — yet how many actually grasp their vesting, their preferences, their tax exposure?
Employees compelled to invest. Common in asset and money management, and early stage companies, where staff are required to put personal capital into the firm's own funds or the firm’s capital raising. I know of one asset management house that set the minimum at several times the employees’ salary, and despite offering partial finance at a rate north of a generic mortgage loan, made it callable the day you leave — and never once asked whether the people could actually carry it. Nobody consulted, everybody exposed (talking about governance and team spirit).
Commercial entanglements. Suppliers or clients nudged to cross-subsidise a launch, or to tie a contract to a slice of the cap table. Or create joint-ventures. Governance, quietly, by leverage.
Shadow founders. Informal advisors steering foundational decisions in the early days with none of the fiduciary duty that should come with that power.
Suddenly governance isn't a cap table; it's a web of people with real stakes and no clear rules. New actors become stakeholders with real influence, and their governance risk gets ignored — which is precisely how ugly governance is seeded from day one. As AI starts to reshape how decisions get made, and who or what makes them, that perimeter only moves further out. The honest question is whether anyone is building for it.
Four Recurring Failures Nobody Names
Because of this (unspoken) complexity and the nature of private deals, some mistakes repeat, year after year, across sectors and borders. Four in particular quietly kill good businesses, and too often I have been faced with them.
I. No Adults in the Room. The cap table is no longer a clean line between a founder and one fund. It's a crowd — employees, advisors, angels, funds at every stage. Which means governance is no longer only about how investors handle the company; it's about how investors handle themselves. Are there adults in the room?
When an investor leads a round, they don't just earn the right to set terms — their investment committee underwrites a plan and takes on a share of the responsibility to make it work. Every operator knows no plan survives contact with reality. So when a company hits its milestones but needs a short bridge to finish the job, the lead faces its real test. The unwritten code is simple: if the thesis still holds, the lead bridges at least once. Standing behind your own underwriting through the first wobble is governance in action.
Ghosting at that exact moment — or hiding behind committee process while the runway burns — is the failure in its purest form. And it doesn't stay private. The next investor immediately asks the only question that matters: what does the lead know that I don't? That single doubt hangs over everything, and more often than not the recapitalisation dies at the eleventh hour — after the legal fees, after the diverted management attention — with a phone call that opens with "Unfortunately…".
II. Let the Lawyers Lawyer. Another quiet failure: capital providers outsourcing commercial judgement to their lawyers. Don’t get me wrong, good lawyers are indispensable to a good deal, and I have been fortunate to work with amazing lawyers that have that amazing extra commercial & investment sense, but those are rare and the exception.
Hand an adversarial lawyer the wheel with no experienced investor supervising the substance, and you get ballooning fees, dragging timelines, and clauses over-engineered for edge cases that never arrive. You wouldn't send your lawyer to negotiate how many children you and your partner should have. Then don't send them to set the commercial tone of a deal either.
Worse, the friction is permanent. A relationship set up as adversarial stays adversarial. The obscure veto drafted in a vacuum becomes the leverage that holds the company hostage on its next transformational deal. A transaction driven by legal manoeuvring rather than commercial ownership should always be questioned.
III. No Skin, No Seat. Trading equity to a grey-haired name advisor for a passive advisory handshake is dead. A senior advisor worth having today should clear three bars. They report to the board, not just management, so the advice stays honest and doesn't become the CEO's echo. Their fees come from the board's budget, not an operating line, for the same reason. And they invest their own money, because capital risk is what turns a recycled playbook into advice that's actually about your survival. An advisor with nothing at stake is circling for fees; sooner or later it shows. Particularly if a significant portion of employees own equity or are paid in equity long-term.
IV. It Ain't That Kind of Movie. There's a story Mark Hamill (Luke Skywalker in the Star Wars movie saga) tells about filming Star Wars. Shooting out of order scenes, he worried his hair should be wet and matted in a new scene they were about to shoot. Harrison Ford, wisely turned to him and said: "Hey kid, it ain't that kind of movie… If people are looking at your hair, we're all in big trouble."
Oversight works the same way. In a crowded cap table where employees, advisors and funds all carry real risk, the reporting has to fit the stage of the business. A growth company can't run in secrecy, but an institutional director can't govern such a company as if it were listed either. Demanding public-market reporting, monthly audit-grade packs and suffocating bureaucracy isn't diligence; it's a tax on everyone else's bandwidth. It ain't that kind of movie.
And it runs both ways. Sparing a young growth company from bureaucracy is never a licence for management to walk into a board meeting without a hard read on cash runway and the numbers that matter. Reasonableness, in every direction, is the discipline.
A Choice, Not an Accident
Healthy governance is almost never an accident. It's the product of deliberate choices, compounding quietly in the same direction over years. The best boards aren't flawless — they're just people who decided, early and together, that they wanted the company to win, and then built a culture honest enough to get there.
That alignment is the bar founders should demand before taking capital. It's the bar employees should demand before putting their own money at risk. And it's the bar those of us who take the seats owe it to everyone else to hold ourselves to, every single time we walk into the room.