Voting Procedures for AoA Screening Committee
Eliminates “Dual Fiduciary Dilemma” of being a Fiduciary for both the AoA Membership-at-large AND for one or more presenting companies.Insiders’ valuable insights are fully heard by all Screening Committee members.But at voting time, Insiders’ votes are counted in the “Definitive Tally” only on companies where they are not conflicted.
Narrow definition of “Insiders”: only those …
1) having an existing financial interest (equity, options, warrants or debt) in a presenting company, or
2) being a board member, or
3) having a client or family relationship with that company.
Disclosures required of “Non-Insiders”: those having …
4) an informal advisor role with a company,
5) Advisory Board role,
6) pending investments,
7) conflicts due to investments in competing companies,
8) other prior meetings with, knowledge of, or acquaintances or associations with a company and/or its leaders.
9) various other non-fiduciary and non-financial existing or contemplated relationships with a company.
Categories 1-9 above must all be disclosed verbally at Screening Committee meetings, but only Categories 1-3 are Insiders, and thus subject to the voting restrictions in the Definitive Tally of votes.
Waiver: If on any given month, Insiders’ conflicts cause there to be less than 6 voting members present with no conflicts, then all members present will vote as one group, with all votes counted.
Camaraderie via “Loose-Tight” Process, popularized from the book In Search of Excellence, guides our balance in screening and selection, where we emphasize fairness and mutual respect.
33% “Selection Safety Valve”: We always consider selecting 4 companies instead of 3 to make sure all the best companies are seen by all AoA members.
Best Practices: AoA’s selection and voting process is a potential Best Practice for Angel groups nationwide, while in its inherent fairness is also reassuring to AoA’s Entrepreneurs.
Comments Welcomed: AoA always welcomes comments on how we can continue to improve processes, and service to your Membership and to Entrepreneurs.
8/8/2011
A more detailed “why” and “how”:
VOTING PROCEDURES FOR AoA SCREENING COMMITTEE
Definition of Insiders: Definitions and assumptions are key for the Screening Committee, especially definitions for: real or potential conflicts of interest, Fiduciary, Insider, and Disclosure requirements for all Disclosers. Having a real “direct conflict of interest” and/or being a “Fiduciary” are by definition material ONLY when one has an existing financial interest in a company. (American Heritage definition of Fiduciary: “A person who stands in a special relation of trust, confidence, or responsibility in his obligations to others, as a company director or an agent of a principal.” Only this formal and direct a relationship makes one an “Insider”. Therefore, Insider is narrowly defined by AoA as: 1) having an existing financial interest (equity, options, warrants or debt) in a presenting company, or 2) being a board member, or 3) having a client or family relationship with that company.
Non-Insiders: Since (by this definition) the following are definitely NOT Fiduciaries, and at most have only a temporary, indirect, or potential ”conflict of interest”, they are by definition NOT considered Insiders: 4) an informal advisor role, 5) Advisory Board role, 6) pending investments, 7) conflicts due to investments in competing companies, 8) other prior meetings with, knowledge of, or acquaintances or associations with a company and/or its leaders, or 9) various other non-fiduciary and non-financial existing or contemplated relationships with a company. The default assumption shall be that a Screening Committee member who is not clearly in one of the first three categories (1-3) above is presumed NOT to be an Insider.
Disclosures at Screening Committee Meetings: Any and all of the above relationships (1-9) with a presenting company must be disclosed directly at Screening Committee meetings. Thus, the broad policy on Disclosure is de-linked from the narrower definition of an Insider. Categories 1-9 above must all verbally disclose these relationships fully, but only categories 1-3 are Insiders, and thus subject to specific voting restrictions described herein.
Perceived Bias and Real Bias: AoA Screening Committee members have long been diligent in disclosing any ”perceived bias” or “real bias”, and now even more methodically during screening, as formally orchestrated by our Managing Director. No one is questioning that process. We’ve taken the High Road here of focusing only on verbal Disclosure by Disclosers, and on “voting procedures” discussed below. Only indirectly as a byproduct of this process are we addressing the broader, general, vague and very subjective issues of “perceived bias” and “real bias”. Like truth and beauty, “bias” is in the eyes of the beholder. We’re all adults, and none ever claim to be as pure as the driven snow. And we are each able to reason clearly, as long as real and potential conflicts are all disclosed.
Camaraderie via “Loose-Tight” Process: The Screening Committee has for years functioned so well in large part due to our loose-knit structure, creative atmosphere, camaraderie, and overall “alliance” feel. So on this thorny voting issue, we seek a “Loose-Tight” process (popularized from In Search of Excellence), for proper balance in screening and selection.
The Looseness means almost no restrictions on discussions, deliberations, voting, etc. amongst we many colleagues who share mutual respect. Counterpoints to the Loose are Tight and broad definitions of Disclosure requirements, and a Tight and yet intentionally-narrow definition (above) of Insiders facing the uncomfortable “Dual Fiduciary” dilemma when voting (see below). Also Loose-Tight because the tight voting segment of our screening and selection process is both preceded by a free-wheeling exchange of ideas and insights, and then followed up at meeting’s end with a broad, open, consensus-oriented final selection discussion. This culminates in a decision on whether to select 4 companies instead of 3, as a 33% “selection safety valve” to make sure all the best companies are seen by all AoA Members.
Resolving “Dual Fiduciary” Dilemma in Voting: The AoA Board wants to preclude Screening Committee members from being put in a conflicted position of having to decide whether to vote for companies in which they have an interest to progress forward to the membership. So this policy change precludes members who are “Insiders” from having this Dual Fiduciary dilemma — of being a Fiduciary for both the AoA Membership-at-large AND for one or more presenting companies. AoA is proactively pursuing a “Best Practice” on this, an integral part of which is emphasizing that the maximum input from Insiders is essential to AoA’s success.
We want to make certain that Insiders’ valuable insights are fully heard by all Screening Committee members during the meeting. But at voting time, Insiders’ votes are counted (in the “Definitive Tally”) only on companies where they are not conflicted. This is intended to eliminate both the Dual Fiduciary issue and any impact it might have on the Definitive Tally of votes.
AoA places a high value on the hard work and insights of all Insiders, Disclosers, Lead Investors, Investors, Board Members, Service Providers, etc. which benefit the AoA, our Screening Committee, our Board, Entrepreneurs, and indeed the entire Angel community. AoA intends that this voting process will provide our members with unbiased access to the best possible deal flow, the maximum insights from all parties, yet also one free of any real or potential perceptions of conflict issues during the voting process which could result from this Dual Fiduciary dilemma faced by Insiders.
This policy was implemented starting with the May 2011 Screening Committee meeting. We ask all Screening Committee members to submit their ballots, but IF one is an “Insider” (as narrowly defined above), also check the “Insider Box”, and the box next to each company on which they are conflicted as Insiders. No boxes need be checked by non-fiduciary Disclosers (4-9) noted above, for which verbal Disclosures during the meeting are wholly adequate, and essential.
Voting Methodology: “Raw Data from All Votes”, “No Insider Votes”, and “All Un-Conflicted Votes” ( = the final, “Definitive Tally”): For any presenting company with Insiders present, that Insiders’ votes are recused and not counted in the Definitive Tally on “their conflicted companies” ( = “their own companies”), and thus all others’ votes determine those companies’ relative position in voting. Then, Insiders’ votes on all other companies are counted in the priority order surrounding the relative position of conflicted companies already tallied (without Insiders). Thus, a tally of “All Un-Conflicted Votes” influence the Definitive Tally. So this sets aside only the votes on which Insiders are conflicted — thus a win-win for all parties.
The methodology is to first count “Raw Data from All Votes” on all companies, as in the past. From this raw tally, he then tallies the “No Insider Votes”, i.e., leaving out all votes by all Insiders. Then, to determine the final and “Definitive Tally” of “All Un-Conflicted Votes”, requires two steps calculated automatically on his Excel Template. First, Insiders’ votes on just their own/conflicted companies are deleted, and thus only non-Insiders determine the final relative position (i.e., average score) of all Insiders’ conflicted companies. Thus, just for these companies, the No Insider Votes’ relative position (scoring) is used.
In the second and final step, and with these conflicted companies’ relative positions already fixed, Insiders’ votes on all companies “not their own” are added back in, tallied in their priority order to fit around the priorities already fixed for “their own companies” Thus, “All Un-Conflicted Votes” are included in this third, final, and “Definitive Tally”. The only votes set aside and not counted are Insiders’ votes on “their own companies”.
For each meeting, the Raw Data from All Votes facilitates a retrospective, comparative analysis. But we will not revert to prior voting procedures, since: 1) we now have a methodology for including all Insider votes on all but “their own companies”, and 2) prior procedures would re-introduce Dual Fiduciary voting bias issues, which is contrary to the best interests of our membership.
New Board-Approved Policy on Voting: As defined above, not all Disclosers are Insiders. Since the new voting policy is solely focused on eliminating the Dual Fiduciary dilemma in voting, ONLY the narrowly-defined “Insiders subset of Disclosers” are Fiduciaries subject to voting restrictions. Consequently, AoA Screening Committee members with a conflict of interest by being “Insiders” are the ONLY persons who have their votes on “their own companies” set aside.
In our trial of this process in March, 20% (i.e., 2 of 10) of voters were Insiders, but only 6% (3 of 50) of all votes cast (10 voters x 5 companies = 50) were these Insiders’ votes on their own companies. We are pleased that AOA’s Board has agreed on a process which considers 94% of all votes in this test case of the Definitive Tally, while setting aside as “recused” on the 6% noted above.
Prior to voting, all Screening Committee members will as always continue to learn as much as possible from Insiders’ comments (and in fact comments from all Disclosers) in order to vote most effectively for the benefit of all AoA members. Anything which would discourage these vital early relationships (1-9) with Entrepreneurs and their startups by AoA Screening Committee members would be detrimental to all parties. Thus, Insiders are defined narrowly in order to not seek an impossible perfection here, nor in any way discourage those vital early relationships.
Waiver: If on any given month, Insiders’ conflicts cause there to be less than six voting members present for the Screening Committee with no conflicts, then all members present will vote as one group, and thus the Raw Data from All Votes becomes the Definitive Tally. But all potential conflicts (1-9 above) should be considered in selecting the companies for presentation.
Advantages Far Out-Weight Any Potential Adverse Impacts: The AoA Membership is not told which company placed 1st, 2nd, 3rd, or 4th at screening. So “placement amongst presenters” in Screening Committee voting is always totally irrelevant amongst the Top 3, and usually amongst the Top 4. Nor is it relevant to any Member’s subsequent due diligence or investment decision, whether it be for a Screening Committee member or the general Membership. Thus, anyone’s reservations on restricting Insider’s voting in any way may be moot or overwrought, except on the incremental margin between 3rd & 4th, or 4th & 5th. But even this is usually offset by the Screening Committee’s always-available option to select 4 companies instead of 3 to present.
Also not to be overlooked is the fact that some Screening Committee members are seeking a way to be relieved of the Dual Fiduciary dilemma of their votes as Insiders being counted for “their own companies”. Assuming their insights are heard and well appreciated by their colleagues, these Screening Committee members prefer to avoid even the perception of voting with that degree of potential conflict. These members value “personal perception amongst peers” over a vote cast. Overall, the Loose-Tight process has been well received by the vast majority of Screening Committee members.
Insiders’ Insights are Crucial: We hope and expect that all Screening Committee members will understand that sharing their Insights is far more important than “everyone always voting on every company” each month. Over the years, most of AoA’s selection dialogues in the final analysis become consensus-oriented, and centered around deciding whether to bring forth 4 companies instead of 3, so that our members see all of the best companies. This is the inclusive esprit de corps we want to continue to encourage — both with the Screening Committee and in our community of Entrepreneurs.
All our screening, voting, and selection processes fit with the Screening Committee’s mindset of always focusing on letting good companies IN, instead of trying to keep other companies OUT. AoA’s process is a potential Best Practice for Angel groups nationwide, while in its inherent fairness is also reassuring to AoA’s Entrepreneurs.
