Say a startup with limited cash has a financing term sheet in hand. Its governing agreements say the company cannot issue convertible securities or debt securities without the approval of one particular director, the seat an outside investor gets to fill. When the board finally meets, the director arrives with a vote that belongs to him on paper and a phone that holds the real answer.

A Delaware court described something close to this in an opinion issued in May, and a caution belongs up front: the facts below come from the complaint, which the court had to accept as true because the ruling came on a motion to dismiss. No trial has happened. In late 2021 a venture fund proposed to lead a Series A round of $8 million at a $32 million pre-money valuation.1 When the company's founder and chief executive, who also sat on the board, called the investor's appointee, the appointee said he could not approve the deal without permission from his boss at the investor.1 He spent the next two months meeting that boss to seek instructions, then moved the April 2022 board meeting back one more day to obtain them, and when the board convened he said he would vote against the financing, killing it.1 A second financing fell through later that year, and the court recorded that without the ability to raise capital, the company effectively shut down.1

A veto that runs through a relay

A veto is a decision right, and organizations hand them out for a sound reason. Somebody who sees the question at the moment it matters takes the answer on as their own. A representative who must clear every use of the right with a separate chain of command changes what was handed over. The company still has a gate. Nobody stands at it who can open or close it on personal judgment, and the person who actually decides sits somewhere else, hears about the business secondhand, and answers to a different set of interests. In this case the complaint alleged that the investor had a competitive reason to keep rival automakers away from the company's technology, and the court found the pleading strong enough to proceed.1 The complaint accuses the appointee of conduct well beyond carrying messages, including pressing the founder for confidential information about competitors, and those allegations are for the court to sort out. What carries over to an ordinary company is the structure.

Directors can breach their duties through informal action and conscious inaction.1

Waiting is an act with an author

The sentence above is the court's, and it is the line I would hand to any executive who owns an approval process. On the complaint's account, the delay was never presented as a decision. It looked like scheduling. The court treated a director's conscious prevention of board action as conduct that can breach the duty of loyalty, and it held that the claim was reasonably conceivable, the low bar Delaware applies before any evidence is tested.1 Whether the allegations hold up is for later proceedings. My own reading takes the idea further than the court needed to, and applies it to any gate holder: a stalled approval is a choice somebody is making, and the label on the seat does not hide who is making it.

Most gates inside an operating company are not legal vetoes. They are a security review that must be cleared, a regional finance partner who signs off on headcount, a legal reviewer, a portfolio council that meets monthly. The structure matches the one in the opinion. Someone holds a right to say no, and the practical question is whether that person can say yes in the room. I looked at a neighboring problem recently in a piece on sign-off rules that keep the top title and drop the middle rung, and I am not going to rerun that argument here. This one is narrower. It asks what happens when the person at the gate is a messenger.

Questions for the gate you own

My read is that most organizations can name their approvers and almost none can name who the approvers call. I would ask four things about each gate. Can the holder say yes on the spot, and if not, who can? What does that second person want, and does it match what the company needs? How many days does the call usually take? And who carries the cost of those days on a report someone actually reads?

The last question matters because delay leaves nothing behind. In the court's account the clock was cash. In a large company the clock is a hiring window, a customer renewal, or a quarter, and the cost of waiting shows up as work that did not happen. Nobody budgets for it, so nobody feels it until the opportunity is gone.

Think about the gate you control that gets the most traffic. When the person standing at it lifts a phone before answering, what are they asking permission for, and who gave you the right to leave that arrangement in place?