The Unusual Case of Reciprocal Severance Deals

When Matt Mullenweg, the founder of WordPress and Automattic, briefly stepped aside from his CEO role earlier this year, it created more than just a power vacuum—it exposed some interesting (and concerning) corporate governance practices that startups and tech companies should take note of.

According to reports, CFO Mark Davies and General Counsel Andy Missan signed reciprocal severance agreements during Mullenweg's brief ouster. In essence, each executive wrote the other's exit package. The deals reportedly included a year of salary continuation and accelerated equity vesting if either departure qualified for the benefits.

Why This Matters for Your Startup

This situation highlights several governance issues that early-stage companies often overlook:

Separation of Duties in Executive Compensation

When executives are involved in drafting their own severance terms—or worse, each other's—the checks and balances that should protect shareholders and the company can break down. The board's compensation committee should be the primary architect of any executive exit packages, with independent legal and financial advisors reviewing the terms.

Transparency and Disclosure

Reciprocal agreements between executives create complexity that stakeholders may not immediately understand. If investors, employees, or board members weren't aware of these arrangements, it raises questions about what else might be happening behind closed doors.

The optics Problem

Even if these deals were entirely reasonable and protective for the company, the appearance of executives looking out for each other can damage trust. In the age of remote work and transparent corporate cultures, perception matters just as much as the underlying reality.

What Founders Should Do Instead

If you're building a company, here's how to handle executive severance thoughtfully:

First, establish a formal compensation committee of your board before you need it. This group should review and approve all executive agreements, including severance terms.

Second, use independent counsel for executive negotiations. Each executive should have their own attorney representing their interests, separate from the company's counsel.

Third, document everything. Board minutes should reflect the reasoning behind severance packages, not just the final numbers.

Fourth, consider disclosure. Even if not legally required, sharing the general framework of executive compensation with key stakeholders prevents surprises later.

The Bigger Picture

The Automattic situation isn't necessarily scandalous—many companies offer generous severance to top executives as a standard practice. But the reciprocal nature of these deals, signed during a period of leadership uncertainty, underscores why governance matters most during transitions.

For startups hoping to scale, the lessons are clear: build your governance infrastructure before you need it, maintain clear separation between those who negotiate and those who benefit, and remember that trust is a currency that's hard to rebuild once spent.

The next time your board discusses executive compensation packages, ask the hard questions now. Your future self—and your investors—will thank you.