What Boards are Not
Seth Levine from the Foundry Group published a series of blog posts around ideal board meetings that I wanted to amplify here. Having personally participated in many dozens of board meetings as an operating executive and independent director, I find Seth’s commentary astute at many levels. It is a must read for both the first-time and veteran venture-backed CEO.
There is one section of his posts that I wanted to call particular attention to as I have been wanting to write about this topic for some time. As Seth writes:
Boards aren’t operating bodies. Boards don’t run businesses – CEOs and executive teams do. Boards are fiduciary bodies (and must agree to certain transactions), boards hire and fire CEOs and boards give advice. If your board is trying to run your business it may be a sign that something else is amiss in your relationship with your board and investors. Dig into that if it happens repeatedly. It does not work to have your board running the company.
Early in my CEO career, one major area of ignorance was around the role of the board and overall board management. As you can imagine, that is a difficult to skill to acquire aside from on the job training. Like many CEOs of early-stage companies, I had secured investment for one of my first ventures from both professional investors and angel investors who were successful operators. I presumed that that they would have valuable insight in terms of how I should be running the business because of their former operating experience or because of the pattern recognition they obtained by being an investor. I also thought that this was the right thing to do if I were being a self-aware leader.
It wasn’t until I took my first independent director seat many years ago that I fully realized the flaws in that thinking. A board member’s ability to add operating value to a CEO is limited. To concisely demonstrate my point I will argue the ‘best case’ example.
Congratulations! A successful operating executive who came from the exact industry in which your company plays has joined your board as an independent director. She’s a winner, so she may be already running her next venture, may have moved to the investment side of the house where she sits on many boards, or she is sharing her wisdom across many companies as an independent director in both the business and non-profit sectors.
You are the CEO of a fast growing emerging technology company, having just raised your Series A or B round of venture investment. You have the following Board meeting/communication cadence:
- 4 quarterly Board meeting that last 3-hours
- 8 standing 1-hour monthly update calls in the off-meeting months
That’s 20-hours. Let’s double that (+20-hours) for all the pre-work/pre-read good investors do! 😉 And then let’s add another 20-hours to cover any post-meeting / post-call items. That brings us to 60-hours. Now let’s double that figure to cover all of the unplanned stuff that comes up in a given year – new financing, leadership changes, acquisition opportunities, etc. That gets us to 120-hours.
Now, let’s assume that that time is spent 100% on the business of the business – understanding your customers and the direction of the market – vs. on administrative board matters. (We know that’s not reality but let’s continue in this suspended state for now.)
Therefore, the best case scenario that your perfect board member working at the optimal level of efficiency on your business is no more than 2-work weeks for the average startup CEO. That’s less than 4% of the time you spend thinking/living/breathing/immersed in your business. To quote one of my favorite old school movies Spinal Tap: “It really puts perspective on things, though, doesn’t it? Too much. There’s too much f-cking perspective.”
To be clear, good directors add significant value. First off, like any person not involved in the day to day operations of the business (e.g. board director, advisor, mentor, coach), they can provide a ‘forest through the trees’ perspective that you are lacking being in the trenches as an operator. And experienced professional investors, in particular, do provide the benefit of portfolio pattern recognition since many companies will go through phases that rhyme, if not repeat, with previous investments.
Secondly, if they are on your board, these directors probably have gotten there because they have a particular zone of genius. I have sat on boards with directors who were great product/engineering minds, go-to-market experts, or wizards when it came to data and analytics. In these instances, you should be leveraging their unique strengths outside of the boardroom to gain their perspective on a plan, third-party proposal or model.
Finally, good directors come with good networks and generously offer you access to them. If you believe in six degrees of separation, then those 3-5 additional board members can probably leverage their network to help with your next financing, get you on the radar of an acquisition target or introduce you to an operating executive who already overcame the hurdle your business is currently facing.
But, as I stated earlier, a director’s value is structurally limited. As a CEO you should gather director input and advice, but ultimately make your own decision. You can’t run a business by committee, neither at the board level nor inside the company. That is why the comment from my first professional investor – “I have one real job – to hire and fire CEOs” – at first struck me as him being an a-hole. But, in reality, was a truth I was too naive and inexperienced to know at the time.
By understanding what you should be expecting from your board and, more importantly, what they expect from you as a CEO is a critical first step in having a healthy, productive relationship at the highest level of the organization.
