A 4-day self-guided practical skills course on managing your board from Reboot.
A critical mistake entrepreneurs make is not thinking about their board of directors early enough. This course is for any company of any size, including those which haven’t yet taken investment.
This was originally published on my old blog, The Monster in Your Head, and was later used as the basis to the foreward to Brad Feld’s book, Startup Boards: Reinventing the Board of Directors to Be Useful to the Entrepreneur. It’s a book that we highly recommend getting a copy of if you have a board, serve on a board, or about to get one.
Why the hell does my board act like that?
The phone rang at the appointed hour. My client, a software company CEO, was calling for his regular session. I picked up the phone:
“Hello”
“Why the hell does my board act like that?”
“Good morning, James,” I answered and we both laughed.
We talked through the upcoming financing. Some of investors—folks who came into the company only in their last round—were already jockeying around terms and prices of the upcoming round. Some of the other directors—investors who’d been with the company since the beginning—were also beginning to draw a hard line around terms that they would find acceptable.
In a sense, while they were all directors, as investors they were beginning to play a game of chicken with the company’s financing—each holding fast to a position deemed best for the shareholders they represent and yet, as the negotiations would tick on, the company’s ability to actually raise the needed funds could be jeopardized.
After the session, I asked him he if I could quote him.
“Sure,” he wrote, “just let me know if I ever end up there with an actual video recording of me calling [the board member] a ‘fuckhead’ – it’s not that I’d be bothered by that, it’s just that I’d want to make sure I sent the link to all my friends.”
A year ago I was sitting in office of the CEO of a company on whose board I served. The recently elected chair and the CEO were screaming at each other and, as usual, I found myself trying to meditate.
“What you don’t understand,” said the chair rising from his chair and trying to tower over the seated CEO, “is that you’re here,” and he held out his right hand, palm down, “and the board is here,” and he moved his left hand on top of the right, again palm down, “and I’m here,” and he placed his right hand over the left.
My client’s question was spot on: Why does this happen? What is it that makes the relationship between board members, investors, and management so tricky? And, even when you remove the notion of director as investor (or investor representative) you can still end up with troubled relations.
The board/management relationship is tricky, complex, and nuanced. There are few structures within traditional businesses that are quite like it. Most businesses, indeed most organizations, are built on some variation of a command and control structure. Because of their inherent hierarchical nature, it’s often clear who’s in charge, who makes the decisions, and who’s ultimately responsible.
Even in enlightened business, as people like Warren Bennis have pointed out, where the power and decision making reflects not the pyramid of classic command and control but the inverted pyramid of the ways in which information, and therefore, accountability should flow, there’s relative clarity.
But when it comes to boards of directors, confusion is often the norm and, as a result, there’s often frustration and anger. For example, does the CEO work for the board of directors or the company? Does the Board “work” for the company? Who holds individual board members accountable for the actions? And what is the relationship between board and staff members?
And underlying all of this is the responsibility to represent the shareholders.
I’ve served on dozens of boards of directors; this includes public and private companies, for profit businesses and not-for-profit organizations and I think the core troubles stem from a misunderstanding of the key elements of the roles.
Directors aren’t quite like any other management position in an organization. They have power but often times lack the information to wield that power as well as managers. They have perspective—often times significantly more experience than senior management but, by the nature of their responsibility, they are disconnected from the day-to-day operations.
Directors need to remember they’ve a delicate balancing act of influencing without dictating, and engaging and sharing their experience and perspective by virtue of their gravitas as much as a result of their power.
Management, too, needs to remember that the task of being a director or a trustee is unlike any other job one has ever had. There’s an explicit accountability that goes along with the job and that fact, combined with the implicit lack of information, can cause most folks to feel terribly anxious and to act in awful ways.
Everyone on both sides of that divide need to take a step back, see things from the other view, and work towards making the board as functional as possible.
As my friends and colleagues are tired of hearing me say, I’ve never seen a board guarantee an organization’s success but I have seen it guarantee its failure.
JOURNAL
LISTEN
The Reboot Podcast #25 – Live Beyond Compare – with Brad Feld
Longtime friends, Brad Feld and Jerry Colonna talk on Reboot Podcast #25 about VC’s as Dungeons and Dragons characters, Brad’s evolved and evolving investment criteria, defining success, and the single best piece of advice Brad offered to Jerry that changed his career.
The Reboot Podcast #20 – Investors are Human Too – with Bijan Sabet
It sounds so obvious, perhaps even tongue in cheek, but it also seems to be forgotten enough that it needs to be said aloud again: Investors are human too. They, like the entrepreneurs they back, can ride the rollercoaster of emotions that often come with starting a company. In this episode, Jerry Colonna is joined by Bijan Sabet of Spark Capital and they explore some of the tensions that often arise between investors and entrepreneurs, the emotional perspective of the investor, and the importance of purpose and artistry.
READ
Being A Shock Absorber – AVC.com – Aug 29, 2016 “Companies need support and help during times of crises. Boards are uniquely positioned to provide that. The ones who can actually do that are incredibly helpful.” – Fred Wilson
Note To CEO’s: Decisions Come From You, Not The Board – July 11, 2011 “In my leadership experience, people really value when a leader takes responsibility for a decision, even if it turns out to be an incorrect one. CEO’s – don’t be the guy who says “the board made me do it.”” – Brad Feld
Startup Boards: Reinventing the Board of Directors to Be Useful to the Entrepreneur, by Brad Feld In Startup Boards: Reinventing the Board of Directors to Be Useful to the Entrepreneur, Brad Feld—a Boulder, Colorado-based entrepreneur turned-venture capitalist—shares his experience in this area by talking about the importance of having the right board members on your team and how to manage them well.