Striking The Right Balance

I was talking recently to a friend who advises a lot of boards. I asked him his view on boards overall.

He said that he saw two styles, both of which he found problematic.

The first style is the “rubber stamp board” that does whatever the CEO asks of them.

The second style is the “meddling board” that acts like it is running the business.

He told me he sees very few boards that manage to strike the right balance.

I sit on a lot of boards and have been doing so for thirty years now. I have been on rubber stamp boards and I have been on meddling boards. And I agree that both are problematic.

What I have learned over the years from those not great experiences is that boards must respect the line between governance and management and never cross it. But they also must govern. They must push back on things that don’t make sense and they must exercise the authority that has been vested in them by the shareholders.

This need to strike the right balance exists in many other contexts in our lives. It is the essence of good parenting. It is the essence of good management.

To a large extent boards reflect the CEOs that report to them. Strong willed successful CEOs can often construct rubber stamp boards because that is what they want. And weak ineffective CEOs find themselves with meddling boards who are trying to manage the poorly managed company from above.

Neither of these situations is good. The weak and ineffective CEO should be replaced by the board instead of trying to manage from above.

And the strong willed CEO must have checks and balances placed on them, no matter how well they are doing.

A great board chair can be transformative for a board. They can stop the meddling and force the necessary management changes. And they can stand up to a strong willed CEO and build the trust and respect that can lead to a well functioning board.

This is why I do not believe that CEOs should chair their boards. They should find someone who has a lot of board experience, knows how to strike the right balance, and vest in them the authority to lead the board to the right place.

I have been on boards that do strike the right balance and are chaired properly. It is a pleasure to work on these boards and a well functioning board is a thing of beauty. Every CEO should want one.

#entrepreneurship#management

Comments (Archived):

  1. William Mougayar

    Can’t argue with balance. I have been on both sides too, and agree. But the non-CEO as chair is rare in early stage tech companies, but more commonly practiced as a company matures, no?

    1. jason wright

      Yes.

  2. pointsnfigures

    Uhg, dysfunctional boards can be like getting your teeth pulled without novocaine. You can’t postpone the appointment and not go, but you know it will be painful every time you go

  3. awaldstein

    I don’t have your experience and been serving only for the last decade except previously as part of the operating team.Hard to fathom practically not having the CEO be the head though in abstract sounds right.Few of my experiences have been perfect as honestly the extent of self belief that makes a great founder is in conflict with letting go that leadership.At least in my experience.

  4. Kelly LeValley Hunt

    Most CEOs are afraid to forfeit their power of persuasion on the board so much so they sacrifice the potential success.

  5. sigmaalgebra

    ForThey must push back on things that don’t make sense … For some things, for nearly everything in routine business from running a lemonade stand to an old Fortune 500 business, the BoD likely DOES know what “makes sense”.Alas, no big bucks on the line from lemonade to the 500.Or, the US financial system and business are awash in gray beards who, by analogy, are like 1939 battleship admirals or Army generals who didn’t have a clue about radar to radioactivity. So, some mid level officer could give a presentation about the future of aircraft carriers, radar, code breaking, sonar, phased arrays, turbojet engines, shift register sequence signal encryption, and nuclear fission and get laughed out of the room half way through the pitch because all the audience saw nothing that “makes sense”. Bummer.For my project, I’ve seen it like a 1000 cubic mile asteroid coming right at me: At budget time I’d give a pitch to the BoD about a new project and outline the main, solid, and only support for the project, that otherwise would sound like black magic, great for the business if it would work, some MATH. There is little so frustrating to listen to as some math where hardly catch even a single term. So, I can see it clearly: Within 10 seconds the BoD members are looking at each other to see if all the rest of the audience is also shocked and surprised, and soon there will be actual laughter. Then, understanding the seriousness of laughing at the CEO, the BoD will head for the rest room, soiling the carpet on the way, and then meet in the nearest bar to vote me out of the company.To me, flatly, for any idea or work really important for my company, could have a meeting in a small private jet toilet of all the BoD members in the US who would have even a chance at thinking the idea or work “makes sense”. Or if the idea or work DOES “make sense” to a BoD, then it is trivial or at best routine and no advantage for the company and a waste of my time and effort.ForAnd they can stand up to a strong willed CEO and build the trust and respect that can lead to a well functioning board.The goal, the crucial goal, however, is a successful, at least “well functioning”, COMPANY.The first time I saved FedEx from going out of business was due mostly to some really silly concerns of the BoD. In six weeks I designed, wrote, and ran some software that got the BoD at least to shut up if not really understand. But, yes, there really was some related good work to be done, that likely would have saved about 10% of the direct operating cost of the fleet. When I gave a short presentation to a BoD member from, as I recall, Citi Bank, his eyes glazed over within 20 seconds — hopeless. The second time I saved the company was a case of outrageous BoD and C-level incompetence for some simple but quite important math. I don’t want a repeat of such BoD nonsense in my company.

  6. Eric Hanson MD, MPH

    Great discussion. Also, how do you strike the right balance for a company’s Scientific Advisory Board? The two SAB styles I have been a part of are underutilized-not organized, and therefore not helpful, and chaired-organized. The latter can assist the company with their networks, obtaining non-dilutive funding to complement their raise, increasing visibility/awareness of the tech, and tech innovation ideas. What has your experience been with SABs?

  7. JLM

    .One does not “strike” the right balance, one creates it.I get a lot of calls, assignments from board chairman/women who are trying to create that balance.My first question is to ask to see the following documents:1. Articles of Incorporation, ByLaws — these will tell me how the board is to be constituted2. The makeup of the board as current today with an explanation as to why? Investors? Independent Directors?3. The Board Charter4. The Board Committees5. The Board Committee charters6. The ‘list” of things that the board MUST approve <<< haha, never, ever exists, but this is what they fight about all the time7. The history of the last Strategic Plan — who wrote it, when, who reviewed it, what changes were made8. The annual budget and quarterly re-forecasts9. The CEOs last Performance Appraisal <<< bullshit one page memo done in 5 minutes rather than an exhaustive critique of assigned objectives and whether they were accomplished or not10. The minutes from the last Board Retreat11. The minutes from the last 12 months of Board meetings with Corporate Resolutions for actions taken12. The agenda for the last board meeting13. The last Anonymous Company Survey14. The last Anonymous Board SurveyWhew! I am a devotee of Atul Guwunde’s The Checklist Manifesto. If you don’t own this book, you are an amateur. Pro up, y’all!I keep this checklist at my finger tips. When I send it to whoever has called me, they always say, “Yeah, we have all that stuff.”Lightning bolt — they never do, they can’t find them, if they do they are hopelessly outdated. They are bullshitting themselves. Self-delusion is the worst kind of delusion.If you want a good board you have to work at it. It doesn’t create itself.Good news — when a Board and a CEO get their shit together, they soar. The special in Special Forces is organization and battle drill. It is not the people. The people are trained to the standards imposed upon them.The excellence in boards is what they negotiate with themselves and their CEO.It doesn’t happen by accident.I was a CEO for 33 years, a board member for longer, and I advise VCs and CEOs on such matters. The above is all you really need to know, but knowing isn’t enough. You have to actually do it.The board exists to coax a world class performance from the CEO. If they can’t they need to get a new CEO. If you are letting the CEO run the shop, then it is his board. Own yourself before you start telling people what to do.JLMwww.themusingsofthebigredca…

    1. Girish Mehta

      Excellent comment.

    2. sigmaalgebra

      Wow! Using a CAT D9 to clean the BS out of the barn!

    3. karen_e

      Six years ago I put into action JLM’s suggestion to join non-profit boards as a way to get experience, as they are “in some ways more fragile” (he said) than for-profit boards. As I prepare to get deep in the board-weeds after summer break, I’ll just pin this list of 14 documents to my forehead, work and re-work them, and things should go fine. Thanks, JLM.

      1. JLM

        .I just saw this. Thanks for the tip of the hat.It comes as no surprise that you have been successful doing this.Well played.JLMwww.themusingsofthebigredca…

  8. Vendita Auto

    This summer I read “Lost Victories” The war memoirs of Erich Von Manstein much in common with this post albeit the stakes were higher …

    1. JLM

      .Great book. Germany’s best strategic thinker who came through the Ardennes not once, but twice.JLMwww.themusingsofthebigredca…

      1. Vendita Auto

        Just read “Vietnam” (Max Hastings) hard read as it was my era nothing learnt for Iraq. I went from reading Auden to feeling Auden https://poets.org/poem/shie

        1. JLM

          .Hard read. The problem with studying Vietnam is that it lasted a long time, had a lot of different campaigns (Army, Navy, Marines, Air Force), and had some weird geographical constraints. Plus, the S Vietnamese were not very good.The story will likely never find the truth.Some writers have gotten some parts of it right, but it is hard to get every aspect of it right. At its core, it was a huge miscalculation as the Chinese never intended to come to the aid of the north. We read the situation completely wrong and that error misinformed our strategy.JLMwww.themusingsoftheredcar.com

          1. Vendita Auto

            “We read the situation completely wrong and that error misinformed our strategy” Today Alexander, Hannibal, Napoleon would need to be over 5’6’tall to be taken seriously …

  9. JLM

    .Etsy — a former USV company of which Freddie is the Board Chairman — is an interesting study.Company went public and was drifting sideways. There was a guy on their board, Josh Silverman. Look at the guy’s resume. ECommerce assassin.Company fires old CEO, sticks Josh S in the slot.[I buy stock at $30 in May 2017, took a fling on the new CEO because of his incredible resume and having read a couple of things he had written.. Stock price soars to intraday $72. I sell the stock. Nice run.]Why did I buy it? Because JS takes a look at some 800 “initiatives” the company is pursuing, axes about half of them, including their bullshit “b corp” designation. JS announces he has pitchforked B Corp status on 30 Nov 2017. You can “operate” a company to success.It takes a CEO who gets into the weeds, throws the virtue signalling bullshit overboard, and runs the shop for a profit.When Etsy put Josh Silverman, former board member, in the CEO job, the company began to soar.It wasn’t the board. It was the CEO. If you are forced to pick between a good CEO and a good board. Go with the CEO.Tell me how I’m wrong.JLMwww.themusingsofthebigredca…

    1. sigmaalgebra

      I don’t want just the difference between Spruance and Halsey; for my C-level, I’ll put up with either or both of them. I want the difference between (1) a B-17 with iron bombs and (2) a B-29 with Fat Man and Little Boy. E.g., in Europe (1) was used for YEARS, and still we had to go through the U-boat attacks, the Blitz, Omaha Beach, Market Garden, the Saar, the Bulge, etc. With (2), we won the war in a week. It appears that instead of Iwo Jima and Okinawa, we could just have waited a few months until the Enola Gay took off. And I value Rochefort and Turing MUCH higher than ANY flag officer — sorry ’bout that.Rochefort? At the Coral Sea, he let us break even instead of losing badly. At Midway, he let us have the greatest naval victory of all time, turned the war in the Pacific, and gave us time for the Marianas, the B-29, Fat Man, and Little Boy.Turing? He told us when and where Rommel’s supplies were on the way to North Africa, where the U-boats were, and likely that our fake army with Patton really did convince Hitler that the invasion of France would come via the Pas de Calais — crucial information.While Nimitz, Spruance, Halsey, Macarthur, Ike, Bradley, Patton, were all highly honored, both Rochefort and Turing were treated VERY badly.Nimitz and Spruance, at Midway, didn’t make sure the electric arming systems worked and didn’t get the fighter planes and torpedo planes together on the attacks; so we lost all or nearly all the torpedo planes and got no or nearly no torpedo hits. Ike put the wrong generals in charge at Anzio and Salerno. Ike and Bradley didn’t do nearly enough before sending the landing craft to Omaha Beach. Ike didn’t let Patton do his job in Sicily or at the Falaise Pocket. Macarthur was fighting a private war to “return” to the Philippines.Those flag officers, some a lot better than others, were doing routine stuff, fumbling around with human frailties, while Rochefort, Turing, Oppenheimer were winning the war.The US military, starting with the Manhattan Project, and, really, some projects earlier than that, actually did do “the right stuff”.Some such “right stuff” continues: E.g., there’s NO WAY to test a significant nuke bomb without our knowing about it, via satellite in less than a second or via seismometers in less than a minute or so. E.g., from some good work in applied math, physics, and engineering, some F-35s flew from Israel to Iran for a photo shoot, flew around at will, got snapshots of Russian S-300 anti-aircraft missile batteries, various nuke facilities, and flew back, apparently 100% undetected. Message to Iran: You do too much with heavy isotopes, and we can fly over, drop bombs, and fly back, and you will never see us coming, there, or leaving.With some exceptions, US business is agonizingly slow to do such “stuff”. Soooo, the flip side of that agony is an opportunity!!!

  10. JLM

    .A CEO has to answer a big question — do you want to be the best ever? If not, then just coast.If you do, then you welcome a good board, like Tiger Woods used to love to work with a good/great golf coach. He wanted to be the best, so he knew he had to submit to exacting coaching to get that last 1/16th inch of excellence that is what wins a Major.You want a CEO who understands that the pursuit of excellence requires him to keep score in ink, to seek wise counsel, to submit his/her work to objective review.I had an English guy who looked over my shoulder for more than a decade. He wasn’t overbearing; he just kept me accountable. I got better. He made me.In the end, we had a friendly, professional relationship. I never felt a finger. I heard whispers and in those whispers was wisdom. I was honest and he was honest. I shoplifted his wisdom. I admitted my mistakes. I tried not to make the same one more than once.I wanted to be good. I was willing to push a peanut up Congress Avenue with my nose, my naked butt in the air because at the end of Congress Avenue was the pay window. The pay window was only going to be open if I was the first one to arrive and at a level of excellence.Everything I did was to search for, and to trek to: the pay window.Know where you are headed and you will know why you do or have to do certain things. Know yourself. Know where the pay window is.JLMwww.themusingsofthebigredca…

    1. Donna Brewington White

      Great pep talk!

  11. BobWarfield

    I will paraphrase the old 3 envelope joke for executives.A new Board Member asks the Chairman what the role of a Board Member should be. The Chairman hands the Board Member 3 envelopes and tells them, “When you’re wondering what to do, open an envelope.”Well, the new guy has no idea what to do at his first Board Meeting so opens his first envelope. It says simply, “Be an effective sounding board for the CEO, tell him what you think, then get out of his way and let him make the decision.”Sounded good and that’s what our man did. And all was well until the company hit a rough patch. That Board Meeting was quite agitated, and wondering what to do, he opened the 2nd envelope.It said, “Stand by the CEO in times of trouble. Support him and help him to succeed without undermining him or playing the politics that always erupt when there’s trouble.”So he did. And the company got through the rough patch. In fact, it made it through several. But after a few years, things got really really bad. Despite all the good sounding board work and support for the CEO, they just weren’t able to turn things around. The company was in dire straights.Reluctantly, the Board Member opened his last envelope. It said simply, “Hire a new CEO.”Those are the choices folks. Anything else is meddling. Anything else will undermine an effective CEO or at the very least waste a bunch of his time and attention which would be better focused managing his Company and not his Board.If you feel any desire whatsoever to micromanage the CEO, you have put the wrong CEO in place and your own judgement is as much in question as the CEO’s. Think you know it all? VC Board Member?How much real operating experience do you have? “Oh but I’ve got years on Boards of successful (and not so successful) companies.”Great. So you spent 2 hours a month hearing the carefully tailored story the CEO and his Team prepared for you. That’s nice. You’re gaining 24 hours of experience a year. At that rate, you will have 1 year of real experience in about 20 years. And never mind how much the world will have changed in the course of your 20 years.Stick to your 3 envelopes.Next!

    1. JLM

      .Well played.JLMwww.themusingsofthebigredca…

  12. Pete Griffiths

    This is an incredibly hard problem.”They must push back on things that don’t make sense.”But when they do, because it doesn’t make sense to them, they now own the consequences.Governance is two things:1. wise council – which can be wrong and if insisted upon results in the board owning the consequences2. oversight of things that really are nor in question eg legal obligations – this should never be problematicGrant boards the wisdom to be clear on the difference.

  13. jason wright

    “uneasy lies the head that wears the crown”, and yet history has been so much about wars fought to decide who sits on the throne.