Fuente: Harvard Law School Forum on Corporate Governance and Financial Regulation – Autor: Joseph Mandato is a Managing Director at DeNovo Ventures and William Devine leads the Corporation in Society practice at William Devine Esquire. This post was authored by Mr. Mandato and Mr. Devine.
The board at Tesla, Inc. appointed a new chairperson last month, naming the chief financial officer of Australia’s largest telecommunications company to replace a Tesla co-founder. The board also added two independent directors: an executive vice-president from Walgreens Boots Alliance, Inc., the nation’s 19th-largest company, and Oracle Corporation’s chair and chief technology officer, who doubles as the world’s 10th-richest man.
Will these high-profile additions enable the board to lead Tesla to a new level of zero-emission success? Probably not all by themselves. Especially now, when the growing conflict between demands from investors, regulators, and society adds multiple degrees of difficulty to the work of leading a company, while consuming significant management capacity. The effectiveness of Tesla’s board, like that of your board, will more likely turn not on director star power, witness Theranos, but rather on strength of board culture.
The Power of Attitudes, Values, Practices and Goals
Is board culture really that strong a force? Is the set of shared attitudes, values, practices and goals, i.e. culture, on which the board relies to lead the company really that important? [1] In fact evidence of a correlation between problematic board culture and problematic corporate performance seems to mount by the day.
Consider a report on the September 2017 board meeting of a company whose CEO/Chair and COO, also a director, had reportedly both known for eight months that a foreign power used the company to disrupt U.S. elections. Yet neither one had ever told the other seven board members. The pair sent the general counsel and the security chief to brief the audit committee on the company role in the election disruption. The committee chairperson reportedly “grilled the two men, occasionally cursing, on how [the company] had allowed itself to become a tool for [foreign] interference. He demanded to know why it had taken so long to uncover the activity, and why … directors were only now being told.”
At the meeting of the full board later that day, the audit chairperson reportedly “pelted questions” at both the COO and CEO/chair. The former, “visibly unsettled, apologized.” The latter, “stone-faced, whirred through technical fixes.”
The root of this social media company’s problem seems to have been that, in growing to 2.27 billion users, it “accumulated one of the largest-ever repositories of personal data,” but “had no policy on disinformation or any resources dedicated to searching for it.” As news of the company’s connection to the election disruption emerged, the Senate required testimony from the CEO/chair, and one foreign lawmaker at hearings about the company in London suggested “breaking it up or treating it as a utility.” Employees who expressed optimism about the company’s future dropped from 84% of those queried in 2017 to 52% of those queried in late 2018. “[The company] is no longer considered a supercool company,’” said the president of one career-coaching service. “They need that reputation to get top-level talent, but younger people are really annoyed by the reputation of the company.”
Critical global issue concealed and minimized. Leadership infighting. Operations misconceived. Reputation lost. This board does not appear to have articulated attitudes, values, goals and practices on which it planned to rely in leading the company. Nor does it appear to have worked to make sure that the company could employ such a culture to anticipate and address regulatory and societal demands that would arise as the company grew. Problematic board culture, whether set intentionally or unintentionally, seems to correlate with problematic company operations at Facebook.
By contrast, consider a report on an educational initiative launched by a different company just a few days before the Q32017 board meeting described above. The initiative entailed distributing to 30 community colleges across the country a curriculum for developing apps that the company created.
The CEO indicated that the company, which created 150,000 new jobs through app development in 2016, was “hoping the curriculum turns into jobs.” He noted that the company “had chosen to focus on getting the curriculum to community colleges, rather than four-year colleges, because ‘as it turns out, the community college system is much more diverse than the four-year schools, particularly the four-year schools that are known for comp sci…You want it to increase the diversity of people that are in there, both racial diversity, gender diversity, but also geographic diversity…Right now, the benefits of tech are too lopsided to certain states.’”
The mayor of the city where one of the community colleges is located predicted that the company would “be a force multiplier in the community’s ongoing efforts to lift 10,000 out of poverty and into good jobs over the next five years.”
Three weeks prior to this report’s publication, the company reported that revenues for the services portion of its business model hit an all-time quarterly record. The only time either report needed to mention the board? To note, “[The] board of directors has declared a cash dividend of $0.63 per share of the Company’s common stock.”
Education. Jobs. Diversity. Revenues. Dividends. This board appears to have articulated attitudes, values, goals and practices on which it planned to rely in leading the company. It then worked to make sure that the company could employ that culture to address societal needs while meeting investor demands. A productive board culture seems to correlate with productive company operations at Apple.
The Elements of Boardroom Culture: Interview Excerpts
Given the apparent value of a productive board culture, leaving its development to chance would seem to be a poor way forward. As Sam Gerace, CEO of Convey, puts it:
All organizations have a culture, some good and some bad. Most … just happen. It’s not intangible or fluffy, it’s not a vibe or the office decor. It is one of the most important drivers of long-term success. A thoughtfully and intentionally crafted culture is the foundation that underpins everything we do.
One question for Tesla’s board, then, as for your board, would seem to be this: what attitudes, values, goals and practices will yield decisions that lead the company to fulfill its mission and potential?
To help answer this question, we conducted a series of interviews on boardroom culture, featuring conversations with accomplished tech industry directors, CEOs, investors, and founders. The insights and anecdotes these leaders offered sprang from a range of questions, including these:
- What is your impression of board culture and leadership today?
- Does your board reflect and champion the values you prize?
- Did you have a mentor who helped you understand boards?
- How would you describe your board style?
- What board meeting stands out as one of the best you’ve attended?
- What board meeting stands out as one of the poorest you’ve attended?
- What’s the best board practice you’ve been part of?
- Where has gender diversity helped your board?
- What do you think is the ideal board composition?
- Is any incremental value gained by combining the chairperson and CEO roles?
- If you could give one piece of advice to a new board member, what would it be?
What follows are excerpts of and observations about some of the conversations that in the aggregate addressed two questions: what’s the best board practice you’ve been part of, and what board reflects and lives up to a culture similar to the one you have articulated for your board?
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JM: Is there a board meeting which stands out as the best or one of the best you attended?
Venture Investor 1 [2] : There’s no single best, but most memorable, yes. The first board meeting I ever attended. My partner was traveling, and I was sent to observe. The company was founded by a well-known entrepreneur who put one of his associates in to run it. The CEO turned out to be a crook—one of two times in my career I saw a CEO had misused corporate funds. He had to be fired. There were many experienced people on this board, and everybody in the room knew the CEO had to go, but there was a lot of dancing around the issue. The most senior VC there surprisingly said nothing—not a word. I later understood he was sizing up the others. Finally, an attorney from a prominent Silicon Valley law firm said, “Everybody knows we’re here to fire this guy. Let’s fire him and get on with business.”
JM: Wow. That’s a case of a lawyer stepping up big time and helping to define culture.
Venture Investor 1: You bet. The CEO was fired, and we got on with business. Even VCs who know what they need to do sometimes don’t get right to the point. This attorney knew why we were there, and knew what needed to be done, and he provided the leadership to make it happen.
JM: So, although a difficult board meeting, that was also a good board meeting because you saw how to get straight to the point, to not dance around issues, which neither of us is very good at, and take decisive action…
* * *
JM: I want to ask you about a few best practices, and then some bad practices. What’s the best board practice you’ve been part of?
Venture Investor 2 [3]: On one board, the CEO of the company made a point of having a detailed preparation-and-update call with each board member ahead of each board meeting. With that done, we didn’t need to go through financial statements at the board meeting; we could read them prior to the meeting and understand status and trends in advance. That way, members could use the meeting for more strategic issues.
Contrast this to situations where the CEO says, “Here’s a 50-page PowerPoint I put together that I’m now going to read verbatim.”
The best practice is CEOs who view the board as an asset and a consultancy to them, helping them think through problems or opportunities, and they prepare the board for the meeting in advance.
JM: In your experience, who do you think runs the best board meetings?
Venture Investor 2: I’d say the leadership of an IT-enabled medical services company on whose board I served. She’s a CEO who really knows how to use her board meetings for maximum effect, not just for reporting. She spends an hour of the board meeting doing updates and letting management talk, and then the rest of the board meeting is about strategy. “Now, here’s the current challenge or opportunity we’re thinking about. Here’s what we’re thinking. What do you think? How can we best take advantage of this opportunity? And how can you all help?”
The bulk of the meeting always focuses on, “How do we advance the ball better as a team?” and not, “Note on page seven of the PowerPoint in line 32!” She is super effective.
JM: What board meeting stands as one of the best you attended?
Venture Investor 2: There was a board meeting for a company that was in distress and desperately needed to be recapitalized. After spending lots of money, it needed more. Investors were frustrated, management was frustrated, everyone was frustrated. The capital structure had become completely untenable, which had led to short-term thinking. But we came together in a board meeting and agreed that we would all convert to common. We came up with a formula that we all worked on together. Everybody agreed to it, everybody gave something, and everybody was going to gain something if the strategy worked. We did this to make it possible for the company to continue to exist. Everybody sort of held hands and jumped. It was very collegial, despite the preceding anxiety and frustration.
JM: This sounds like it was a highly effective board.
Venture Investor 2: No, actually it was an especially ineffective board, and I think people finally came to realize it. We had managed ourselves into a corner of our own collective poor thinking and lack of action. So, this wide-eyed clarity developed at that meeting where people realized the only way forward, if there was one, was to hold hands and sing kumbaya and not point fingers at each other and demand our own piece of the action.
This was early in my venture career, and I remember it being very profound. I remember thinking, “Wow, people can work together if they understand their shared interests.” I took that to heart…
* * *
JM: But back to board meetings . . . I love a point you made in a couple of board meetings about the different stages of innovation. Can you remind me of the specifics of that slide you have shown your board a few times? I found it to be an extraordinarily elegant way to help educate the board on the challenge at hand, re-imagining surgery.
Founder/CEO 1 [4]: Sure. I thought up the stages about ten years ago. In my experience—and this is the slide I show—these are the stages of innovation:
- Abject Horror—”Are you out of your mind?”
- Swift Denunciation—”It’s not just a bad idea, it’s dangerous!”
- Begrudging Acceptance—”There may be limited applications.”
- Ringing Endorsement—”I actually proposed this ten years ago.”
JM: I love that! How does that relate to a board of directors and its role?
Founder/CEO 1: It’s about recognizing a pattern that takes place in the innovation world. As a board member at an innovating company, you have to have pattern recognition. You have to see through the stages of new product development and the clutter and ask, “What’s most important? Are these entrepreneurs really focused on important, value-creating activity of the company? If so, how can we help them do more of that?”
JM: That’s great. Is there a specific board meeting that stands out as one of the best you’ve attended, or one that is the poorest?
Founder/CEO 1: The most unproductive board meetings I feel are ones where management delivers bad news at the beginning of the meeting. As an example, when we missed our product development milestone for one of my companies, we had to come in and tell new investors that what we had told them about the product development timeline was no longer accurate. I talked earlier, Joe, about ‘no surprises,’ which you taught me. Well . . . in this case, although we thought we had communicated the bad news, board members hadn’t fully digested or understood the bad news until the morning of the board meeting. Suddenly, our newest investors understood that the company they had just invested in and been so excited about—especially with respect to capturing the value related to product development milestones—was going to grow differently than they had modeled.
They were angry. Because the news wasn’t fully communicated before the board meeting, the board meeting became unproductive. The in-meeting argument became, “How could this have happened?” The resulting argument impacted newly formed relationships. This reminded me in full force that you really have to have the tough conversations you’re going to have before you show up at the board meeting. A board meeting is not the place to deliver bad information that hasn’t already been fully communicated and vetted and that is a surprise to the board.
JM: Is there a positive story?
Founder/CEO 1: Yes. As background, let me posit that it’s dangerous to think that a board member can understand at any detailed level what a new product development effort is all about. Any CEO struggles (or should struggle) with the challenges associated with how deeply to get into details board members may not understand. But the board meeting that I think was a great decision by management and a builder of confidence at the board level is one where we communicated prior to the board meeting, news that we were changing the product strategy, and that the change would have significant ramifications on the amount of capital required to achieve our product goal. Considering board members didn’t have deep internal knowledge about why we needed to make the change, I feared we couldn’t and wouldn’t communicate the specifics in a way that would make sense to board members. I felt the only way they would understand it would be to hear the rationale from the customer’s mouth.
So, I brought in a community hospital surgeon who had never developed products with us or worked with us and who was a potential customer. He explained, with no particular agenda or bias, but with extraordinary effectiveness, the diagnosis and treatment of lung cancer. As a completely objective, but interested party, he walked in and said, “This is just how it is, and this is, from where you are, the most logical pathway.” He offered perspective that board members would never otherwise have gained. He removed suspicions where they might think, “Management is going to spin this however they want to spin it in order to justify what they’re doing.”
His “guest speaker” role proved to be extraordinarily helpful and made our job of resetting the thinking on what needed to happen with the product much easier…
* * *
JM: Is there one meeting that stands out as one of the best you’ve ever attended, were part of, or led? On the other hand, is there a story about one that was really bad, and why?
CEO 2 [5]: I think one of the best meetings took place at the end of the strategic plan work we did. When the company was a private company in its early stages, we didn’t do a long-term strategic plan because we didn’t have enough money to last that long. When we finally got capitalized to a point that we could start to execute a longer-range strategy, we put in place a collaborative approach by our management team and board to ask and answer key strategic questions. We looked at the market, and we took a step back to ask, “What infrastructure steps do we need to take to make that real?”
The roll out of that strategy is one of the best board meetings I’ve attended because there had been so many good thoughts that went into it and it had been a participatory, open process with the board throughout the year. Everyone walked out with an extremely clear view of our future. It was almost a pivotal point for us, because before that the board sometimes became distracted with, “Maybe we could acquire this, and maybe we should think about expanding into this part of the market as well.” We became very clear about where the company was going and the key building blocks we needed to get there. It really crystallized for the board what direct actions we, and they, could take to make that happen.
In terms of the not-so-good board meetings, there was a period of time when we had a board member take on the role of being a joker, which was distracting. He took time in board meetings to tell stories, be entertaining, or start side conversations, which took time away from the business of the board. This reduced the effectiveness of the board meetings. Fortunately, this issue was resolved…
Practical Lessons in Boardroom Leadership
What insights can directors take from these conversations?
- Eliminate jokers, crooks and non-contributors. As indicated by the cases of Carlos Ghosn of the Renault-Nissan-Mitsubishi alliance, Martin Sorrell of WPP plc, Steve Wynn of Wynn Resorts, and Les Moonves of CBS, the need to implement this advice does not seem to be diminishing. And as the crook CEO anecdote set forth above illustrates, implementing this advice can be more difficult than it sounds. The tendency can be to hope that what one suspects about a colleague is not what’s true. All time spent hoping, however, and all time spent “dancing around the issue” consumes time the board could spend on tasks infinitely more germane to the company’s mission and potential. A board meeting is a serious event. An appropriate leadership culture calls for preparation by all and an understanding of the issues to be discussed. Do you see jokers, crooks or non-contributors at the table? In the name of board effectiveness, and sometimes in the name of company survival, these issues must be, to borrow CEO2’s term, “resolved.”
- Distribute information and bad news early. “[Y]ou really have to have the tough conversations you’re going to have before you show up at the board meeting.” Why? You give yourself the opportunity to explain the bad news in full to each board member in one-on-one conversation and, if appropriate, to make a move whose power is routinely underestimated—i.e., to apologize. You give each board member the opportunity to ask all her or his questions, and to digest the news. And you diminish the possibility that the upcoming board meeting slips into an acrimony that impairs the board’s effectiveness for months or years to come. As for distributing information early, the less meeting time spent on “…a 50-page PowerPoint…read verbatim[,]” the more time available for discussing the company’s challenges and opportunities. And, from getting substantive input from what is a talented and experienced group of directors.
- Neutralize suspicion, ignorance and self-interests. Consider board members who (a) think management is spinning a story “to justify what they’re doing,” or (b) don’t understand “pattern[s] that take place in the innovation world,” or (c) are “point[ing] fingers at each other and demand[ing their] own piece of the action.” They are in a less than ideal space for making thoughtful decisions about the company’s key strategic questions. Note that, in the anecdotes above, the community hospital surgeon’s comments, the stages of innovation slide, and the kumbaya discussion moved people out of that space and into a more productive frame of mind. The common denominators in these cases? The ability to improvise, and a shot of ingenuity.
- Know the plan. “When the company was a private company in its early stages, we didn’t do a long-term strategic plan because we didn’t have enough money to last that long.” Time spent on tasks whose time has not yet come/has passed may well be time wasted.
- Capitalize your time together. What’s left for the board to do when jokers, crooks, bad news, suspicion, ignorance, self-interests and untimely tasks are excluded from meetings? Consider what the interviews tell us:
“[M]embers could use the meeting for more strategic issues.”
“The bulk of the meeting always focuses on, ‘How do we advance the ball better as a team?’”
“Wow, people can work together.”
“[A] great decision by management and a builder of confidence at the board level.”
“[S]o many good thoughts that went into [that strategic plan] and it had been a participatory, open process with the board throughout the year. Everyone walked out with an extremely clear view of our future.”
Bottom line: when board culture eliminates distractions and clutter, collaboration improves, and strategy has an opportunity to emerge.
So no matter how much director star power sits around your boardroom table, a focus on board culture would seem to be a most powerful leadership move, because it enables the board’s best strategies, and thus the company’s best performance, to emerge.
Endnotes
1The Merriam-Webster Dictionary defines culture as “the set of shared attitudes, values, goals, and practices that characterizes an institution or organization.” https://www.merriam-webster.com/dictionary/culture(go back)
2Venture Investor 1 is a partner emeritus at a prominent Silicon Valley venture fund, and a veteran member of many boards across a breadth of technologies.(go back)
3Venture Investor 2 has served on many venture-capital-backed boards, and was, at the time of the interview, senior managing director at a large corporate venture fund.(go back)
4Founder/CEO 1 is an innovator, entrepreneur and seasoned board member who has founded six companies, three of which went public.(go back)
5CEO 2 is chairperson, CEO and president of a public company who also serves on the boards of several public and private companies.(go back)
