Tag: Board of Directors
Over and over again people talk about transparency. Many people assert they are transparent, or are being transparent. Few actually are.
I was thinking about this last night while watching the last few episodes of Revenge: Season 2 with Amy. Suddenly the word “transparent” started being thrown around by the Grasons, referring to their new found desire to be transparent. In this case, it was simply disingenuous – they are transparent only when it suits their purposes and usually as a setup of some other nefarious act they were about to perform (or had performed).
Whenever a word makes it into a TV show like Revenge, you know that it’s lost all meaning. And, as I’ve observed in the world of tech and startups I play in, transparency is used all the time to justify something, but rarely actually supported by behavior.
In the “everything that is old is new again” category, the master of transparency, and likely the originator of “open book management“, is Jack Stack. I remember meeting Jack and hearing him talk at the very first Birthing of Giants event created by Verne Harnish in 1991. I read Jack’s book – The Great Game of Business: Unlocking the Power and Profitability of Open-Book Management – about his experience at Springfield ReManufacturing Corp – and was blown away by his thinking. My first company – Feld Technologies – was definitely not run with an open book and Jack’s ideas were very provocative to me.
Over the years, several CEOs I’ve worked with have been incredibly open book, or – if you want to use today’s lingo – transparent. My two favorites are Matt Blumberg of Return Path and Rand Fiskin of Moz. Matt shares his entire board book after the board meeting with everyone at the company (now over 400 people). He’s been doing this since the beginning, and only redacts specific compensation information and occasional legal stuff. Rand shares – well everything – including one of the best, most detailed, and completely transparent posts about a private company financing in the history of private company financings.
When an entrepreneur says he’s transparent, I now ask “do you publish your board book to your entire company?” I view this as a benchmark for transparency. If the answer is “no”, then I ask the entrepreneur what he means by “I’m transparent.” If you can’t be open with your company about the information you report to your board, how can you actually be transparent?
I’ve been on a lot of boards. I’m still on a lot of boards. And I’ve been thinking about boards a lot as I work on my next book Startup Boards: Recreating the Board of Directors to Be Relevant to Entrepreneurial Companies.
I used to think every board needed a chairman and early in my investing career I was often this chairman (or co-chairman). At some point I began feeling like the chairman role in a private company both undermined the CEO and sent the wrong signal to the employees of the company, and I preferred that the CEO be the chairman. I also started disliking being the chairman, as it seemed to create a view that I had some kind of ultimate power and responsibility for the company that I rarely had, and that almost always belonged to the CEO. So I stopped being chairman and in a number of cases refused to be called it, even when I played the role of it. The one exception I made was non-profits, where chairman seems to have a somewhat different connotation. And since I’ve decided not to be on public company boards, I don’t have to make a decision in that context.
Several years ago I started using, and encountering, the phrase “lead director” more frequently. Recently, I decided it’s the right one and have used it to replace chairman in my vocabulary. And, when asked the question, “does a private company board need a chairman”, I now say “no, but it needs a lead director.”
The lead director is responsible for working with the CEO to manage the board of directors. The lead director is always the most active director and in many cases represents the largest non-founder shareholder in the company when a company is private. The lead director is not the communication conduit to the CEO – every director interacts directly with the CEO – but the lead director gets involved in any conflict between a director and the CEO, any concerns that arise, and any conflicts between directors. And the lead director helps the CEO manage the board meetings.
The lead director should be the CEO’s board confidant, organizer, and conflict resolver. I sort of like the word consigliere, as used in The Godfather, a lot, although it has both obvious negative connotations and a different actual function in real life than the one represented in the film, so I’m searching for a better one.
When I look at the boards I’m currently on, I play this role in many, but not all of them. And the phrase feels correct to me.
Do you have a lead director on your board? How about a chairman? What do they do and how does it feel? And is there a better word than consigliere?
I joined my first board of a company other than mine in 1994 (NetGenesis). Since then, I’ve sat on hundreds of boards and been to a zillion board meetings. It crushes my soul a little to think of the number of board meetings I have sat through that were ineffective, poorly run, or just plain boring. I guess that’s part of the motivation I have in writing Startup Boards: Reinventing the Board of Directors to Be Useful to the Entrepreneur (the next book in the Startup Revolution series which should be out sometime this summer.)
In the mean time, over the past two years I’ve done a lot of experiments with the boards I’m on. I’ve tried a lot of different things – some that are awesome, some that don’t matter, some that suck, and some that have been epic fails. For any that aren’t awesome, I’ve tried to kill the experiment quickly so it didn’t hurt anything and when I reflect on everything I’ve tried I think I’ve managed to “do no harm”, which is more than I can say for a lot of the other VCs who I’ve sat on boards with since 1994.
By this summer, I expect I’ll have a very clear view on the best practices from my perspective for making a Startup Board effective. Until then, I’m still running experiments, or experiencing experiments that the entrepreneurs run. And I’m thinking out loud (including in posts like this) on what has worked and hasn’t worked.
One of the things I’ve played around with is the board package. The number of different formats, styles, information incorporated, and distribution methods over the years boggles my mind. I not-so-fondly remember toting around “binders full of board meeting material” in the 1990s. Or pre-Gmail having a “board meeting folder” in Outlook so I could quickly find the upcoming board meeting documents. Or fighting through 19 attachments to an email to figure out where the actual board material was. PowerPoints, PDFs, Word documents, text files, Excel spreadsheets, Prezi docs, videos, email outlines – the list goes on.
Recently, I had a magical moment. I’m a huge believer in distributing the board material a few days in advance, having all the board members comment on it in advance of the meeting, and then having the meeting without going through the board material page by page. No death by endless Powerpoint, no reading a document I’ve already read. My favorite board meetings are the “one slide board meeting” where the only piece of paper allowed in the room is the agenda of the meeting.
When entrepreneurs don’t get this, I suggest that they pretend their board members can read and cognitively process the information in advance. And, if they don’t believe their board members will do this, just start having the board meeting under this assumption and watch how they board members get their shit together and read the material in advance.
In this recent magical moment, rather than receiving anything via email, a Google Doc notification showed up in my inbox. I went to it and the entire board package was in a single Google doc file. The entire management team and the entire board was included on it. As I read through the Google doc, whenever I had a comment or a question, I highlighted the section in question, hit Command-Option-M, and left a comment. Then, as other people read through the package, they left comments. And then the management team responded to the comments.
Voila – an interactive board package. Zero special technology. It wasn’t planned, or assigned. It just naturally happened. When we showed up to the board meeting, everyone had the issues in their mind. We’d already cut out an hour of setup, and probably another hour of discussion. So we got right down to the higher level issues that the board material, and comments, and the responses generated.
In this case, the CEO created a very simple agenda immediately before the board meeting that captured the strategic issues we needed to address. There were a few tactical questions outstanding – they got knocked off quickly. We had a two hour board meeting – 90 minutes of it was intense and fruitful. No one referred to any paper – we looked each other in the eyes for 90 minutes and had a deep, engaged, substantive discussion.
I’ve been describing this as a part of a “continuous board engagement” – similar to “continuous deployment and continuous innovation” in Eric Ries’ The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses. I get information daily from most of the companies I’m involved in. I’m in the flow of a lot of information – some “noise” but a huge amount of “signal.” Then – the week before the board meeting, the current state of things gets consolidated into a dynamic document that allows everyone involved to interact with each other around the content.
I’m going to play a lot with this in the next few months. Any suggested tweaks or changes to this approach? Any obvious pitfalls?
This week I had two meetings with CEOs of companies we’ve recently invested in where the question of “what is an ideal board meeting” came up. I’m writing an entire book on it called Startup Boards: Reinventing the Board of Directors to Better Support the Entrepreneur so it’s easy for me to define my ideal board meeting at this point since my head is pretty deep into it intellectually.
One of the things I always suggest to CEOs is that they be an outside director for one company that is not their own. I don’t care how big or small the company is, whether or not I have an involvement in the company, or if the CEO knows the entrepreneurs involved. I’m much more interested in the CEO having the experience of being a board member for someone else’s company.
Being CEO of a fast growing startup is a tough job. There are awesome days, dismal days, and lots of in-between days. I’ve never been in a startup that was a straight line of progress over time and I’ve never worked with a CEO who didn’t regularly learn new things, have stuff not work, and go through stretches of huge uncertainty and struggle.
Given that I am no longer a CEO (although I was once – for seven years) I don’t feel the pressure of being CEO. As a result I’ve spent a lot of the past 17 years being able to provide perspective for the CEOs I work with. Even when I’m deeply invested in the company, I can be emotionally and functionally detached from the pressure and dynamics of what the CEO is going through on a daily basis while still understanding the issues since I’ve had the experience.
Now, imagine you are a CEO of a fast growing startup. Wouldn’t it be awesome to be able to spend a small amount of your time in that same emotional and functional detachment for someone else’s company? Not only would it stretch some new muscles for you, it’d give you a much broader perspective on how “the job of a CEO” works. You might have new empathy for a CEO, which could include self-empathy (since you are also a CEO) – which is a tough concept for some, but is fundamentally about understanding yourself better, especially when you are under emotional distress of some sort. You’d have empathy for other board members and would either appreciate your own board members more, or learn tools and approaches to develop a more effective relationship with them, or decide you need different ones.
There are lots of other subtle benefits. You’ll extend your network. You’ll view a company from a different vantage point. You’ll be on the other side of the financing discussions (a board member, rather than the CEO). You’ll understand “fiduciary responsibility” more deeply. You’ll have a peer relationship with another CEO that you have a vested interest in that crosses over to a board – CEO relationship. You’ll get exposed to new management styles. You’ll experience different conflicts that you won’t have the same type of pressure from. The list goes on and on.
I usually recommend only one outside board. Not two, not three – just one. Any more than one is too many – as an active CEO you just won’t have time to be serious and deliberate about it. While you might feel like you have capacity for more, your company needs your attention first. There are exceptions, especially with serial entrepreneurs who have a unique relationship with an investor where it’s a deeper, collaborative relationship across multiple companies (I have a few of these), but generally one is plenty.
I don’t count non-profit boards in this mix. Do as much non-profit stuff as you want. The dynamics, incentives, motivations, and things you’ll learn and experience are totally different. That’s not what this is about.
If you are a CEO of a startup company and you aren’t on one other board as an outside director, think hard about doing it. And, if you are in my world and aren’t on an outside board, holler if you want my help getting you connected up with some folks.
I’ve been writing about boards of directors some lately – both changing my behavior as well as thinking out loud as I explore reinventing how boards work for the book “Startup Boards” that I’m working on with Mahendra Ramsinghani. All fit in the context of continuous communications as I believe three things about early stage companies and their boards.
1. Board members should be actively engaged with the company on a continuous / real time basis.
2. Existing board meeting dynamics are often an artifact of how they’ve been done for the past 30 years.
3. The way most board meetings are currently conducted is a waste of time for management, significantly inefficient, and generally ineffective.
One of the very simple tactical things I’m shifting to is a totally different board rhythm. Historically, many of the companies I’m involved in have been on a board rhythm of meetings every four to six weeks. As they become more mature, these board meetings shift to quarterly, although many of them have mid-quarter update calls. The board meetings themselves are long affairs (even the monthly ones) – often lasting three or more hours.
At some point I’ll dissect one of these board meetings and explain all the things that are artifacts of the past. These artifacts are a result of the communication methods that existed 30+ years ago that required paper and face to face meetings and resulted in very structured communications. But for now, I’ll give you three specific things to change.
1. Separate the monthly financials from the board meeting. Send out monthly financials (Income Statement, Balance Sheet, Cash Flow) with a written analysis of them. This written analysis should be done by the CEO (or president / COO), not the CFO, and should be in English, not accounting-ese.
2. Have quarterly board meetings. These should be in person meetings with no laptops, smartphones, or iPads in the room. Give the people pads of paper to write on if they don’t bring their own (I don’t carry paper). 100% attention for the meeting. Arrange the meeting so you can have a dinner the night before or after the meeting. The meeting shouldn’t last more than four hours but should be fully engaged.
3. Provide regular weekly CEO updates, to all board members. The best entrepreneurs I know communicate regularly with everyone in the company and have a structured update process of some sort. The best CEOs send out short but focused weekly updates to their boards. These are not “templated updates” – they don’t necessarily fill in a set of things that they update each week. Often they are just a “sit in front of the computer and send out an email update” type of update full of substance, whatever is on the CEO’s mind, and requests for help. My favorites have typos and look like a blog post of mine (e.g. it looks like someone just wrote it rather than struggled over it for hours to get it just right.)
While my 2012 board meeting schedule is locked in, I plan to shift to quarterly meetings in 2013 for every board I’m on. I’m sure some of my co-investors will still want monthly meetings, but that’ll be up to the CEO to ultimately decide and I’ll commit to being in person for one a quarter, but fully engaged on a continuous basis (like I try to always be.)
tl;dr – Yes.
I’m on the email@example.com list for a number of the companies I’m on the board of. CEOs and entrepreneurs who practice TAGFEE welcome this. I haven’t universally asked for inclusion on this list mostly because I hadn’t really thought hard about it until recently. But I will now and going forward, although I’ll leave it up to the CEO as to whether or not to include me.
In an effort to better figure out the startup board dynamic, I’ve been thinking a lot about the concept of continual communication with board members. The companies I feel most involved in are ones in which I have continual communication and involvement with the company. This isn’t just limited to the CEO, but to all members of the management team and often many other people in the company. Working relationships as well as friendships develop through the interactions.
Instead of being a board member with his arms crossed who shows up at a board meeting every four to eight weeks to ask a bunch on knuckleheaded questions in reaction to what is being presented, I generally know a wide range of what is going on in the companies I’m on the board of. Sure – there are lots of pockets of information I don’t know, but because I’m in the flow of communication, I can easily engage in any topic going on in the company. In addition to being up to speed (or getting up to speed on any issue faster), I have much deeper functional context, as well as emotional context, about what is going on, who is impacted, and what the core issue is.
Every company I’m involved in has a unique culture. Aspects of the culture get played out every day on the firstname.lastname@example.org email list. Sometimes the list is filled with the mundane rhythms of a company (“I’m sick today – not coming in”; “Please don’t forget to put the dishes in the dishwasher.”) Other times it’s filled with celebration (“GONG: Just Closed A Deal With Customer Name.”) Occasionally it’s filled with heartbreak (“Person X just was diagnosed with cancer.”) Yet other times it is a coordination mechanism (“Lunch is at 12:30 at Hapa Sushi.”) And, of course, it’s often filled with substance about a new customer, new product, issue on tech support, competitive threat, or whatever is currently on the CEO’s mind.
As a board member, being on this list makes me feel much more like part of the team. I strongly believe that board members of early stage companies should be active – and supportive – participants. My deep personal philosophy is that as long as I support the CEO, my job is to do whatever the CEO wants me to do to help the company succeed. Having more context, being part of the team, and being in the flow of the email@example.com communication helps immensely with that.
There are three resistance points I commonly hear to this:
1. “I don’t want to overwhelm my board members with emails.” That’s my problem, not yours, and the reason filters were created for people who can’t handle a steady volume of email. If you are a Gmail user, or have conversation view turned on in Outlook, it’s totally mangeable since all the messages thread up into a single conversation. So – don’t worry about me. If your board member says “too much info, please don’t include me”, ponder what he’s really saying and how to best engage him in continuous communication.
2.”I don’t want my board members to see all the things going on in the company.” That’s not very TAGFEE so the next time you say “I try to be transparent and open with my investors”, do a reality check on what you actually mean. Remember, the simplest way not to get tangled up in communication is just to be blunt, open, and honest all the time – that way you never have to figure out what you said. If you don’t believe your board members are mature enough to engage in this level of interaction on a continual basis, reconsider whether they should be on your board.
3. “I’m afraid it will stifle communication within the company.” If this is the case, reconsider your relationship between your board members and your company. Are you anthropomorphizing your board? Are you shifting blame, or responsibility to them (as in “the board made me do this?”) Are you creating, or do you have, a contentious relationship between your team and the board? All of these things are problems and lead to ineffective board / company / CEO interactions so use that as a signal that something is wrong in relationship.
Notice that I didn’t say “all investors” – I explicitly said board members. As in my post recently about board observers, I believe that board members have a very specific responsibility to the company that is unique and not shared by “board observers” or other investors. There are plenty of other communication mechanisms for these folks. But, for board members, add them to you firstname.lastname@example.org list today.
Over the past year, I’ve been systematically trying to change the way the board meetings work for the companies that I’m on the boards of. I’ve done a bunch of experiments and continue to learn what works and what doesn’t work.
Ever since I started investing in the mid-1990’s I’ve been exposed to a concept called “board observer rights.” When we did investments at Mobius Venture Capital, in addition to a board seat, we always got board observer rights. This was a way for us to bring another person to the board meeting other than the board member (usually an associate or a principal but sometimes another partner), or have someone sit in for the board member if the board member wasn’t available.
Early in the life of a company, this often seems manageable. But after several rounds of financings with new investors, I’ve often found myself in board meetings with ten or more people. I think the most I’ve ever seen was about 25 people in the room for a board that had five board members. As you’d expect, there was very little critical thinking or real discussion in these board meetings; instead, the management team just presented to the mass of people in the room. And, in this context, the board members rarely formed a tight and effective working relationship.
Over the last few years, I’ve become very anti-board observer. I’ve been on several boards where the CEO didn’t allow board observers in the meeting. I’ve been on several boards where there were observers in the room, but they weren’t allowed to sit at the board table and could only “observe”. In both cases, the quality and level of discussion in the board meeting was dramatically higher.
I’ve come to believe that formal board observer rights shouldn’t exist. Instead, they should be voluntary and controlled by the CEO. In some cases, the CEO will want observers at the meeting; in other cases he won’t. But it should be up to him.
The best board meetings I’ve been at have been ones that only have the board members and select participants from the management team in the room. Casual discussion, either through dinner the night before or lunch after the board meeting, with an extended group including people from the management team and any other investors, is an effective way to engage everyone else. But the 25 person board meeting is rarely effective.
At the HBS VC Alumni event I was at last week (no – I didn’t go to HBS – I was a panelist) I heard a great line from a wise old VC who has been a VC about as long as I’ve existed on this planet.
“VCs only need three rights: Up, Down, and Know What The Fuck Is Going On”
If you’ve read Venture Deals: How To Be Smarter Than Your Lawyer and Venture Capitalist, you already know that Jason and I agree with this statement. And even though a term sheet might be four to eight pages long and the definitive documents might be 100 pages or more, other than economics, there are really only three things a VC needs in a deal.
Up: Pro-rata rights. When things are going well (up) a VC wants the ability to continue to invest money to maintain their ownership.
Down: Liquidation preference. When things don’t go well (down), a VC wants to get their money out first.
Know What The Fuck Is Going On: Board seat. Beyond demonstrating that older VCs also swear in public, many people believe that with a board seat comes great power and responsibility. In reality it mainly gives one the ability to know what’s actually going on, to the extent that anyone knows what’s actually going on in a fast moving startup.
As I was writing this up, I remembered that Fred Wilson had a post about this a while ago. I searched his blog (using Lijit and the term pro-rata) and quickly found a great post titled The Three Terms You Must Have In A Venture Investment. He attributes this to his first VC mentor, Milt Pappas, and the three terms are the same ones referenced above. It’s a great post – go read it.
Entrepreneurs – don’t get confused by the endless mumbo-jumbo. If you haven’t read Venture Deals: How To Be Smarter Than Your Lawyer and Venture Capitalist grab a copy. Or read blogs. Or do both. And VCs – don’t forget what terms you really care about – focus on making it simple.
I spend all of my working time in the domain of software, Internet, and entrepreneurship. Over the past few years I’ve gotten increasingly involved in a handful of political situations – local, state, and national – that directly impact companies either in the ecosystem I’m part of or that I’ve invested in. Many of these political situations stifle entrepreneurship, innovation, or opportunities for these companies.
I’ve come to appreciate the importance of organizations of like-minded individuals working together to advocate clear positions and help acceleration entrepreneurship and innovation. Historically I’ve been very reticent to formally join anything, preferring to help as much as I can as an individual contributor. Recently, I’ve stepped up my involvement in some non-profits, adding Startup Weekend and Startup Colorado to the list of non-profits I’m working with in addition to my longstanding role as chair of the National Center for Women & Information Technology.
When my long time friend Don Dodge reached out and asked me to join the board of the Application Developers Alliance, I said yes. Developers are at the heart of the universe I work in and central to many of the things I do. Making sure they have a voice in the rapidly evolving software / Internet ecosystem on a global scale is important to me. Hopefully I can be helpful.
I love getting post board meeting emails that are retrospectives from execs in the meeting. This one came a week ago from Jeff Malek, the CTO and co-founder of BigDoor. They’ve been on a tear lately and are in the process of a massive set of Q1 launches for new customers.
We had a solid board meeting, but I suggested they were being too casual about a couple of things, including communication about what was going on. This is NOT a casual group and I knew using the word casual would press a few buttons. And they did – the right ones. Jeff’s retrospective is awesome and he was game to have me share it with you to get a sense of what’s inside a CTO’s head during and after a board meeting.
I have a retrospective addiction. But as a result of looking back at our meeting today Brad, words like ‘casual’ still ringing in my ears, I recognized I’d let some of my own assumptions drive away potential opportunities, maybe even creating some problems along the way. I’ve always run under the assumptions that :
- your inbox is an order of magnitude more onerous than mine (quite)
- the best way to respect and value your time would be to limit email/communication
- you and Keith have regular communications complete with bits about what I’m up to and thinking
- you know even in the absence of communication from me that I’m working like a madman, doing everything I can to make it happen
- you also know through some process of osmosis how much I value you, Foundry, your approach, feedback, etc
Just so you don’t get the wrong idea, it’s not that I took your feedback and concluded that I needed to give you more BigDoor insight, or that you needed more info in general to get a better picture – that’s what the numbers are for.
So while all of the above assumptions are probably true to some degree, here’s the new protocol I’m going to start optimistically running under:
- thanks to your candor and aversion to BS, you’ll tell me to STFU as needed
- you’d like a concise ping about whatever, whenever from me
- you’ll give me feedback if/when it makes sense to, and I won’t expect a reply otherwise, unless I’m asking a direct question
- doing so is likely to benefit both of us, one way or another – hopefully more candid feedback will ensue
- you know that I value your time highly, and mine specifically in the context of devoting most waking hours to making BigDoor a success
- you know that I am incredibly grateful to know you and have you as an investor
Those are my new assumptions. I felt like giving this topic some time and thought, glad I did, will keep it (mostly) short going forward but hopefully you know a bit more about where I’m coming from, out of this.
Thanks again for the time today, I thought it was an awesome f-ing meeting. I always leave them on fire.