We’re Just Talking
Conversations with top-notch board directors
The boardroom culture of high-growth, tech companies leaves room for improvement. The sad state of governance has contributed to a technology company culture that inadequately serves the interests of stakeholders and threatens shareholder value. Knowing this, I am conducting a series of interviews with people who have sat on boards of many venture-backed companies, and I’m asking this: How can we make boards better?
I recently spoke with Lisa Suennen, who is bold, direct, and smart, and has served on over 20 boards of directors. She is the senior managing director, healthcare, at GE Ventures and a prolific writer (she is managing partner of the media firm Venture Valkyrie). You can see her bio here, but I think she best conveys her passion with these words: “I see it as my job to seek out brilliant people with great ideas and help transform them into exceptional companies with great leaders. Basically, I’m looking for those who want to break the rules to make healthcare better.”
Joe: Lisa, board cultures and behaviors at venture-backed companies are not what they should be. I give them a C grade overall. What’s your impression of board culture and leadership?
Lisa: Well, I think . . .
Joe: [I interrupt her] By the way, we’re recording this, okay?
Lisa: Yes, I know, Joe. That’s why I haven’t said “f**k” yet.
Joe: It was only a matter of time.
Lisa: Anyhow, my impression is that boards are generally not as effective, functional, or useful to companies as they should be because they don’t usually serve the fiduciary and oversight functions they’re meant to serve. I see three reasons for this.
First, some boards are loaded with investors, and the investors sit there with their investor hats on and forget to take off those hats and get into company mode. They sometimes think or advise with only their own investor interests in mind.
Second, there’s the other extreme, which is a sense of worship of the entrepreneurs.
Third, for the most part, people who have joined boards often don’t have any training at all as to what is the correct board structure and how to behave. That doesn’t help.
Joe: You said entrepreneurs sometimes are worshiped by investors, but I’ve seen you in action — you are not worshipful. When you come across a founder who is leading this type of board, how do you hold him or her accountable?
Lisa: It’s my job to be a board member and forget my job as a shareholder and to provide oversight and strategic input to management. When the founder or management goes sideways and isn’t acting in the best interests of the company on strategy, financials, or other matters, then that needs to be pointed out and dealt with.
People on boards are reluctant to take on that fight because they know how it sometimes ends, which is that the entrepreneur gets fired. A lot of people don’t feel comfortable with that. Plus, oftentimes, the founders have structured the boards such that they can’t get fired. It doesn’t have to end this way when there is a collegial attitude and willingness to learn. So, I usually spend a lot of time on board structure, function, and charters early, even before the investment closes. Everyone on the board, including the CEO should be there to serve all shareholders.
Joe: How do you think we as investors can support and impact boards of venture-backed companies?
Lisa: One, I think we should be insisting that the CEO not be chairman.
Two, we should become very clear on the role and responsibility of a board member. We should be obligated to learn, understand, and internalize that.
Three, I think it’s the board’s job to help the CEO set the goals for the company in a tangible and documented way, and then hold the company accountable to it. We need not be “drive-by board members.” We need to actively engage to make sure that things are progressing according to plan. We need to measure and give feedback. When things are going well, we should encourage and not interfere. We should open our networks to the benefit of the company, without hesitation. And when management is not performing, we must step in to see what needs to change. Sometimes it can be saved. But if it can’t, we’ve got to be willing to act and not be worried about our reputations, or friendships, or anything other than how to preserve and improve shareholder value.
Joe: You make a great point. I don’t recall a first board meeting following a financing where board members talked about governance and how the existing board structure should work.
Lisa: I have seen it, but it’s not the norm. I think people take a more relaxed approach to private boards compared to public boards. I think private board training and requirements should be just as rigorous because it can be harder to go from small to medium than to go from big to bigger. I think we should be imposing the same quality of governance on smaller, less experienced companies. We often talk about venture capital being a mentorship-type of job — then, we should provide that mentorship.
Joe: Describe your board style and what you see as your greatest strength as a board member?
Lisa: My style is very direct, but casual. I try not to be antagonistic when being direct, but sometimes it is perceived as a challenge to authority. I try and use humor to break up tense situations, and I think that’s helpful. I think my best skill on a board is that I take the responsibility seriously and that I have good skills in the functional areas like product, sales, marketing, and branding. Honestly, we are all there for the same reason, which is to maximize the value of the company and the success of management. I try to keep that in mind at all times.
Joe: 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?
Lisa: 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.
Joe: Who do you think runs the best board meetings?
Lisa: I’d say Deborah Kilpatrick of Evidation Health in San Mateo. (IT-enabled medical services). 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.
Joe: What board meeting stands as one of the best you attended?
Lisa: 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.
Joe: This sounds like it was a highly effective board.
Lisa: 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.
Joe: How about worst practices. What’s the worst board practice you’ve seen?
Lisa: Misogynistic behavior. I deal with that, too. It’s terrible. Normally, I’m the only female on the board. The good news is that there’s no line for the ladies room. The bad news is that people really don’t want you to talk sometimes, or your ideas are not valid until re-spoken by a male, or you’re perceived to be less strong of a thinker because you’re wearing a bra. In this day and age, I find it very common and disheartening. By now, I keep thinking people will start to wake up, but, sadly, not so much.
Joe: It’s stunning, isn’t it? You’re helping do something about this, aren’t you?
Lisa: Yes. I started a company called CSweetener, which is a mentoring company for women. It’s like a Match.com in that we match women executives in healthcare with mentors, both male and female. A lot of the mentorship that women execs want is how to be a good board member, how to use their board effectively, and how to get boards to work with them effectively. Also, how to get financing at all, if you’re a female entrepreneur, how to advance in one’s career — the needs are broad and this seems to be helping.
I think in healthcare it’s particularly stunning that gender is such a problem, considering that women are the primary customers in most health care settings. I was once on a board of a company that produced and sold gynecological products. There was hardly a female in the building, but for me during quarterly board meetings. I listened with both amusement and horror at the male mischaracterization of what happens when you go to the gynecologist. Amusement, because it’s hilarious, but also horror because this is a company that has my money in it. I was like, “Oh my God!”
I think boards need to be reflective of the company’s target market. The board practice of having a bunch of people who have known each other for 30 years, who may or may not have any value to the company, is not helpful.
Joe: You know what, when I co-founded Gynecare some time ago, there wasn’t a woman in the company. The customers — women — were not represented in the company. Dumb!
Joe: This was a long time ago. Is that an excuse?
Lisa: No, because, you know, even back then I’m pretty sure all the vaginas belonged to women. Look, Joe, I spend a lot of time on this issue because it’s so important. In Europe they have mandated quotas of women on boards, which I think is a good thing. The research that has been done, and there is lots of it, shows that companies with diverse boards are more profitable and have better return on equity. In other words, even if you don’t want to add women to boards because it’s good for humanity, then do it because you may make more money.
Joe: Is there a woman who sits on boards now who you think is making good headway on changing this dynamic?
Lisa: Stacy Enxing-Seng. She was formerly at Covidien and is someone I admire greatly. She’s on several public boards and private boards, and she’s a smart, thoughtful person.
Joe: Okay, back to worst practices. What meetings stands out as the worst you attended?
Lisa: One was a medical device company board that you and I shared in the early 2000s, but you weren’t on the board yet. I had ended up in the B or C round of financing. At the board meeting a week after the closing of the round, management pulled out the presentation with the financial plan: “Here’s what we’re going to do.”
I looked at it and said, “This is not the plan I saw for due diligence.” I had looked at the financial plan a week earlier, so I remembered it well.
They responded, “Oh that would be an investor plan. This is the actual plan.”
My exclamation and disbelief caused a kerfuffle, and the meeting came to an abrupt end. My colleague who co-led the deal, and I, both said, “Well, we’re gonna force a recision unless we can come to some better outcome here, given that our investment closed a week ago.”
This led to the deal being restructured. We did come to a better outcome, but it was very upsetting because we knew right away that we had liars for management.
Joe: Describe a terrible board meeting?
Lisa: There was a guy who ran a health IT business and came to every board meeting with a new financial plan that was literally impossible to achieve. I mean every time, it was, “We’re gonna go from a million dollars this year to 200 million dollars next. And don’t look over here about how it’s going to happen.”
The first five minutes of every board meeting were an apology for why we’ve been unable to hit projections, and then, “Now we’re absolutely for sure going to make it,” which we never, ever did. He didn’t have good rapport with board members, he rolled his eyes at people for not agreeing with him, and he was a poor team player. But he had a couple of independents that he had put on the board that kept him from being removed. That was unfortunate. He really needed to be removed for that company to succeed. It [his removal] ultimately happened, when even insiders decided enough was enough, but it was several years late.
Joe: If you could give one piece of advice to a new board member, what would it be?
Lisa: If it’s the CEO who’s a board member, I would advise them to learn how to really listen, not just talk, but truly listen. Work on stepping back from yourself and taking the advice of others who’ve been there and done that and who’ve seen it before. Their thoughts may or may not be correct, but at least synthesize it into your thinking, and if you disagree, fine. Be a sponge, not Teflon.
As far as new board members who are not on the management team, my advice to them is to build personal relationships with each board member. Talk to other directors offline, meet them in person, create a rapport, because when the s**t ultimately hits the fan, and it will at some point, then you have a basis for negotiation and collaboration that is not just a quarterly forced march into a room. It’s important to build relationships with the colleagues you have around you, so you act like a team when you need to.
Joe: I like that. Was there a mentor who gave you great advice on how to hold a board meeting or how to be a good board member?
Lisa: No, not really. If I am a good board member (and I hope I am), I think it’s from watching and learning. I saw so much crap when I started out doing this. I talked to a lot of people about it, and I talked to you about it, Joe. I think I have taken note of the good people who had a great style all along the way. They were responsible and effective communicators, and they really cared about the company above all else.
I also took a board training class that the NVCA used to deliver. I remember really taking to heart the fiduciary responsibility part — realizing and believing that’s my job.
In fact, more recently someone new to venture investing said to me, “My fund is telling me I should go take this training class — is it worth it?” I said, “Hell yeah!” Hearing about the goal of a board and understanding the legal issues are vital tasks. Particularly, in times of financial distress and insolvency, you need to understand the order of operations for debt repayment and how to handle employee matters. You need to know not just about the good times stuff, but also about the bad times stuff.
I don’t think NVCA has the course anymore. I know Stanford and Kellogg have courses, and maybe University of Michigan and the Angel Capital Association.
Joe: As far as separation of chairman and CEO roles, do you think that’s always the best way to go?
Lisa: Not always, but it’s my strong preference. I really believe those roles should be separated for objectivity, but I don’t always insist on it because sometimes it’s just not gonna happen, or it’s not prudent at the moment for some reason.
I do think the point of the chair is to help corral the board to provide oversight of management. So, while the CEO is almost always on the board, I really don’t like to see a second management member on the board. That bothers me.
Joe: What about independent board members? That is such a potentially valuable resource, but people don’t always do a great job of spec’ing that out.
Lisa: It’s horrible! Independent board members can be such a good resource. Managers often call somebody they know, who’s their pal or who they did something with once upon-a-time-God-knows-where-or-when, and they don’t often enough think, “What do we actually need in this room?”
If a football team didn’t have a tight end, they would go get one; we should look at the board the same way. What’s missing from the skill set in the room? Is it marketing; sales; finance? What does the company need to succeed? Let’s bring in someone who can truly add value and who is truly independent. The independent seat becomes especially important in times of complexity, when everybody’s conflicts of interest rise to the top. To have a couple of people who don’t have conflicts of interest is really helpful.
Joe: Are there any blogs that are particularly helpful for governance or sources that you’ve seen?
Lisa: I wrote one about what you should know when thinking about being a board member, because it’s not all fun and games. Also, there’s a company called Boardspan, run by Abby Adlerman, who used to be a senior board recruiter at Russell Reynolds. Boardspan provides process management software for boards, and Abby writes good essays about board behavior.
Joe: If you could wave a magic wand to change an aspect of venture-backed board culture, practices, and structure, what change would you make . . . so that years from now we’re not still talking about the same things needing to change?
Lisa: One, I would encourage that there be formal board training.
Two, we should be banging the drum for diversity on boards. Not just gender diversity, but all kinds, because different types of opinions add up to something better. I hate to say this, but if doing so requires regulation, then I think we should regulate, because I think in the end it will create stronger companies.
And three, we should start every meeting reminding people of the Board’s mission and company’s mission. It might help bring things into focus.
Joe: Lisa, thank you for taking time with me on a Saturday afternoon!
Lisa: Thank you, Joe!
We do need more diversity on boards of directors of venture-backed companies. Diversity is proven to pay cold, hard cash in terms of profits, growth, ROE, and ROI. Further, Lisa’s observation — that there are too many situations in which boards are trying to be CEOs’ best friends versus providing true oversight in the best interests of the company — is accurate, in my experience.
I hope you enjoyed my interview with Lisa as much as I did, and I hope you’ll read my next interview transcript, which I plan to post in about a month.
Resources Mentioned in Lisa’s Interview
Here are links to a couple of superb blog posts Lisa wrote about serving on boards of venture-backed companies:
Here is a link to the non-profit that Lisa co-founded to connect women in healthcare to other leaders in healthcare:
There are not a lot of courses specifically for directors of private, venture-backed companies, but here are a few options:
— For new venture capital investors: The Venture Capital Institute
— For angel investors: Angel Resource Institute
— For public company directors: Directors’ College (Stanford Law School)