Navigating Board Dynamics

The notes below on navigating board dynamics are distilled from a conversation with Jerry Colonna and Chad Dickerson.

Navigating challenging board dynamics? We’ve worked with many a client who has gone through tough spots with boards, need help understanding their board dynamics, or have challenging board members. Here are some of the common challenges that we see clients experiencing and how those challenges shift as the organization grows and scales, along with some effective approaches to creating a high-functioning board.

How does an organization that values the whole person integrate that culture, flavor, texture, into the board experience, and is that even appropriate, and how might you think about the setting of board culture?

In tech culture, there’s this kind of worship of the founder, and so the founder creates this thing from whole cloth, and it emerges from the founder. However, a lot of CEOs are actually hired by a board, and so you don’t get to create the board yourself. It’s important to distinguish between the founder/CEO who’s building a board and the person who walks in the room and has a board.

Any leader, regardless of how their board was composed or has been composed, can model behavior, like listening, non-violent communication, being thoughtful on how you speak. The CEO is the leader of the pack with the board, even if the CEO is not necessarily the chairman. Even aggressive people on a board will model the behavior of a CEO who’s not acting in aggressive ways.

The distinction between the board that is hiring the CEO and the board that is collaboratively built over time is important. What is the culture you want to create? What happens when the culture of the board actually doesn’t align with the culture of the company?

How can you make your board an asset to you and your company?

One of our clients actually built a culture where at the board level is absolutely in alignment with the culture within the company. To the point where early on, the board was given job descriptions and OKRs.The board itself developed a mission statement, which was independent of the company. They did a self-assessment every year. Then, they hired Reboot to do a 360 on the entire board. The lead director and the client (who retained the Chair of the Board seat) are in lockstep alignment over the focus on the efficacy of the board. So when it comes to ‘What do you do with poor performing board members?”, the lead director sits down, takes ’em out to the woodshed and says “You’re not performing well. You’re not showing up. You’re not doing this…you’re misbehaving…you’re off.” It’s the most functional board experience we’ve seen. It has to do with the fact that the founder set about from the very beginning, striving to have a most functional board possible.

Many of the tools and frameworks that we use when we work with leadership teams or executive teams, around cultivating conscious relationships are also applicable on the board level. When walking into a board that’s already set and building a board from the ground up, you know there will be disagreements. What do you want the ground rules and operating principles to be around how we have healthy conflict? At a very basic level, how can you come up with three to five operating principles that will lend itself to a healthy board?

What are the physics of power in board dynamics and board relationships and how do the physics of power play out? How can you move through that consciously and mindfully?

Most people are on your board, other than your independents, are there because they wrote a check. There is a good chance you’ll be wanting them to continue to write checks in subsequent rounds. That is a power dynamic. The worst thing a CEO can do is abdicate their role as CEO to the board as if to say “here are the problems, what should I do?” Because even if you followed everything the board said on every decision, whether it was good or bad advice, the board can still fire you. Some of the worst, most dysfunctional boards happen when the CEO became an employee of the board. It’s good to understand these are the people that wrote the checks, but you need to take your seat as CEO.

When the CEO takes his or her seat and makes decisions with authority and conviction, and communicates that to the board, the board reacts really well. The board feels like it’s being led. To have a positive power dynamic relative to the board, is to use the power that you have. Not in a cynical or a negative or a chest-thumping way, but make the decisions that you should make, and make them clearly, and articulate them. Even a board with ornery board members can react very positively and offer support for the decision by implementing the decision rather than fighting it.

One thing we like to remind CEOs is: What do you want to do? What do you feel is right? How can you separate emotion from your own logical thinking, and then put them back together again, because there’s no decision without emotion. Our job as coaches has been to help CEOs find the words so that they can take that seat and use their power with the board but from a really well-grounded place.

How do board dynamics change with stage? What impact do major transitions (fundraising rounds, IPOs, M&As) have on board relationships?

In the board/CEO relationship there is always implicit power, even if there isn’t explicit power. Even amongst board members, there can be a power dynamic. What can happen as a company raises more and more capital, those who write the largest checks start to have the most influence on the board. What ends up happening is people start to almost implicitly respond to the dollars going in, and thinking of themselves as representing those dollars. A CEO taking his seat and becoming the calmest voice in the room is an important way to work with that dynamic.

Another factor boards almost always lose sight of is that when you are given the assignment and the privilege to serve on a board of directors, you are not there to protect the capital that you’ve invested. You are there to protect the interests of all shareholders and option holders. In fact, that’s a legal, fiduciary responsibility as a board member. Most of the trouble with power dynamics and misbehavior stems from people forgetting that once they’ve joined the board their responsibility is actually to everyone — to public shareholders and eventually to the government through the securities and exchange commission (SEC). If a CEO can bring everybody in the room back to that fiduciary responsibility the conversations can find real ground there.

There can sometimes feel like a lack of clarity over the organizational structure between the CEO and the board: Does the CEO report to the board? Or, does the board report to the CEO? Everybody reports to the shareholders. In taking your seat as CEO in the right interests it’s to the fiduciary responsibility interests of all of the options and shareholders, not because you're trying to assert your power over the people who are theoretically your bosses. The job of the CEO and the board is to increase the value to the stakeholders, which could be a much broader metric than merely return on investment. Here, you have a very clear structure. That’s who everyone reports to. That’s where the power is.

How do boards change as companies change and grow? What might show up for an entrepreneur or a CEO who’s leading a company through those, those changes?

Typically the first boards that get developed begin for a first-time CEO who has less than 20 employees. The board in this instance can consist of the co-founder or two, and maybe one investor from outside the company. Over time, if we think of the public market as a kind of ultimate expression of corporate structure, a public company board would consist of: the CEO, and maybe one or two large investor/shareholders, and independent directors who take most seriously their responsibility to the public shareholders. That shift over time is dramatic. All the mishegoss occurs in going from that first phase to that last phase.

As a general principle, as you get closer to IPO, the larger the shareholder the less useful they are on the board because the stock exchanges have independence rules. They may not be eligible to serve on, for example, the audit committee, which certifies the financials. As the board grows, it’s the board’s job and the CEO’s job to build out the board. However, there are more and more very specific requirements that need to be fulfilled for all functions of the board, such as the audit committee.

One thing a CEO can do is build out those board functions a bit earlier before the ramp to going public really takes the focus of the board. The opportunity is to test run a few practice quarters for a couple of years before going public. Even from the earliest stages, it makes sense to think about those kinds of sub-functions of the board, and think about how you’re gonna build those out as the company becomes more complex.

Somewhere between the first outside board member and the public board, typically for companies that are north of 100 employees or after a Series B investment, there’s an opportunity to put an independent member on the board. An independent is somebody agreed upon by the CEO and the board members who haven’t put money in, but they’re a good fit for what the board needs. This is an opportunity to select someone without the need for them to invest money, which means you can choose based on what the board needs based on that person’s skill set.

For example, one company has all Series A and Series B board members, but they needed somebody with a lot more financial discipline, so they had a public company CFO join the board.

One way to consider choosing this person is to ask: What is something that would support you as a CEO? What’s something missing from the board? Given that person’s skill set, what will they be like on the board? Are they committed to using their domain expertise to assist the company, advise the company, and perform their duties as a board member, or do they want to run things a little more than they should? Or, are they using it as an audition for their next gig? Where are they aligned?

A truly independent member represents the common shareholders and is committed to working and being present in committees, in meetings, and for votes. They have good board temperament, good board hygiene, good meeting hygiene (in other words, they’re showing up, they’re not on devices, and they take their role seriously), and they understand their fiduciary responsibilities. When you’re in the selecting process and interviewing potential independents, learn as much as you can about this person’s past board experience. Someone who sits on ten boards, and has a reputation for not doing the work on the boards is important information to glean.

Part of the temperament you’re looking for in a board member is someone who knows the distinction between being a board member and being a member of the operating team — those are very different roles. Board members do not play operating roles in the company. When they do, it becomes troublesome. They hinder not help the situation and undermine the senior leadership team from doing their jobs.

What one thing to keep in mind regarding board communication?

Deliver bad news to the board before the meeting (even if it’s only 10 minutes each). By telling each member individually what is happening, get their feedback, respond to it, you then go into the meeting with everyone in the room knowing the “bad news.”

From a board hygiene perspective, it’s similar to the way CEOs communicate with their management teams in one on ones. Having 1–1’s with each board member prior to a meeting is important to do especially for controversial, difficult, or bad news issues. Before you have a board meeting, it’s also a great practice to talk to every board member to see if they think there’s bad news. Then, once the board is together, you can focus in a very collaborative way, on talking about the issues, even the issue that you talked to them about individually.

The underlying principle is to minimize the shock and surprise that happens in real time as a collective in the boardroom. Most people have like visceral reactions to negative news, and your board members are no different. By reaching out one by one, even briefly, to share the news ahead of the board meeting gives them time to react. It’s a nice thing to do as a human being, independent of the board. Additionally, it may mitigate some of the personalities that the board may be comprised of. If every board member has heard the news, then during the meeting no one will be surprised or caught off guard (which could create a large reaction and ripple through the meeting). Fred Wilson has written about this and calls it “pre-wiring.” It is perhaps one of the best ways to manage a board.

Put a meeting agenda together, and run it by the lead director, and then send that agenda out to your other directors and ask them for feedback, so that even going into the meeting what’s on the agenda is what everyone is already expecting. Ask each member if there’s anything they’d like to discuss that isn’t on the agenda. That’s another way of pre-wiring controversial issues.

How can you use your board meetings most effectively?

There are basically three discussions that are happening between senior management and the board.

1. Reporting (Here are the facts.)
2. Resolutions/Decisions
3. Discussion without resolution

The most boring, ineffective, ridiculous, waste of time board meetings are those that are focused on reporting. All of the reporting of facts can be done in spreadsheets and PowerPoint presentations that get distributed in advance. These should address: Here are the facts, Here’s what last month was, Here’s what the last quarter was.

Because of the power dynamic, everybody thinks that the board makes all these decisions. Yet, the board essentially makes decisions that are limited to employment of the CEO, compensation of the senior team, capital structure, and who owns what shares, and the budget.

Everything else falls under the notion of discussion. The function of the board is to advise, not consent. Consent happens only on budget and compensation and employment.

Since the function of the board is to advise, optimize the board meeting for very effective discussions. If you give them all the facts in advance, you tell them what the discussion is going to be about. If you limit the discussion so that things don’t go off the rails, then you’re gonna have really effective board interactions.

The board eats what you feed them. Let’s say there are two things you need to talk about, for example, like some decisions around recruiting and then something really difficult around product. Oftentimes CEOs spend a bunch of time on the easy conversation and a little bit on difficult conversations. Then what can happen between board meetings, is that the board will be riled up about recruiting since that was the focus of the board meeting. Serve the board your real, hard problems first and foremost.

As CEO, you manage the clock and manage the discussion. Spend the time on the things that you need to spend time on.

For a more in-depth look at how to build a highly functional board of directors, we’ve put together a free 4-day course called Reboot Your Board. Sign up here.