June 26, 2005
"Managing" Your Board of Directors
First, sorry to have been absent for so long. Work and home have both been very busy.
Anyway, back in the saddle, and determined to post more frequently.
I'm working on several additional bits of advice for enterpreneurs that didn't fit the (somewhat artificial) constraints of the "Ten Commandments" in my past posts, and will get those out over the next week or so.
As I spent some time today, getting my blog-life organized after my layoff, I ran across this this advice for CEO's from a good friend of mine, John Kernan. John has been a successful serial entrepreneur for probably 40 or more years, most recently with a KP and Accel-backed company called Lightspan (Lightspan merged with Plato Learning, and John now does angel investing and board service). John has, over the years, run companies that have been wildly successful, as well as a couple that have failed. Over this long career, John developed a set of "rules" that help a CEO keep his (or her) board focused on helping move the Company forward.
I've worked with CEO's for roughly 25 years, as a lawyer and as a VC, and John is the best CEO I've ever met at "managing" his board of directors. In today's world, the term "managing", when used in connection with an information-intensive process (like CEO/Board relations), frequently takes on a negative connotation. I mean something different and positive.
What the 10 rules listed below are aimed at doing is helping the CEO use the Board of Directors in a way that best helps the Company make progress -- not by hiding information (you'll see below John's advice on dealing with bad news), but by being aware that one's board of directors, like any group of human beings, can be organized in a way that is constructive -- or not. Successful CEO's realize this and proactively try to get their boards to operate in a way that best helps the Company -- it will not come as a surprise to anyone that Boards don't necessarily self-organize into highly efficient, constructive, high-powered and helpful groups of advisors.
Here's his take on how to do this. I mostly agree with John. Both to amplify some of his remarks, however, as well as make some additional points (and take issue with a couple of his "rules") I'm going to add some additional thoughts over the next week or so.
NEVER have the board meetng "at" the board meeting. ALWAYS call every director a few days before the
meeting and run every important issue by them to get their input, Also update them on company performance,
especially the bad news, and let them "beat you up" privately. That way, the meeting can focus in a constructive fashion on problem-solving and building the Company for the future.
Maximum Powerpoint show is four slides from any presenter, especially
yourself. This should be the limit of
director interest in detail.
Provide complete access for the board to everyone and everything in the
Company. They will rarely use it, but
it's a great comfort to them to know you are not trying to hide anything.
Have your key team members do almost all the presentations. It gives them exposure and allows you to make sage comments along
with the rest of the board. A perfect
board meeting is when 10% of the talking is done by the CEO, 60% by the team,
and 30% by the directors.
Carefully consider every director's input and take good notes at the
meeting. These people have lots of
experience and many great contacts. But
you make the final decisions (and if you don't, they will start to look for someone who will).
Give the Directors projects in their areas of expertise. It's free consulting and they usually do a
Get in front of the board on tough decisions like top management changes,
including changes to your own role. If
it's going to happen, make it your idea.
For VC directors, try to picture how they are describing your Company to their
partners, and what questions their partners are asking. Your job is to make each director a hero to
their partners (or corporate boss).
Remember it's Company first, team second, you last. You win when everybody wins, not when just
10. Make a friend of every board member. Send them interesting deal ideas you turn up,
learn about their interests, make the board a "look forward to" experience
If you work hard, always act in good faith and in the best interest of the Company -- and if you follow these 10 rules -- most VC's will still be interested in financing your next deal, even if the Company tanks.
And if the Company is a success, they will be throwing money at you!
June 26, 2005 in Entrepreneurs | Permalink
I'd be interested in your thoughts about whether financial interests of the VC-affiliated (preferred shareholding) board members ever diverge from those of the CEO and common shareholders? If so, how do you conduct a board meeting then?
Posted by: Matt Marshall | Jun 27, 2005 6:52:52 PM
Do you ever talk about the business aspects of the porn industry? Some of us take it very seriously. Many "mainstream" companies have porn investments, yet few are willing to talk about this "taboo" topic.
Posted by: Donovan Phillips | Jun 27, 2005 7:58:28 PM
Do VC's even look at the small guy companies anymore?
I've heard about Google bankrolling a couple of small companies with great ideas but you don't hear as much about small biz since the dot com bust.
Maybe I'm not in the right circles to hear about this happening.
Posted by: Ken Savage | Jun 28, 2005 1:22:53 PM
In a nutshell: the board is your boss - kiss up.
Posted by: anon | Jun 30, 2005 12:57:25 AM
Posted by: Alex Krupp | Jul 1, 2005 7:58:50 AM
Followup: Could you post the ten commandments as a PDF and host it from your blog? It would be nice to have something to be able to download/link to.
Posted by: Alex Krupp | Jul 1, 2005 9:59:12 AM
I am in agreement with most of Allen's comments here, except:
1. Meaningful bad news should be brought to the board members QUICKLY. Do NOT wait until the monthly or quarterly board meeting. 99% of surprises in business are negative, and just as you the CEO should insist on getting bad news as soon as it develops, you should not wait too long to update your board. However, the board needs only to hear the material bad news, and they should get it unvarnished, without hype or spin, but accompanied by a plan as to what you are going to do about it.
2. I am a big opponent of PowerPoint. It is hopeless for conveying useful detail, and it is a cheesy sales tool. I prefer written summations. Use plain English (no tech-speak or jargon or MBA-ese). Keep it to one page, maybe two. Use an easy-to-read font (not everyone has the eyes of a 30 year-old). No hype, no spin, no comedy, no back-patting, no BS. Write the report you would want to get from your subordinate. Anticipate the hard questions. Clear, factual, to the point, honest. Save time by dictating it if need be. Use a two inch left-hand margin so the directors can make notes. Distribute well in advance of the board meeting. Directors can still contact you individually should they wish to do so. At the board meeting, you can expand on points using whiteboards or possibly an old-style overhead projector and grease pencil. A board meeting is not a sales pitch: dump the canned PowerPoint, focus on the business.
3. Access to employees is fine, but there needs to be ground rules. Directors and inexperienced or arrogant VCs can tie up staff with silliness, and some people on your team may be liable to politic a bit. VCs love having "moles" to tell them what is happening. The CEO runs the company. There is no time for board meddling or time wasting. Your team is busy. Make sure that the board request access of you, and then you can decide how to handle it.
4. Having team members do some presentations is fine, but the CEO runs the company and is responsible for its performance (good or bad). Team members get confused if the chain of command is blurred and they are in board meetings or are watching their boss get overruled. Don't waste the time of the entire management team by sucking them into the black hole of board meetings and board meeting prep. They should have lots of more useful things to do.
9. The phrase "Company first" should (and legally, does) apply to all board members, not just the CEO. It is also known as fiduciary duty.
Just like nobody enjoys a boss that wants to talk off their ear in dead-end update meetings, no CEO likes to waste a lot of time on Board stuff. I don't care what "friends" the CEO has made of Board members, if the results are not there then the CEO faces a problem. Boards need to stay off the CEO's back. His time is valuable, as is the time of his team. Let them do their jobs.
(If you are a VC and think it is your job to ride close on your CEOs--who are managing your capital, among others--then ask yourself if you would like the same intrusive involvement and meddling from your LPs. No? Somehow I ain't surprised.)
Posted by: Sparrow on a Branch | Jul 28, 2005 6:47:05 PM
xlent post. i am starting a not-for-profit and found some of the information quite useful for it. would you make any caveats or additions for not-for-profits?
Posted by: suddsy | Aug 2, 2006 4:04:48 PM
Hi Allen: It must be interesting to get comments on a year-old post. However, I agree with you on these and had a chuckle at the 4 slide max on any presenter. With a Dartmouth Prof, Syd Finkelstein, we recently completed a study of 30 directors and CEOs of vc-backed firms and what leadership, strategy, and process factors were linked to top quartile annual sales growth. http://breakoutperformance.blogspot.com/2006/10/predictors-of-significant-vc-backed.html Best, Eric
Posted by: Eric | Oct 4, 2006 6:28:50 AM