Article adapted from Seraf: Portfolio Management for Early-Stage Investors
I hate to say this, but some startup boards end up having to deal with bad behavior from directors. What happens when board dynamics don’t seem to be going all that well? I’ve adopted the phrase “hacking the board” to reflect the fact that when it comes to early startups, dealing with a board is about making the best of a situation that cannot be fully controlled. There are hacks for planning and running a meeting and a checklist of expectations of board conduct. Now let’s discuss how to recognize some bad board behaviors and how to advise a CEO on corrective action before these behaviors undermine the success of the company.
Confusion About Roles
It is the job of the CEO and his or her management team to run the company. The board supervises and observes. The board should not be getting into the operational weeds. As Ham has observed, great startup directors should have their noses in the business, but their fingers out:
“As a director, it’s your responsibility to nose in and pay attention to what’s happening with the business. At a high level this means you are aware of the company’s key risks, and you understand what management is doing to mitigate these risks. To get this type of insight, you have to have your ‘nose in.’ But you are a director, not management. ‘Fingers out’ is just another way of saying, ‘Be a director – you can advise, but let management run the company.’ If you are constantly micromanaging the business, you remove any power or responsibility the management team has to make decisions and move the company forward. …. Boards that try to hold management accountable while simultaneously meddling and interfering are not going to get what they expect. You either end up with weak management, a diffusion of responsibility, or both.”
Founders want and need board members who are engaged, present, and involved, but not directors who are suffocating and micro-managing. The key is for them to make those expectations clear from the outset. Even assuming the directors understand their role broadly, there can still be significant issues to contend with. These issues fall into a number of categories, including logistical issues.
Issues with Logistics
Chances are good that the directors are busy people with other professional commitments. To get experienced, value-added people, other pre-existing commitments is almost a given. But the directors must make the board a priority if they are to serve professionally.
It is clear that the board is not a priority for directors who exhibit any of the following behaviors:
- consistently late to meetings,
- double-book and leave meetings early,
- request last minute schedule changes or start times,
- insist on dialing-in at the last minute to every meeting,
- are impossible to schedule for meetings, or
- come unprepared.
This self-important conduct is not acceptable on the part of a director. It is distracting, disruptive, annoying to other directors, and undermines the functioning of the board and the company. One of the most harmful signals it sends is that neither the CEO nor the board itself needs to be respected by the other directors. Left unchallenged and unchecked it sends a strong signal to others that it is ok to blow off their commitment to the board.
It is important that the CEO be coached to call directors out on these issues and explain that more is expected of them. He or she does not need to be overly confrontational, but does need to be firm. For example, a CEO can inquire as to what items are presently competing for the directors time and whether they expect those conflicts to resolve themselves in the near term. If they are being paid with stock options to serve, it might be appropriate for the CEO to point that out and remind the director that the shareholders expect them to prioritize this for the stock they are being given. If they are not being compensated, and its seems that they have the potential to reform and be a desirable part of the board, the CEO can ask them if being paid would allow them to prioritize appropriately. CEOs can offer several calendar-based accommodations including coordinating with the director’s admin, adding buffer or travel time requests on either side of the board meeting or making an effort to schedule board meetings 6-12 months or more into the future. Overall, the CEO should make it clear he or she is doing everything possible to ensure that all will be present at all meetings.
The CEO’s job is to deliver performance to the shareholders, and the board’s job is to help and to make sure that happens. If the board is not showing up on time and ready to go, they are not doing their job. Regardless of how the CEO ultimately chooses to confront the issue, it must be dealt with. If the bad logistical conduct cannot be fixed after some corrective effort, the director needs to be replaced.