“Why the hell does my board act like that?”

The phone rang at the appointed hour. My client, a software company CEO, was calling for his regular session. I picked up the phone:

“Hello”

“Why the hell does my board act like that?”

“Good morning, James,” I answered and we both laughed.

We talked through the upcoming financing. Some of investors—folks who came into the company only in their last round—were already jockeying around terms and prices of the upcoming round. Some of the other directors—investors who’d been with the company since the beginning—were also beginning to draw a hard line around terms that they would find acceptable.

In a sense, while they were all directors, as investors they were beginning to play a game of chicken with the company’s financing—each holding fast to a position deemed best for the shareholders they represent and yet, as the negotiations would tick on, the company’s ability to actually raise the needed funds could be jeopardized.

After the session, I asked him he if I could quote him.

“Sure,” he wrote, “just let me know if I ever end up there with an actual video recording of me calling [the board member] a ‘fuckhead’ – it’s not that I’d be bothered by that, it’s just that I’d want to make sure I sent the link to all my friends.”

A year ago I was sitting in office of the CEO of a company on whose board I served. The recently elected chair and the CEO were screaming at each other and, as usual, I found myself trying to meditate.

“What you don’t understand,” said the chair rising from his chair and trying to tower over the seated CEO, “is that you’re here,” and he held out his right hand, palm down, “and the board is here,” and he moved his left hand on top of the right, again palm down, “and I’m here,” and he placed his right hand over the left.

Capo dei capi—boss of bosses.

My client’s question was spot on: Why does this happen? What is it that makes the relationship between board members, investors, and management so tricky? And, even when you remove the notion of director as investor (or investor representative) you can still end up with troubled relations.

The board/management relationship is tricky, complex, and nuanced. There are few structures within traditional businesses that are quite like it. Most businesses, indeed most organizations, are built on some variation of a command and control structure. Because of their inherent hierarchical nature, it’s often clear who’s in charge, who makes the decisions, and who’s ultimately responsible.

Even in enlightened business, as people like Warren Bennis have pointed out, where the power and decision making reflects not the pyramid of classic command and control but the inverted pyramid of the ways in which information, and therefore, accountability should flow, there’s relative clarity.

But when it comes to boards of directors, confusion is often the norm and, as a result, there’s often frustration and anger. For example, does the CEO work for the board of directors or the company? Does the Board “work” for the company? Who holds individual board members accountable for the actions? And what is the relationship between board and staff members?

And underlying all of this is the responsibility to represent the shareholders.

I’ve served on dozens of boards of directors; this includes public and private companies, for profit businesses and not-for-profit organizations and I think the core troubles stem from a misunderstanding of the key elements of the roles.

Directors aren’t quite like any other management position in an organization. They have power but often times lack the information to wield that power as well as managers. They have perspective—often times significantly more experience than senior management but, by the nature of their responsibility, they are disconnected from the day-to-day operations.

Directors need to remember they’ve a delicate balancing act of influencing without dictating, and engaging and sharing their experience and perspective by virtue of their gravitas as much as a result of their power.

Management, too, needs to remember that the task of being a director or a trustee is unlike any other job one has ever had. There’s an explicit accountability that goes along with the job and that fact, combined with the implicit lack of information, can cause most folks to feel terribly anxious and to act in awful ways.

Everyone on both sides of that divide need to take a step back, see things from the other view, and work towards making the board as functional as possible.

As my friends and colleagues are tired of hearing me say, I’ve never seen a board guarantee an organization’s success but I have seen it guarantee its failure.

  • davearkoosh

    “Everyone on both sides of that divide need to take a step back, see things from the other view, and work towards making the board as functional as possible.”

    Here, there, everywhere, I think this would be giant leap forward in organizational leadership. Getting the right people on the bus seems like such a struggle for exactly this reason. Regardless of what's on their CV, you can't know how they will react to the confusion: will he/she fly off the handle or step back and try to contribute with communication and productive negotiation that will bring the process back on track?

    It seems like an understanding of the role is key, not only to know your job, but to understand that the position is an opportunity to be heard and to collaborate, not always to issue mandates.

    • jerrycolonna

      “It seems like an understanding of the role is key, not only to know your job, but to understand that the position is an opportunity to be heard and to collaborate, not always to issue mandates.”
      Well said Dave. Even more, sometimes the greatest value comes out of the hearing, the listening, the speaking, and the collaborating…greater perhaps than any mandating.

  • http://www.5o9inc.com/ Peter Cranstone

    I don't have years and years of experience sitting on different Boards, but I have sat on a few and learned the hard way – just as your client is.

    What I look for now is the following four things:

    1. Owner-Orientation
    2. Business-Savvy
    3. Domain Interest
    4. True Independence

    I've had big names, it doesn't work, I've had plain investors, it didn't work. What I need is real business people who understand that risk is defined as 1 over Sh*t happens. People who don't panic and derail deals because of personal egos. I think of the Board as the Stewards of Shareholder Value.

    The really good Boards (and I've had one) really stay focused on that goal and help “Guide” the CEO to build a successful company. The others usually deteriorate into a table comprised of over inflated ego's who have clearly forgotten why they are here.

  • Gary Gigot

    Dealing with issues like this right now…refreshing perspective.

    • http://www.colonna.org Jerry Colonna

      Hope the perspective helps.

    • jerrycolonna

      Hope the perspective helps.

  • http://terezan.tumblr.com/ Tereza

    My view on boards is perhaps overly simple.

    I'd really like to see more women on them.

    Or at least just a token one. All women, not sot good.

    (I've done that on some not-for-profits, and it's not pretty, for completely different reasons).

    But a sprinkling….help to keep the BSDs in check and infuse some compassion into the Board/CEO relationship.

    We barely even ever get asked to be on Boards. It's bullshit.

    • http://www.colonna.org Jerry Colonna

      While there’s no doubt an under representation of women on start-up boards, that’s not so for many not-for-profits. And the problem of board and management conflict just isn’t limited to for-profit startups. So I’m not sure your answer works. In fact, one of the worst offenders I’ve ever worked with was a woman.

    • jerrycolonna

      While there’s no doubt an under representation of women on start-up boards, that’s not so for many not-for-profits. And the problem of board and management conflict just isn’t limited to for-profit startups. So I’m not sure your answer works. In fact, one of the worst offenders I’ve ever worked with was a woman.

      • http://terezan.tumblr.com/ Tereza

        Well, it's a monster in my head and quite possibly an overly broad statement on my part. Delivered in a late-night bitchy comment.

        I wasn't really intending it as an example, but a dynamic that plays in. I know there is no one-size-fits-all answer to this. And your lesson is clear — we all need to behave appropriately and with sensitivity no matter the gender.

        For sure, there are badly-behaving women out there. And I hope, really hope, that I have not been one of them. I take your suggestions above to heart. And Jerry, you have a million times more experience than I do on this one.

        But the example you wrote about — rounds of funding, and the ensuing posturing — seemed very specific to for-profits.

        It struck a nerve with me because I cannot conceive a scenario in which I'd be at that table. Unless it was a company I'd created myself. And the guys are these tables are ones I sat next to at Wharton, and in some cases managed. It is very frustrating.

        That shortage of entry paths is my own cross to bear, and I'm in fact working really hard within the prevailing system we are given to figure my way around and through that, so I can get what I yearn for and do what I know I can do.

        My personal experience vis-a-vis boards has been limited to not-for-profits. Not salary-paying professional not-for-profits (which my impression is one generally gets onto the board related to a large donation — and I'm OK with that — I get it — but cannot afford that myself), but a whole lot of volunteer-run NFPs. Usually all-female. And in that context, for sure, I've seen a lot of bad behavior and dysfunction, and a handful of successes. Also a huge amount of valuable time and skill burned over low-value topics (e.g. how to spend that $23?) .

        I'm not sure if it's the NFP part, the volunteer part, the all-female part, the uneven skills sets or just plain chemistry. Or maybe it's just me. Quite consistently, the mission is not crisp and clear and there is not a steward of that mission. I feel it's a brew of all these things.

        I decided a few years ago, based on a particularly frustrating time-suck, that I am not a not-for-profit gal. I can accomplish considerably more, do a lot more good and employ my skills far better while making big profits, and then channeling my own money to causes I care about. And then control how it's spent and managed. When people don't pay me, they do not value my time or my skills. It really drags me down in all aspects of my life.

        When I was pregnant with each of my daughters, one of my criteria for picking their names was could it be taken seriously if she were running a corporate board meeting (i.e. not “Bunny — will you call this meeting to order?”). I'm not projecting my dream on them, but they deserve the option if they want it.

        Having had my own career slowed down by bleeding-edge 'sandwich generation' issues, I anticipate that with our country's generational demographics, this will get worse not better. But that's a comment for another post. Or perhaps my own.

        Thanks for indulging me in this venting session. Cathartic.

    • http://www.5o9inc.com/ Peter Cranstone

      Totally agree. The key is to keep them (the Board) focused on the objective which is to increase shareholder value and leave the ego's at the door. Clearly defining roles and responsibilities going in really does help. The best board I ever had was the first one (all had the 4 criteria I listed above) – the worst was the last one (all insiders with none of the criteria listed above).

      Now I focus on meeting the criteria as close as I can. I don't care what gender, all I care about is the Customers, Employees and Shareholders.

      • http://terezan.tumblr.com/ Tereza

        Peter you are so self-aware and balanced. (not because you agree with me….just because you are).

        Clear criteria and roles & responsibilities. It's hard to have the discipline to define these up-front, but makes such a big difference.

        And 'woman' is not a criteria. What you listed above are great criteria. I just want more in the pipeline, evaluated against those criteria.

        • jerrycolonna

          I hear and agree with both of you. No worries, Tereza, carthatic venting is definitely allowed here. In fact, encouraged.
          One of the toughest boards I ever served on was an organization dedicated to personal transformation and growth. Toughest in that it was all always out there. Really tough.

        • http://www.5o9inc.com/ Peter Cranstone

          Thank you.

          Defining the criteria up front has been hardest thing and yet the most rewarding. It gives me a clear boundary for operation. In flying terms we call this the performance envelop. Basically you can fly a plane anywhere inside the envelop. Get near the edge and strange things can happen if you're not very careful.

          When I started my latest company, I started with the envelop. I wrote for the Board (Criteria), I wrote for the Customers (Our Beliefs) I wrote for the employees (Roles and Responsibilities) and I wrote it for myself (Core Values).

          The Core Values help everyone know Who we are and What we stand for. It's my performance envelope for the company and myself. Here are the core values.

          Embracing the following values enables us to focus and execute on a common plan:

          Respect – Transparency is the key to mutual respect
          Honesty – Tell the truth even if in doubt
          Integrity – What we say, and how we present ourselves, need to be in alignment and authentic
          Objectivity – The ability to listen and remain objective enables us to learn and grow
          Adaptability – Confront reality as it is, not as you want it to be
          Responsibility – Accountability, Loyalty, and Visibility to all stakeholders

          For people who follow this blog and read my comments you now know me. I’ve attempted to add clarity and predictability to who I am and how I operate. For a pilot, the first thing we want to know is how the plane flies. Being a test pilot is not a great occupation – it’s very risky because you have to determine the envelop. Being on a Board of a company that isn’t run with some “predictability” is risky.

          My job as a CEO is to provide those that need it with clarity and predictability – this gets them from A to B in safety.

          However sometimes I need to be a test pilot and fly something new. I’ve done this four times now. It’s scary, as I’ve said before you’re sculpting fog, you have no idea of the envelop. It doesn’t exist – and yet you’re compelled to see if you can create something rewarding. My latest venture has been the most scary of the four. I’ve had to risk everything to do something that I believe in.

          I could never have done it without the performance envelop. It allowed me a place of sanctuary to return after flying something at the edge and then crashing back down again. When you truly find the right envelop it all suddenly makes sense. All the hard work, all the lonely nights, all the arguments – what materializes is something that is so simple, so elegant that you sit back and smile.

          You then wait for others to discover your creation and take it flying.

          • http://www.5o9inc.com/ Peter Cranstone

            I want to add one additional point. The reason for the operating envelop is predictability. Having been on Boards where the lack of core values is evident I now have an “envelop” which helps me predict what I want/need to do next.

            I always give everyone two choices – either you leave or I leave. In the case of someone else's Board, I leave. In the case of my own – I don't. Not anymore. I did before and the shareholders suffered because of it.

            I've now modified my emotional behavior to be more consistent with a predictable operating envelope. (Love mixing these metaphors).

            Still occasionally I love to fly a little higher, but the times I do, I make sure I don't subject others to those risks.

            Jerry – I hope this hasn't got too off topic. The Board really is the operating envelop for the Company. A poorly defined Board that lacks focus and criteria for success will not succeed in creating stakeholder value.

          • http://terezan.tumblr.com/ Tereza

            I don't think you've gone off-topic. You've gone way, way deep into the topic.

            I hear you on the envelope and the predictability. I've thought of it as a “structure' and a 'rhythm', but I think it's the same thing. Put in the right structure (roles, expectations, goals, timing, etc.) and if it's robust, then you flow the content through it. And the focus of everyone's time together should be on the content and not the envelope.

            Mark Suster, in his blog, has talked about board meetings, and has said that key decisions shouldn't be made at the meetings, but rather, they should be pre-sold so they are a procedurial vote at the meeting. I think this is a good goal. Though I also recognize there are only so many hours in a day. But better to manage your board so they are no substantive surprises. Otherwise they start not trusting you. And that's not ever a good thing.

            From my consulting days, I facilitated a ton of meetings. One of the questions I was taught to always ask is, what are the unique topics and accomplishments that can be made with these people together in the same room at the same time. Basically, stuff that's collaborative; the important discussion that takes it to the next level.

            Things that are 'broadcast', such as report-backs, should be pre-sent and discussed on an exception or issue basis. No one likes to sit and listen to a talking head. They want to be engaged.

            Anyway I highly recommend Mark's entry, if you haven't read it. Here it is: http://www.bothsidesofthetable.com/2010/02/12/r

          • jerrycolonna

            Hey there…sorry I was off-line for a few days. I agree with Tereza…you've gone deep into and not at all off topic Pete. One of the tools I often recommend managers use is to focus board members on two or three key items, ways that they can help. So in addition to sharing perspective and experience, they do things like open their contact databases and make connections for fundraising or sales. Or they might help with hiring. These can all break down the inherent emotional struggles implicit in the Us vs Them model.

          • http://terezan.tumblr.com/ Tereza

            Pete there is so much here I need to read it several times to get the full richness. I mean that in the best of ways.

            As a start, I know i'm going to start using the term “sculpting fog”.

            But what I think you do have here is Pete's Manifesto. You really should consolidate it into one place because it will be valuable for you and the people that work with you. Seriously.

          • http://www.5o9inc.com/ Peter Cranstone

            Thanks for the ideas… I've been giving some serious thought to “Why the hell does my board act like that”… and the answer is quite simple. Because you (the CEO) gave them a reason to behave that way. Invariably what happens is that expectations become misaligned and instead of communicating early and often you leave it the day of the Board meeting.

            Everybody hates unpleasant surprises. Boards like smooth sailing. The occasional “ripple” makes things a little interesting but nothing upsets them more than expectations gone awry.

            As I've mentioned before the CEO's job is simple (grin) Engage – Explain – Set & Manage Expectations. Think of these in terms of constant minute course corrections. Little tweaks here and there that on their own amount to very little yet over time keep the ship clearly on course. When the CEO fails to do his/her job the Board's job is to give him/her the necessary guidance to get the ship back on course.

          • jerrycolonna

            I typically agree with much of what you say Pete but I have to disagree on this one point. Sometimes, as I tried to point out in the post, the behavior has nothing to do with company or management.
            But, you're larger point is spot on: if you find yourself asking this question, then the container may be awry and it's probably worth considering a whole new construct to the container.

          • http://www.5o9inc.com/ Peter Cranstone

            Agreed – I should have added. Determine the root cause of the behavior first. Is it you, the company or just a Board member who wants to be heard today. Good catch.

          • panterosa

            I come late to this discussion and though my response is aimed at the posts defining the “performance envelope”, I thought to put them in here at the bottom of this conversation, so as not to disjoint its flow.

            First off, I just flew there and back to somewhere and could not get the image of your skidding plane on the runway from my head. Not in a fearful way, more in a “what's happening in the cockpit” way. That, and “Outliers” cockpit politesse, have served to recently change my view of flying (and my family has had some fliers in it).

            Back to your comment. I like the image of the performance envelope. It reminded me in part of the process of applying to private schools with my daughter. In dealing with the director of the outgoing school, we met to discuss what we thought of the schools we applied to, and I described the schools in terms of the “box”, and I strove to find the best fit for my daughter via this analogy.

            One school wanted you (the student) to stay in the box and took pains to delineate the box. A second assumed you knew the box and its dimensions and felt it was too small, and so encouraged stretching the box creatively. A third thought there were many boxes, and I found this quite obvious and vague, a sort of dangerous shifting target which became more about the discussion of “boxes” than the education. A fourth showed you the box and handed you a hammer to break it, and assumed you would remake it, somehow, and they were there to help you do so. A fifth felt there was a box somewhere, if you cared to find it, but they were not very concerned with it, felt it was irrelevant almost. We decided to go for the sixth which felt the box was there, and so were you, and the outcome was not predetermined because life was not predetermined – they would simply see what happened to “you”, to the box, and where that led. It was an all girl's schools by the way.

            I liked revisiting your performance envelope as a set of ideals, if you will, afterwards with the perspective of the “box” as an education model. A sort of rubber meets the road of putting ideas in practice, of teaching thinkers, of learning ways to adhere to a core yet absorb the fringe. It seemed to get back to the “approach” with time and the weather ruling how one made informed choices.

            Perhaps I have stretched the idea of the “envelope” too far here, and if so my apologies. I wondered, however, whether education styles somehow informed with how you responded to the varied board member's approaches to your performance envelope. Many thinking styles are needed to make anything run, but getting those styles to work together is an art, and the larger the group the harder the task.

          • http://www.5o9inc.com/ Peter Cranstone

            What's happening in the cockpit?

            It's a blur. Essentially you process each issue sequentially. First step is to make it to the runway (wasn't sure I was going to do that) second step is to breath a sigh of relief as you see the runway. Smile as you land, then the OMG moment as you realize the cockpit is 90 degrees to the direction of the runway. Immediately (without thinking) you hit the left reverse thruster and take the right one out of reverse thrust. You're pumping the brakes but sliding (hydroplaning) so nothing happens. You pass the half way point going like a bat of hell and working the throttles asymmetrically to get the aircraft straight. Finally a big smile when you're now lined up on the runway. Next, another OMG moment as you realize that with 1,000 feet to go you're still going like a bat out of hell. You say to the co-pilot, brace and off the end you go. Finally a big sigh of relief as you come to a halt with the props screaming their heads off, lights flashing, and air traffic screaming at you.

            You smile to the copilot – all in a days work, and ask ATC for a bus to get the passengers off. You then thank the “Man Upstairs” profusely for saving not only your bacon but the others onboard including a recent newborn.

            But I digress. Back to the envelop. I think it's an important metaphor for a lot of things. We each have our own “operating envelop”. Good mentor/parents act as “bumper pads” allowing us to experiment as we learn the corners of our own envelops. We catch them as they get a little to close to the edge (if you want to see what happens for a plane do a search for “coffin corner and learjet”).

            Once you've determined the edges of your envelop I then look for others who can bring in new envelops to help expand and grow “within safe boundaries” mine. This goes back to the other discussion on Boards and adding people who illuminate areas of the Board table that you can't.

            I've found that the best way to get the “envelops” to interact is to remove your own ego as much as possible. Focus on winning the war and not the battle(s) and people rise to the occasion. To grow we have to focus on the bigger problem and look for others to help us on our journey.

  • http://charliecrystle.blogspot.com/ Charlie Crystle

    The role of the Chair is to open, moderate, and close the meetings. That's it–there is no inherent authority beyond that.

    But there's a difference between authority and power; power is when the Chair tells you to do something and you do it. Only the board as a whole has power over the CEO. Individual members do not. That's the only way shareholders across classes of shares can get fair representation.

    I've had board members screaming at me over the phone to take the deal, take the deal, the sky is falling so take the fucking deal. Yes, I hear you, board member. Thank you for your input. I'm sure we'll vote on the deal at the next board meeting.

    This is some very basic, maybe even simplistic advice: help them define what their interests are. They usually express them in terms of positions, but what's really important are their interests. You can serve their interests with a number of different solutions, but you have very little room to balance everyone's interests if you accept their narrow, self-serving positions. (poorly cribbed from “getting past no”)

    The one reason I haven't raised money for my new venture? Ya gotta serve somebody. It might be the board member, it might be the lord but ya gotta serve somebody… (forgive me mr. zimmerman)

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  • http://www.participate.com Alan Warms

    Jerry I am posting (very) late to this comment – but strikes me that the CEO may want to remind (very gently, maybe even through a note from you?) everyone that according to Delaware law (assuming it's a Delaware C corp), directors are BOUND to act in the interests of ALL the shareholders in the company. They cannot do things that favor their shares over other interests. They can vote their shares as they want as a shareholder, but when participating in board votes they have fiduciary responsibility to all shareholders. The CEOs (and Chairman of the Board's role) is to make sure the board is fulfilling that fiduciary responsibility. I guess I am reacting to playing a game of “chicken” with the company's finances comment – they can't really do that and they will open themselves up to tons of lawsuits. So I would keep the logic, discussion, etc. focused on what's best for ALL shareholders.

  • Jim Hyatt

    A lot of board dysfunctionality stems from the simple fact that board members don't understand the board job, or have different ideas about what that job is, which adds up to the same thing. It's herding cats – smart cats, but cats nonetheless. The people who sit on boards are managers. They know management. Board work is not management work. It's a different skill set. With different expectations. For instance: the Chair doesn't run the board; the Chair works for the board. The board as a whole, a unity, is the only entity, legally, that is in charge. The board elects the Chair and delegates to that office certain roles and responsibilities, including the power of the gavel, to keep the board and its meetings orderly and productive, to make sure the board is fulfilling its own duties. No more. Call it 'servant-leadership'. The CEO works for the full board only, not for the Chair or any other officer or committee of the board. I've heard CEOs complain that they have a board of ten directors and feel like they have ten bosses. More cat herding. A good Chair sees to it that that does not happen.