- August 28, 2019
- Posted by: David Marshall
- Category: Business, Leadership, Management
As someone who has served on a board of directors at different times, I pay attention to corporate and nonprofit boards.
A few weeks ago, I received an email newsletter from a fellow named Fred Wilson of Union Square Ventures about his experience with boards of directors and the two types of problematic boards. He said:
The first style is the “rubber stamp board” that does whatever the CEO asks of them.
The second style is the “meddling board” that acts like it is running the business.
He told me he sees very few boards that manage to strike the right balance.
I sit on a lot of boards and have been doing so for thirty years now. I have been on rubber stamp boards and I have been on meddling boards. And I agree that both are problematic.
What I have learned over the years from those not great experiences is that boards must respect the line between governance and management and never cross it. But they also must govern. They must push back on things that don’t make sense and they must exercise the authority that has been vested in them by the shareholders.
Just like Fred, I’ve been on a number of different boards and executive committees, and have certainly seen both the rubber stamp and meddling kinds. And I’ve been on some very good boards that did exactly what a board should do.
Those boards are exceptional because they have confidence in the CEO and his or her management team. In those instances, a good board member is a good advisor or consigliere. They help the CEO achieve their vision, giving advice, asking questions, and steering them away from danger.
This kind of board wants to be exposed to the real operational performance metrics and financials, the organizational strategies, and future planning. Then, if they’re engaged enough, they can advise or avail themselves to consult with the CEO on any of the issues that may be around.
Another thing the board should be exposed to is any red flags management foresees. For example, they should know something like the latest tariffs are going to cause the company to have a 50% reduction in pretax profit, so they can develop a plan to help mitigate those circumstances.
When a board doesn’t have confidence in their CEO, they have a decision to make: Fix it or, er, screw it. They either have to step in and take over for the good of the company, or they sit back and collect their board salaries, knowing the CEO will be gone in a year or two. They won’t worry just as long as they get paid.
The truth of the matter is that owner or CEO sets the tone for the direction of the board. For instance, if you have an owner/CEO of a private company, the owner can do what they like and just ignore the board. They can see them as a board of advisors, not a board of governors or overseers.
But in today’s world, if you’re a public company, you’re likely to have shareholders who will sue board members. You have to have the courage to quit a board, especially if you’re sitting on a rubber stamp board, or if you’re giving good advice, but it’s ignored and the subsequent results are poor.
That means you’ve got a CEO who is ignoring everything you’re doing, and doesn’t respect your opinions and guidance. Chances are, you’re not going to be around for long as a board member, so maybe you should leave on your own terms.
(And if your advice is ignored and the results are still good, then you have to wonder whether your advice was any good to begin with.)
I’ve been a manufacturing executive, as well as a sales and marketing professional, for a few decades. Now I help companies turn around their own business and advise their board of directors. If you would like more information, please visit my website and connect with me on Twitter, Facebook, or LinkedIn.