Board - LT Interaction
Building a positive working relationship between the Board and the full leadership team is a great achievement. The Board increases its exposure to the key people in the business, learns first hand about the challenges and successes of each operational area. The leadership team helps take on the brunt of challenges the Board puts on the CEO and also has a chance to demonstrate their potential for successor opportunities should that arise (a bit of a double-edged sword depending on the politics).
No matter what, the Board should encourage and be encouraged to be exposed to more than just the voice of the CEO. Each side has its share of responsibilities to make sure the mutual interaction is profitable -- the Board members need to be mature in the way they press the leadership team. The leadership team members need to be prepared to enter an environment where serious and strategic business issues are discussed efficiently and openly (ideally).
In this section, we'll look at where this goes right and where it goes wrong along with who might be responsible for moving it towards a successful outcome overall.
Who is In Charge
The CEO is in charge of the Company - or so it is supposed to be. The CEO is hired by the Board to carry out the approved business plan which includes making all the necessary decisions within the context the plan defines. The more specific and clear the plan is defined, the better everyone understands who is empowered to make important decisions and with what criteria. A simple example would be hiring new staff. If the plan identifies the pace of hiring as well as the key attributes of compensation for each role, the Company can bring new team members on without needing Board involvement. The plan was approved so therefore the authority to hire is implicitly granted. The prudent CEO will still involve Board members to keep them informed as the more the Board is aware of the current state of the business, the more they can participate insightfully in key discussions that affect the business.
Many inexperienced CEO's gradually give back authority to the Board as contentious issues come up. This can lead to an operational hesitance which often negatively affects the overall success of the business -- the CEO starts turning to the Board for approval of each decision. In the above example, an inexperienced CEO might proceed with a handful of hires even though revenues and pipeline are behind plan. The CEO reports business status at a Board meeting and the Board members are upset that hiring occurred without proper judgment. The CEO argues its in the plan and the Board looks at the CEO as someone who is not able to handle the driver's seat without lots of oversight. More controls come in.
It's not really a governance issue that is in question, but rather a mishandling of the key operating metrics and how they play into what was really approved. Normally a hiring plan is approved in the context of certain revenue and expense goals -- once those goals are off-track, it is often left to implicit interpretation that hiring plans are to be reviewed. Ideally the Board discusses these situations in advance with the CEO to understand how the CEO would operate when certain operating metrics go astray. The Board needs to know what latitude to grant the CEO (and the leadership team) so the Board does not have to stay deeply involved in operating issues. Unfortunately many Boards make too many assumptions about how CEO's (and leadership teams) will manage when off-plan so they inevitably find themselves intermingling (interfering) with issues of all sizes.
If you step back and examine an ideal situation, the business plan should actually be in charge of the Company. If properly defined and operationalized each year, it governs what decisions can be made and how off-plan items are handled. It becomes the objective arbitrator for the Company and in some sense takes out of the hands of the CEO and the Board the risk that one is seen interfering with the other, the source of most all Board discontent.
Communication Rhythm
Effective communication is a recurring theme through most of the sections on InsideSpin. It applies to Board - Leadership Team interaction with equal importance as any other aspect of inter-company communication. Although typically there is no specific issue with communication skills in this case, the type of information exchanged with the Board, the frequency of communication, the openness of communication and the effort required to communicate normally become the obstacles. Some basic principals apply:
- The Board is not engaged on a daily basis with the activities of the business. As such, you can't assume they can pick up on an issue in the same way as key members of the leadership team. The Board needs to be prepped, they need easy access to background information. In some cases, they may need full reminders of what the business is doing and why before a key discussion can start. The CEO needs to have patience with this aspect of Board - LT interaction.
- The Board of a young company is often made up of its investors (and perhaps one independent Board member). As such, the majority of experience is centered on financial management and not specifically operational management. This can be frustrating to the CEO as many operational challenges defy being cast in purely a financial perspective. The secret here is to properly think through what the operational goals are for the first year or two of the business -- forecasting whether you make $250K or $300K of revenue is not as important as making sure you prove the value proposition of your solution -- the former results in financial scrutiny, the latter results in achieving customer acceptance and earns the right to take more risk and scale up.
- Treat the Board as though it is part of the team. It is part of the team after all, often holding the keys to whether or not the business continues. This does not, and should not, mean that the Board needs to ride the same day-to-day roller-coaster the leadership team does, but the Board should be a place where open and frank discussions about important Company issues can be discussed. Many CEO's quickly decide to reduce communication with the Board because each communication seems to open pandora boxes of new concerns and issues the Board members start worrying about. Reduce communication, reduce what the Board worries about. Quite frankly, this does not work well in any personal relationship, it does not work well in a business scenario either. One very important thing the CEO should insist on is sound and reasonable Board reaction to hearing the 'truth' about what is going on with the business. if the Board starts reacting irrationally, the CEO and the LT will clam up -- as would happen in a personal relationship. All good things grind to a halt and normally the CEO is the loser in this situation.
- Define what information will be exchanged and when. Make communication a regular part of Board - LT interaction. Set and keep expectations about what and when you will formally communicate. Establish templates for weekly and monthly business summaries -- and keep to them. Even if there is nothing to say from one week to the next, send out the template indicating nothing has changed. Status quo is often just as important for the Board to hear as it is new things have arisen. Don't forget that human nature is to think the worst -- if you stop communicating, Board members will assume things have gone off-track and you are hesitant to tell them about it. One more thing, don't forget to make it easy for yourself to complete the communication templates. Use tools properly like spreadsheets and CRM reporting. if you or your team members are spending two-days each month preparing standard Board materials, you are not being efficient with the tools at hand.
- Demand value. The Board should deliver value to the Company. The CEO should be able to rely on the Board for guidance and input when needed. The Board should not be flippant or offer useless guidance when important issues come up. The Board should be viewed as a mentoring environment for the leadership team -- not a court of law where strips are torn off during each interaction (behind closed doors, it may be appropriate to tear off some strips if the CEO is missing the beat). If the Board is genuinely not providing value, changes should occur just like it would in any other part of the business operation (see Evolution of the Board).
Communication tends to be a central element of any successful relationship. Quantity is not the goal, but quality. Establishing expectations and sticking with them is paramount. The Board is but one element of Company structure, the only element where the CEO is not in full control with full authority to govern. This does not make it impossible for the Board to be valuable, but without effective communication, often the Board does not even know that it is off-side, wasting time and offering little value.
Board Exposure to the Leadership Team
The Board needs to understand who are the key players in the Company. Hearing only from the CEO on all issues is not a badge of pride for the CEO. In fact, many experienced CEO's would prefer to have key team members present operational issues to the Board, even if the CEO is very capable of presenting them. Deeper discussions can occur and resultant decisions become easier to manage down stream as guidance is communicated first hand. Some things to keep in mind:
- The Board should show respect to LT members. A Board meeting should be a chance for an LT member to receive guidance and mentoring, not a critical lecture. If something is off the rails, the CEO should be tasked with tearing a strip off the LT member, not the Board. As soon as the Board starts to act as the disciplinary body, the LT no longer wants to have anything to do with them. A simple analogy comes from pet training, if you call your pet over to discipline them, do you think they will want to come? If you call your pet over to make them feel good about you being around, the more they will want to be around you. Perhaps a misplaced analogy to use here but the key point is valid -- Board interaction should be a rewarding experience, the CEO is responsible for playing the role of the bad guy or the CEO risks loosing the confidence of the team.
- LT members need to be prepared and capable communicators. There is nothing worse than an LT member appearing to be unprepared or incapable of communicating key issues to the Board. Practicing helps -- review Board meeting materials in a management team meeting. Play all sides of a discussion so everyone is prepared. As soon as a Board member asks a question where the answer is not known (but should be), confidence drops way down and is hard to rebuild. If the issue at hand is of extraordinary importance to the business, sometimes the CEO should preempt the process and have off-line calls with Board members to advice them of what is being presented. This way the LT member can come in, present the issues and recommendations, participate in a first pass discussion and then step out while the Board and CEO finish the discussion and come to a key decision.
- Everyone should have a succession plan. In an ideal world, the Company should have two or three people who can capably lead the Company. This is not common for younger companies but should still be a goal. If the Board only sees the CEO, there is no visibility around who might be the right person to step in, even on an interim basis, perhaps due to illness or other personal situation. The notion that the best managers start their roles by making sure their replacement is identified applies equally well to the CEO as it does any other manager. If the Board has little to no visibility with the LT, the predisposition would be to bring in outsiders to fill gaps, or perhaps even have a Board member themselves step in. Not always a bad solution to the problem, but one that can lead to further disarray if not received well by the team.
The CEO should pick occasions where specific LT members will be given some exposure to the Board. The CEO might regularly bring in the Finance leader and/or someone from R&D but not often expose the sales or marketing leaders to Board meetings. Pick a scheduled event, perhaps a quarterly Board meeting, and have the LT attend to present the current status of the business.