Board Core Helping other Boards
Background and Introduction:
The Underscore VC board member group is an active affinity group within the Underscore Core Community that meets regularly to discuss and develop best practices among board members. A recent dinner gathering of the group included Marina Hatsopoulous, Ray Tacoma, Gail Goodman, Joe Caruso, Carol Meyer, George Kassabgi and others. As one of the founding members of the Core Community, Emily Green helped to synthesize and share much of the conversation.
What a good use of time to join the Underscore team again on April 4 for a fun, productive dinner for their CEO, CFO, and Board Member Cores. Looking at my notes from the 12-person Board group, scribbled in between the pasta, the salmon, and the dessert buffet, I have two impressions:
Core Board members have a lot of questions.
Our discussion was rich with issues we worry over on behalf of the entrepreneurs we support.
Core Board members also have lots of answers.
The collective experience at our dinner table was so deep and diverse that there were useful takeaways for all of us.
Here are the Q&A exchanges that were highlights for me. (And because we all care about our companies, no names or embarrassing details!)
When do you bring on an independent director?
Earlier than you think, was the consensus. Somewhere between Seed and A round seems to be best practice. It can be a relief valve for the CEO if they feel ganged up on by investors. If VCs are fighting off the idea due to concerns around control, that can be fixed in a term sheet; e.g., “one independent director to be mutually agreed upon.” It’s not typical, but one investor board member noted that boards can be lax about actually making the independent director appointment even when it’s agreed in the term sheet, so he suggested including a timeframe and even a search firm if necessary; e.g., “one independent director to be agreed upon by X and by when…”
What do you look for in an independent?
Any or all of these attributes: Has been a CEO. Knows your space. Has subject matter expertise you need. Can help land early customers.
But here’s a great comment:
“One of my best board members knew nothing about my business.”
Socratic mentors who have practical experience, for example, can be better than dictatorial CEO types who may know what to do but don’t help you find your personal path.
How can you help a first-time CEO?
Sometimes new CEOs believe they should be Masters of the Universe; they often don’t know what help to ask for, ask for too little, and wait too long to do it. At the other extreme, sometimes they don’t spot the boundaries they should observe with their boards, and build the right respect into their relationships. They might not also understand when they do and don’t have to do what the board recommends.
An experienced independent director can take a new exec aside and make suggestions about all of this. One idea we each swore to adopt is for the independent to write up an informal email with their take immediately following every board meeting, sending it to the CEO with this ending: “No need to reply, just letting you know what I thought. Hope it helps and happy to talk more.”
Another habit to build into board meetings which helps a new CEO is to always include an executive session in each meeting, so that everyone gets used to giving the board a chance to confer without the CEO, and to summarize its discussion afterwards.We also agreed that for it to be effective, the board must call the CEO back after the exec session and share any key observations and recommendations. This needs to start right from the earliest stage of board meetings, so that it is the norm and not the exception.
Other thoughts on helping early-stage new CEOs included encouraging them to show great preparation beforehand for meetings, to build a scannable, simple deck sent out early, and then to use board meetings not to report something shared in the meeting deck or to repeat old stuff, but to step back, choose a few key topics (1 or 2 is better than 4 or 5), and lead a discussion with an earnest interest in input.
Finally, in this same vein we talked about 360 reviews, CEO evaluations by the board, and CEO coaching.
“360s are adverse selection: the ones who do it are the ones least likely to need it.”
“A mirror is only a mirror; you have to be prepared to do something with what you learn.”
“If you want to grow as a CEO, you should want to get these resources.”
“Coaching can be very helpful — but it’s all about the personal fit between coach and CEO.”
What’s a good cadence for early-stage company board meetings?
We had a range of views here — from 6–8 weeks all the way to quarterly, but clearly the right answer seemed dependent on the stage of the venture, what the company’s leadership is going through, and how well things are tracking to plan. It’s critical to take into account the prep time the CEO and their team will chew up with frequent board meetings. We recommend creating board materials from your operational dashboards and reporting systems so as to avoid busy work. Also, rather than meeting more frequently when there are critical issues to stay on top of, we like quick conference calls or emails.
What do you do if your board is dysfunctional?
We discussed how it’s the CEO’s job to tackle that — since it’s the CEO and their team who will suffer most from not dealing with it. A good independent director might take the step of pointing this out on the side to a CEO who hasn’t noticed it or doesn’t what to do. There might be a need for a heart-to-heart with a director who just isn’t aligned anymore with the company’s direction or its needs for particular expertise; perhaps it’s time for them to step back and to solicit a new contributor in their place.
A good way to ease those tough conversations with a problem director is to start early in the board’s history to have regular annual reviews, where each member reviews every other. Done annually, it paves the way for those “it’s time” conversations when they’re needed.
A related question was this:
“If you’re an independent director and you don’t agree with the rest of the board on something, how hard do you push back?”
We talked about asking the rest of the board questions that could shed light on their opinions or even awaken their conscience about priorities or process:
How will that help the company?
Can you tell me more about your logic?
What might I be missing?
Could we learn a bit more first?
You can always ask to have your disagreement recorded in the minutes. If it’s an issue of legality or reputational integrity, however, you might need to consider whether this board is a fit for your own portfolio.
When does a board push the CEO to make management changes?
Should they? We agreed that the board identifies issues and encourages the CEO to consider options.
Are you sure about this person?
How are you holding them accountable?
How many shots on goal will you give them?
Have you considered alternatives?
All might be helpful questions to ask. But when a board forces the CEO to do something, they’re really taking on the CEO’s own job. If the CEO doesn’t push back on that, he or she risks losing ownership of the role. At that point, the better question to ask may be, “Do we have the right CEO?”
As with our first meeting, we wrapped up with plenty more to talk about at our next gathering. Thanks to Underscore for pulling us together, and we look forward to continuing to learn how to be even more useful for our entrepreneurs.