Big Bad Boards – A Founder’s Asset
How many people read Bad Blood: Secrets and Lies in a Silicon Valley Startup? Me! Loved it.
Or, watched The Inventor: Out for Blood in Silicon Valley on Netflix?
As, the trial of Elizabeth Holmes, the founder of Theranos, kicked off August 31st, I was thinking about her board of directors. Now, you might be thinking, seriously, of all the salacious details, that is what you were thinking about.
Yep, sorry, not sorry. A significant part of my work as a lawyer was advising boards on corporate governance best practices, aka managing the board – CEO – investor (shareholder) relationship.
Obviously, that Board gets a big fat F for many reasons, but today I want to call out two things she did that contributed to her demise.
#1 She kept them in the dark
#2 She shut them down.
Now, I get the trepidation of many founders, particularly first-time founders, when it comes to managing boards. It’s not like they teach that in school or it’s part of any job description other than CEO.
Adding to the angst is often-cited stat that 50% of VC-backed founders no longer hold the role of CEO within 3 years, AND in 4 out of 5 of those cases, the board ousted the founder-CEO. Yikes!!
Here’s the thing – a board can, and should, be an asset, -- a competitive advantage -- if you get it right. What I am about to say assumes you have the right people on your board (yes, a big assumption!).
The Secret Vault
The only way to leverage the experience, expertise, mentorship, and network of your board members is to communicate with them.
Conversely, Elizabeth Holmes created a culture of secrecy in and out of the boardroom. When she dug herself in a hole so deep, she had no one to help her find her way out.
What you communicate during the board meetings is guided by what you put on the agenda, who might be invited to present from senior management, and what reports, financials, and other materials you provide the board before the meeting for their review.
But it’s what happens outside the boardroom in between meetings that matters. With regular communications, ad-hoc or scheduled, you build trust.
It’s about building supportive, strong relationships. Plan regular one-on-one meetings, engage in social interactions, and keep up the informal calls, texts, slack channels, or WhatsApp messaging. When bad stuff happens – over-communicate.
Once these relationships are formed, founders find they are more comfortable talking about the mistakes, the challenges, and the projections that you didn’t hit in these one-on-one communications.
Nothing should be a surprise in a board meeting!!
Manage to reality, not perception.
Boardroom Dynamics
What you want in the boardroom, and outside, is robust discussion, an openness to questions, and, what some refer to as, constructive tension.
You need some rebels in the mix, the person (or ideally persons) that will challenge you, question your assumptions, push to understand your reasoning for certain decisions, vet the numbers, and help you see risks you don’t see.
As Ray Dalio correctly describes, an effective board member is “radically transparent”. They speak up, they get into the uncomfy topics, all while being constructive and supportive. This isn’t about embarrassing or harassing the founder but elevating decisions, solutions, and strategy.
In 2006, Elizabeth Holmes, added Avie Tevanian, one of Steve Jobs’ right hands at Apple, to the board.
On the Dropout Podcast, Tevanian remarked, ““I think what she didn't expect was that I would actually ask a lot of questions and that if things weren't going as they should be going that I would ask tough questions…,” He further noted that she was good at deflecting, giving “more of a non-answer or an evasive answer.” He was eventually “asked” to resign.
That is a perfect example of what NOT to do. Turn your board into an asset by being transparent and proactive in your communications. Actively seek out their advice, ideas and questions when facing challenges, uncertainty, major strategic decisions.
While many founders get caught up in the role of the board as hiring, firing, and compensating the CEO (it is), shift your mindset and think ‘ok they work for me’. Not exactly true, fair, but it’s helpful to think of board members as team members.
Not sure how to manage a board meeting? Need help navigating your relationships with board members? Set up a 30-min, no-obligation, strategy call.
