Boards and the Big Red Button
It seems that great companies usually implement excellent boards early on. To my view, how a board best serves a company, particularly a private, growth-stage company, remains under-examined. There is no equivalent seminal guide like “The Hard Thing About Hard Things” for boards. What should we expect from boards and the people who sit on them? What should expect from themselves?
Regardless of the basis upon which a party is elected to the board, collectively, this group needs to consider all the stakeholders in the business including the employees, customers and sometimes even the general public. To this end, they have a duty to ensure the company is run responsibly, within the parameters of the law, and in such way as to optimize the expected return for the shareholders.
But how should they do that? Boards don’t set vision and they don’t run companies; CEOs do that. When all is said and done, the board really only has two jobs - two buttons they push. First, verify that the financials are audited and are in order - usually not a big deal. Second, hire and fire the CEO - a very big deal and a big red button. Strategy, corp dev, culture, financing, governance and executive mentorship are how boards can spend their time and certainly how they can help management build value. Ultimately, however, the main thing a board is really responsible for and expected to achieve is to ensure it has the right person running the company. This is what the shareholders elected the members to do and it’s their most important job.
It’s a job prone to failure. How do you know if you have the right leader? How can any board member really measure the risk vs the opportunity of changing or not changing the leader? Does even thinking about it mean you are damaging the current leadership? Businesses encounter existential threats on a regular basis and hovering your hand over the big red button during these times is not usually helpful. And so, some CEOs remain in chair too long, struggling to give the company what it needs, while others might be needlessly pushed out by a board mis-calibrating around the wrong signals.
An approach that works and is rewarding to both board member and CEO is to treat this idea of “choosing the CEO” as an ongoing, active process. When you are working with a CEO to make a company great, you choose them everyday. You do this through the thoughtfulness of your questions, the clarity of your feedback, the generosity with your time and recognition for the burden they carry - especially when things are hard. It’s through the quality of your engagement that you develop the best ongoing understanding for the business and the best understanding for the CEO. And if that CEO’s skills or temperament are not suited to what the company needs going forward, you need to be equally committed to finding a CEO that is. It’s a binary position, no hovering required.
It’s worth saying that the best boards are initially formed around a CEO-founder who buys into the idea that the experience and perspective around the table needs to be different from their own. And ironically, one who fully embraces the idea that the board may need to fire them some day. Not surprisingly, this awareness on the part of the CEO is likely a big part of why these companies do a better job in the first place - because everyone has a clear position to play and can focus on their A-game. By contrast, some of the least functional situations happen when CEOs and boards are cut from identical cloth, or those situations where boards are under-informed preventing meaningful debate or are otherwise organized in a way guaranteed to keep the CEO in power. This kind of stacking can lead to perennial self-delusion, poor quality decision-making and squandered opportunity.
Boards don’t run the company. Having said that, there is nothing passive about being a board member. As a group, you need to be highly functional and capable of debating openly around strong points of view while interpreting conflicting feeds and correcting for your own baggage. As individuals, you need to work relentlessly at maintaining the clearest perspective on the challenges and opportunities in front of the company. You do this so that you can continue to choose the right CEO every day. Experience matters, diversity is a critical ingredient and everyone needs to be a fully formed, engaged adult. Because the only real button a board should ever press, happens to be a really big button.
Image: Citizen-scientist David Englund created this avant-garde Jovian artwork using data from the JunoCam imager on NASA’s Juno spacecraft. The unique interpretation of Jupiter’s Great Red Spot was done in a style that pays tribute to French Impressionist painter Claude Monet. The original image was taken on July 10, 2017 at 7:12 p.m. PDT (10:12 p.m. EDT), as the Juno spacecraft performed its 7th close flyby of Jupiter. At the time the image was taken, the spacecraft was 10,274 miles (16,535 kilometers) from the tops of the clouds of the planet, at a latitude of -36.9 degrees.
