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Board to Tears

OVP Staff
March 10, 2011

I have been on enough Boards now to appreciate how unique each board experience is and how critical board composition and chemistry is to a company’s success.

My experience at this point has run the gamut.  I have been on boards that brought on “smart” money, some times to the regret of all and other times to great effect.  I have been on boards that brought on “dumb” money, always to the regret of all.  I have joined boards representing the smart money and have, I suspect, occasionally represented the dumb money as well.  I have been the board heavy and the management ally; the dissident and the unifier; the catalyst for management change and the last person to agree that change is necessary.  Since my approach has been generally consistent over the years, the wide variance in my experiences suggests that our boards define us as much as we define them.

At one point in my career I was on two boards and had reached the point where I was adding value to neither.  At one company, a significant underperformer, management had grown tired of my criticisms and had, essentially, written off both my advice and the prospect of our future support.  We fell into a familiar trough – one in which the VC waits for the company to need  money again so that change can be forced, while the company tries to bring in outside money and dares the VC to assert any rights in the face of ready money.   At the second company, a kick-ass of a performer, management had simply outstripped the boards and my ability to add insight, relationships or knowledge beyond relatively minor mirroring work (management tries on an idea and uses you as a mirror to see if the idea fits or looks ridiculous).  In both situations, the board assignment had lasted a number of years, so we were well past the initial burst of enthusiasm in which fundamental business principles and best practices are scrutinized every third day or so.  Instead, the bad company kept doing what it did poorly, and the great company kept doing what it did well.

What do we do in these situations?  One solution to consider is rotating board seats within your partnership.  This is rarely done.  We hate to give up our thoroughbreds, and we are loath to saddle our partners with a soon-to-be consignment to the glue factory.   It also takes a fair amount of time to build trust and chemistry among board members and management.  In the case of a company that is doing well, there are still critical trust issues that occasionally arise including, most importantly, when to consider selling the business.  Further, winners occasionally stumble, and the apparently low-value board might again be called on to be an active force.  Similarly, the underperforming management at an underperforming board is not likely to be amenable to my partner’s advice until my partner is ready to write a check, so the stalemate will continue (the exception is when personal relationships among the board members, and particularly among the investors, have deteriorated, in which case a change might be worthwhile).

I have found that the best approach is to meet, proactively and on an every other year basis or so, with management and sometimes with other board members for an honest assessment of how the board is functioning, including how I am functioning with management and the board.  In the high performers, the result has usually been a shift of focus onto areas where the company needs and wants help; management at these companies typically likes the board, appreciates an honest assessment and has a talent for extracting value from willing constituents.  In the companies in which performance is subpar and the relationship with management is strained, there is still a surprising amount of mutual agreement and often an opportunity to agree to disagree on certain key issues while still finding areas where important work needs to and can be done.  In the latter case, however, you have to be realistic.  After all, when you’ve told your wife you want a divorce, offering to do the dishes only goes so far.

OVP Staff