Communications between teams and directors

September 19, 2011

I had two things happen recently that made me think more about how a board is perceived by the employees of a venture funded company, specifically the non-CEO managers:

First:  After I learned about a portfolio company crisis that had been brewing for months (about 12!), I asked the company’s managers “why didn’t you tell me about this problem?”.   What I got back was “well, we just did as we were told”, “you were the board, we had to be careful in telling you things”,  and “we were instructed by the CEO not to talk to you”.  I am still scratching my head at these answers…it’s 180 degress from the way I want a management team to think.

Second:  Around the same time, I visited a portfolio company without advanced warning just because I was in the neighborhood with some extra time.  The team there was totally stressed that a board member visit might mean something bad…  I guess I can understand the reaction, many times the only time some company employees see the board is when they come in for board meetings or to fire someone, shut the company down, etc.  That’s not the case at all here, I just wanted to drop in and see how things were going and the CEO had told me to stop in if I found myself with a little extra time that day.  Plus I enjoy working with this team and wanted to see how I could possibly be helpful.

These two interactions got me thinking about how perceptions of what the board (of directors) is and what it wants might interfere with really beneficial information flow and interactions.  Specifically:

  • The VC directors are not there to simply evaluate how their investment is doing.  They should be a resource and to help the company with skills and relationships that might not be in the company normally.  In other words, make the board work for you (and everyone work for the shareholders).  VC’s actually want to be asked to help with problems, find resources, etc.
  • The directors do not want to funnel all communications through the CEO.  We absolutely want to have open discussions with the team.  Just lay it out there…the good, the bad and the ugly.  CEO’s will not succeed if they create barriers between the directors their team or, worse, create some fear of the board (“we can’t tell them that because they would pull our funding”).
  • Some members of the board will understand the company and nuances of strategy faster than others.  Everyone should recognize this and work to keep all the board members up to speed, not by managing information but by proactively educating.  The fact is that some directors will not really pay attention until there is a crisis, even if the team is being fully transparent.  CEO’s have to actively educate and manage those board members because they can become loose cannons if surprised (because they panic when the company is under stress).
  • The board is not exclusively focused on objective financial measures.  Companies can grow in value (or potential value) by building a great team.  Yes, ultimately it needs to translate to revenues and profits but in the early stages, a good director is also focused on team development.  Board members sometimes  fail to attend to this though and leave it to the CEO.  I let this issue go for far too long with one company that failed to build out a complete team and the team fell apart at the same time that it landed the first big customers.
  • Directors do not always agree with each other on strategy – that’s OK as long as a decision is made and everyone stacks hands and moves forward together.  Because a startup almost always has to pivot once it understand the customer needs, it is natural that there is an ongoing dialog about where that pivot point is. The non-director management of the company should learn to value a range of opinions from the board just like it values a range of ideas from the employees.

This idea of open communication is easier to say than to do.  A manager can’t really call the board and say that the CEO is wrong – it breaches trust.  What I think teams should do is to separate the people from the problem and focus on bringing issues forward.  The CEO needs to create a culture where, if a manager is concerned about a problem, this concern gets exposed to the board.  It isn’t really that much harder than having the managers speak their minds in the board meetings (where most of the senior managers of the company should participate).

What I plan to try with my next company is having an explicit policy from day 1 where (1) every new employee gets some explanation of what the board is and how it can be used as a resource, (2) board members are expected to pop in and chat with any employee, and (3) every board member will visit, at least by phone, at least once a quarter, with every C and V level executive to get an unrehearsed view of the company  status.  The goal is not only to help the directors better understand how the company is doing and head off problems but also to find out where the directors can be a valuable resource for the company.  Some of my companies already operate this way (because of the culture set up by the CEO) and my observation is that they are more likely to stay out of the ditch and, if they end up there, are more likely to have everyone pulling together to get back on the road.

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