Archive for the 'Boards of Directors' Category
February 12th, 2010 by Drew
The subject of board performance is near and dear to us. Businessweek recently interviewed David Thomson on his “Essential No.7 – Build a Billion Dollar Board,” during which he discusses the topic with Tom James:
James says that having experienced, seasoned people on the board is just what a growth company—and its management—need. “A board has to have no fear about challenging management. As a CEO…you need to be willing to stand up for your ideas, but sometimes you learn that the ideas of highly experienced board members are a lot more important than yours,” he says. James also points out that relationships that board members have outside the company can be an invaluable asset.
James’ methodology, from even before his company went public in 1983, was to hire former CEOs of other brokerage firms. He used to tell his CEO board members: “We are putting you on the board so that we can avoid the mistakes that you have already experienced.”
During the course of the interview Thomson recommends three specific steps to strengthen a board:
- Act early to balance your Board with CEOs, customers, and alliance partners.
- Leverage Advisory Boards to bring deep expertise. Make them small but highly talented and experienced.
- Breathe fresh life into your Board, renewing it or adding to it to get fresh perspectives.
Watch this 3-minute outline of Thomson’s “7 Essentials of Highly Effective Companies” on Blueprint for a Billion – here at BPV’s Youtube channel. (His discussion of boards begins at 1:38 of this clip.)
February 2nd, 2010 by Dick
In a recent survey by McKinsey, reported at The Daily Stat, over half of directors thought their boards had failed to meet the demands of the recent crisis.
Underachieving Boards
We find it interesting that of the ten topics mentioned, only three had ‘implemented’ scores higher than scores for woulda/coulda/shoulda (still!).
Furthermore, it echoes the nostrum about some generals’ tendencies to fight the last war. Existing regulations typically fail to anticipate the next regulatory breakdown because they’re designed to prevent the last one.
As we’ve written elsewhere, great boards are less a matter of rules and procedures and more a matter of how the members interact within the framework created by any set of rules and procedures.
January 16th, 2010 by Dick
December 9th, 2009 by Drew
Today’s WSJ has a brief, thought-provoking article about how to improve board performance. This could work very well for some companies, as best practices should, but as we’ve written elsewhere there is more to board performance than best practices.
The author is James M. Citrin a senior director and member of the worldwide board of executive search firm Spencer Stuart.
I believe that a new mandate should be established for the board compensation committee. Re-branding the committee as the compensation and leadership committee will help strike a better balance of “offense” and “defense” by giving this essential board working group permission to be more strategic and proactive. Upon being granted unambiguous responsibility for the company’s top talent, the “Compensation and Leadership Committee” will be able to be more effective in helping boards fulfill their most important responsibility, CEO succession. The broader definition will also make the committee more attractive to the strongest board members and committee chairpersons, strengthening committee performance.
…
The compensation and leadership committee would likely spend its time differently than the typical comp committee, moving beyond remunerating management to having systematic, consistent and continuous discussions about leadership development and succession. It will be more likely to focus on how well management has led the company’s performance relative to plan and competitors, how compensation plans can be designed to support company strategy, and how to protect valuable executive talent that might be coveted by the competition. At every one or two committee meetings, for instance, the group would be expected to have in-depth discussions about where the company needs to go and the resulting leadership implications. Then the committee would spend time determining how the current management team lines up with the leadership requirements, who the most promising talent is at various levels of the organization, how this talent compares to external benchmarks, what experience and skill gaps are present, and what the right development plans are to fill the gaps.
November 14th, 2009 by Paul
A recent joint study conducted by NVCA and Dow Jones VentureSource outlines several factors that contribute to a good alignment between VCs and the companies they back.
Among the findings were several areas in which there was natural alignment and agreement between VCs and CEOs. Other findings point to not-too-surprising challenges in making the relationship work:
Do you respect me or my money?
- 54% of VCs cite mentoring the CEO as a critical value-add; only 27% of CEOs see the value.
The money will always be important. After all, entrepreneurs should pick a financial partner who can provide additional capital as needed as their companies grow. But the best (sadly, not all) venture partners provide much more than money – valuable contacts, “been there, done that” experience when facing tough business issues and a sympathetic sounding board for entrepreneurs working under great pressure.
We also see different sources of conflict. For VCs, it’s personality conflicts and management changes; for CEOs it’s valuation and exit strategy
Interesting stuff. In our experience, the natural conflict over valuation can be addressed creatively with investment structure and fades quickly after the close. We also typically don’t have control in our investments, so “management changes” need the approval of the entrepreneur and the exit strategy really has to be a consensus decision. When we do experience conflict, it typically revolves around the company not performing up to expectations and how to get the company back on a growth path. But that kind of “conflict” is both healthy and productive, and everybody has the same goal, so it really doesn’t need to be acrimonious and fortunately rarely is.
The study was completed in October 2009 & includes responses from more than 300 VCs and 200 CEOs.
November 3rd, 2009 by Drew
The end of every boom-bust cycle during my lifetime has included a fin de siècle scandal: insider trading punctuated the ’87 crash, accounting irregularities (think Enron and Worldcom) helped pop the tech bubble of the ’90s, and our most recent bust was characterized by lax governance at Fannie & Freddie and more than a few banks.
We all understand the business cycle, and we all understand human nature… but what about all those good governance measures that get implemented in the wake of each meltdown? Why do they inevitably fail to prevent the *next* crisis?
Presumably, those companies and regulatory bodies have boards comprised of accomplished and highly intelligent members, with personal wealth at stake. Weren’t they paying attention to, and paying consultants to implement, best practices in good governance? Ethics codes, audit and compensation committees, Independent Directors, regular meetings, well constructed board packages…
Yes, they did.
Continue reading ‘When boards work well’
