Some boards help. Some boards hinder. We don’t have hard stats on what percentage is helpful and what percentage hinders, but at some point, a lot of boards become dysfunctional and a self fulfilling prophecy for the business getting into trouble.
Too big, too quick
Every person you add to your board comes with their own style, personality, experience, self interest and values. These differences are highly valued when there is strong mutual trust and respect. It becomes a 1 + 1 = 3 equation. However, trust and respect can take time to develop and the faster you add more people, the less opportunity there is to build that trust and respect.
When there isn’t institutional trust and respect, large boards can start to become dysfunctional because different personalities, interests and perceptions start to cause friction. This friction starts to slow down the ability of the board to add value to the business. Conflict turns destructive, and little gets done.
And whilst little is getting done, issues are going unresolved in the business, and before you know it, the business is in trouble.
The other impact we see that is associated with boards that become too big too quick is they impose unnecessary administration for the company’s life cycle. While we are big proponents of governance and structure, we think this should always be ‘right sized’ for the company. Having 50 page board packs is an unnecessary reporting burden on small teams and signals that the board isn’t communicating effectively with the team between board meetings and that the team and the board are not aligned on the key metrics that signal the health of the business and need to be discussed. Having multiple subcommittees on boards for companies that have less than $1M of revenue is unnecessary. The key is to understand that while the board can and should set the tone for the company, its own identity needs to align with the needs of the company and its shareholders. The board exists to represent shareholders and ensure the company is executing effectively, not to crush the company under the weight of its own inertia.
Start small, and build up. Big is not better.
Wrong people in the wrong roles
Everyone has the potential to be great. But even great sportspeople can deliver poor results if they are in the wrong positions. “If you judge a fish by how it climbs a tree, you’re always going to be disappointed”.
The CEO and chairperson roles should be the clearest. However, we see time and time again they are the most misunderstood because they aren’t clearly defined. When things are not clearly defined in terms of role, authority, and outcomes, dysfunction starts to manifest.
And whilst one could never argue that the chair was the most important person in the company, we’ve seen dysfunctional chairs bring good companies to their knees. Slowly at first, then quickly. The statement “a fish rots from the head” has never been truer for dysfunctional boards and the chair that leads them. The dysfunction at board level inevitably flows into the organisation.
Now dysfunction leads to disintegration – when things fall apart. What is the opposite of dysfunctional and disintegrating? Functional and integrated.
A good chair integrates the board members together, as well as integrating the CEO/MD into the board.
They are less “get it done” and more “facilitating the environment where it gets done”. They work with different members to coalesce energy and focus and are not afraid to put hard issues on the table. But when they put hard issues on the table, they drive an integrated team approach, not running around behind the scenes working factions like some political party.
Therefore, the most important aspect of a chair is not their work history, technical experience or contacts but rather their personality and style.
High “get shit done/make it happen” energies are absolutely required in an organisation. They can be functional assets in board members if their energy comes with respect and provide great ideas and networks. However, they tend to make poor chairs.
A good chair is generally less energetic and more considerate. They calmly work with the rest of the board and the CEO and don’t shoot from the hip. When an issue comes up, they have no fear in addressing it, but their personality and style mean it is raised and discussed with respect. Whilst they aren’t a bull at a gate, they bring things up early when often no one else will, so issues can be resolved collectively by the board and or by the CEO.
If you have someone that is well respected and that you want on your board because you think they will open doors for you, make sure their style and personality are right before you give them the role. If you just need doors open, contract them or engage them as part of an advisory board as a first step.
Some people see a position on the board of directors as a position of status – likely because the board is often responsible for the big decisions relating to the governance and strategy of a company. For that very reason, you need people on the board who are capable of bearing the weight and responsibility those positions involve, to be capable of making the best decisions in the interests of shareholders and be excellent custodians of the company.
When you consider someone for your board, ask yourself why they want to be on the board. What can they bring to you? Is there a status you bring to them? We find that people seeking to use board positions to raise their own status are there for the wrong reasons, and it becomes difficult for them to make hard decisions that might be needed at various times throughout a company’s life cycle. Status seekers will find it hard to replace a key person if it reflects poorly on their own reputation. They will find it difficult to make cost cuts or slow down the burn of a company if it changes the optics of the success of the company externally.
You want people that will raise your company, not their status.
Lack of experience
More focused towards the role of chair, but also relevant to general board members, you want to ensure you’ve got people that have seen this movie before – know how it will play out if decisive action isn’t taken – and can be part of a happy ending. In an ideal world, they have experience as a chair and board member. And if they don’t, you’d want to be very sure they have the style, personality and capability to pull it off if you’re going to risk them on their first time appointment.
The successful but inexperienced board members we’ve seen have approached the appointment with intense curiosity, conscientiousness, an acknowledgement that they don’t know what they don’t know and a desire to learn. But you need to ensure you balance that with those people for whom this isn’t their first rodeo, and they have some tools and paths to control the bucking horse that is a rapidly changing company.
For example, maybe your desired chair hasn’t been a chair before. Have they been on a board with a great chair? Can they articulate what the role of the chair is? Can they explain how they handle the inevitable conflict that will arise (as it does for every company)? Is their style one of integration to bring together the board organisation’s energy constructively? How do they approach being the conduits between the board and the CEO?
And without being alarmist, it’s worth stating that beyond the clear operational impacts I’ve outlined above, there are very real liabilities associated with being on a board for the company and for the directors. It’s critical that board members are aware of their obligations so that shareholders and the company itself are protected.
Lack of process
Whilst trust and respect have many ingredients, trust and respect are often an outcome of the processes fostering trust and respect. The chair generally sets the tone of the board, and the processes the board will use.
When a major issue comes up, chairs (and boards) that have no systemic process of how the discussion should occur often preside over conflict laden conversations that end up harming trust and respect. The lack of process means people’s different styles, interests, values, and perceptions start to get triggered, and unnecessary skirmishes occur.
So for your own company, consider how complex issues are handled. How are issues that are conflict laden, especially those that have factions of self interest handled? What processes do we have for addressing and analysing opportunities and challenges? If ASIC and other shareholders listened to our board meeting, would they be impressed or aghast?
Wrong lifecycle location
Early-stage businesses that are rapidly growing can be compared to toddlers in the human lifecycle. Lots of energy, all over the place, getting into some troubles, fun some days, painful others, don’t yet have the systems processes and controls of an adult.
Aging organisations are controlled, systemic, slow, and resource laden that take time to make decisions, and the implementation of those decisions can stretch for years.
Then there’s the in-between lifecycle location of “Prime”, where they have good controls and systems but still the flexibility to do new things and curiosity and excitement to do so.
What is normal for one phase is abnormal for another. People from ageing organisations look around and tend to say, “wow this is not right! This is out of control!” and move too quickly to try and turn the toddler into an adult. Early bureaucratisation that is too aggressive creates dysfunction.
You need members that come from more mature phases of organisations than yours but are not too far away. When the gap is too great, the understanding, empathy and knowledge of what to do to get this toddler to become an adult lead to major conflict. This conflict saps away energy, and the organisation starts to underperform.
Yes, growing organisations need to “grow up”. But you need to do it in a healthy manner, and you should not prematurely force things that will then stunt growth and lead to other problems.
Growth over development
This is aligned with the lifecycle topic above, but too often boards feel they must drive growth, almost arbitrarily. “If we don’t hit our growth goals, we have failed!”
But the focus should be more on healthy development. Companies, just like humans – those that develop in a healthy manner are those that will achieve amazing growth outcomes. Like humans, some companies can develop fast, some need to be slower. Don’t measure time, but rather the healthy foundations of growth.
Cancer is a form of growth, and in companies, it can be hard to diagnose. It looks like growth, but it is actually unhealthy growth like cancer. We don’t want cancer, we want healthy development where growth is most likely to be one of the outcomes. And if we do ever find cancer, we need directors that will transcend their self interest to cut it out in the best interest of the business.
Lack operational respect
When a board member (and worse of all, the chair) lacks operational respect, things can become dysfunctional. Either by not doing things they say they will on time or inserting themselves into situations only to become a bottleneck.
What operational experience do they have that will build empathy and respect for what the executive team needs to do and what it takes to execute?
Unwilling to have hard conversations
This is a combination of style, process, self interest and probably other things, but deserves a section on itself.
We want business building to be rewarding, but that doesn’t mean it is always beer and skittles. Sometimes some issues have become such that they need strong and swift interrogation and decisive decisions, which can be uncomfortable in the moment.
The issue is that most people don’t know how to engage in conflict effectively and so shy away from hard conversations. This means people often kick the can down the road on issues of personal performance both at the board, founder and operational team member levels. Human issues are often the hardest of all.
Some think that keeping harmony is the best way, but often harmony prioritised in the short term leads to dysfunction in the long term. “Easy conversations, hard life. Hard conversations, easy life”.
Hard conversations may be uncomfortable, but they don’t need to be disrespectful. Yet most humans shy away from discomfort, hoping that things will resolve themselves. “A body in motion tends to stay in motion”, and problems tend to stay problems until they go bang!
We know it’s not easy, but as a summary point, the energy would be “hasten slowly”. Be clear on what you are trying to achieve, and hopefully some of the above issues can be used as a bit of a check box when deciding when to implement, and who to be on a formal or advisory board.
And as always, if you have questions or a different point of view, please reach out to any of the Tribe team.