CHAPTER THIRTY-SEVEN

DECISION MAKING AND THE BOARD

Your board's job is to help you and your team make important decisions. It's not their job to make those decisions for you. The key is to lead conversations in a way that will produce forthright and actionable advice—especially when there's strong disagreement among your board members.

THE BUCK STOPS—WHERE?

I made a dumb comment once at a board meeting that got me thinking.

We came into this particular meeting with, in addition to lots of the regular updating and reporting, one specific strategic topic we wanted guidance on from the board about. It was something that had been nagging the management team for a while without an obvious solution. We had a great conversation about the topic with the board and got very clear guidance as to their perspective on what we should do. I agreed with most of it, albeit with a couple of modifications. More than anything else, I was happy for the note of clarity on an issue with which we'd been struggling internally.

My dumb comment: “That's pretty clear direction. We will go do that.” Whereupon Greg Sands, one of our board members, politely reminded me that it's not the board's job to make decisions and make things happen, only to give advice and counsel. I shouldn't take their words as gospel and assume they will work.

Good point.

The board is your boss. (You are on your board but so are two or four or six other people.) While there are some items where the board does have the final say, the overwhelming majority of your actions and the actions within the company are really up to you and your team. You can seek guidance when you feel you need it but that guidance doesn't come with a guarantee that it will work operationally—nor does it give you the ability to look the other way if things don't work out in the end.

MAKING DIFFICULT DECISIONS IN CONCERT

Sometimes boards do have to make tough decisions. How do you go about steering those conversations?

The first thing I'd like to point out is that for about half of our 13-year existence, our board has had an even number of people on it. Not for any particular reason. Sometimes it just worked out that way. (There are jurisdictions where you can't legally do that.) It's also interesting that one out of two people who have heard that from me over the years (including other CEOs) have responded immediately by asking something like “What do you do if there's a tie?” If there's a tie, we have bigger problems.

Not all boards are the same. Some are very political, by which I mean not all directors have aligned interests. This may be more likely to occur in later-stage companies, when the cost bases of different investors' shareholdings are radically different and the topic of exits—or even down-round financings—comes up. However, there is still a way to rally a board to regular unanimity when a thorny or even just an important strategic issue, comes up. My formula for doing that is simple:

1. Lay out the facts dispassionately. Write your memo or position paper. Do a full set of pros and cons. Costs and benefits. Payback analysis. What-must-be-true fishbone chart. Whatever format it takes, go for “just the facts, ma'am,” and have someone disinterested like your significant other or parent or communications person read it before it goes to the board to make sure all bias is flagged and removed.
2. Have a strong point of view. Even if you're not the chairman of your board, you run the show. The board wants to hear that you care about something and why. Otherwise, there's a vacuum that they could step into, which isn't good. In the end, your board is highly unlikely to dramatically overrule you if you have a strong and well-founded opinion on something.
3. Do your homework and lay your groundwork. Make sure you understand each board member's bias coming into the conversation. Talk to each person individually, even if you feel like you and they are likely to be in agreement. When you're in agreement, you can ask the board member to be supportive but still express their point of view. When you're not in agreement, at least get the other board member to acknowledge his or her frame of reference so that if it comes up during the meeting, you have license to call it out. When in doubt, sell ahead of time.
4. Let the discussion happen naturally. Whatever the State of Delaware tells you, this is why you have a board in the first place. Ask provocative questions. Step back and listen to the debate. Jump in and quietly steer when you need to. One of three things will happen: the board will agree with you and you can move forward; the board will not agree with you, in which case you can call the conversation to a halt and declare that you need more time to work on the topic; or the board will shape your opinion of the issue in a way that's productive for you and the company in the end.

While my company has had a long history, with many decisions along the way that turned out to be bad ones, we have never had a moment where the board looked at me and said, “You made a bad call here.” I don't think that's because I've been overly political and good at working the board. It's certainly not for lack of opinionated and independent directors. I think it's because every time we have had a fork in the road, we have looked at it together and figured out which way to go based on the facts.

MANAGING CONFLICT WITH YOUR BOARD

Our board is an unusually good one, so I don't have a lot of experience managing conflict on the board. Over the years, though, I've had two difficult situations come up that I can draw on to paint at least a vague picture of how to handle things with the board at tense moments.

The first one is how to handle a poor performance review from a board. I had one of those about two years into running the company and there was a moment where I really thought, “uh oh, my job is at risk.” All you can do in these situations is dive into the feedback. Ask for clarity on it. Don't be defensive, even if you disagree with the feedback. Involve or start working with an executive coach and give the board some visibility into that process and a direct connection with the coach. Work hard at the feedback and press for another review off cycle if you feel you have course-corrected.

A second difficult situation that can come up is around managing conflict between directors whose interests are not aligned around a financing. In my case, I had a down round where one institutional investor refused to participate and the other investors wanted to wipe that investor out—which would have wiped out all common shareholders and management as collateral damage. The other investors offered to grant new equity to management after the wipeout but that left other common shareholders out (and it also would have completely started management's vesting clock from scratch).

Our company's outside counsel helped point me in the direction of a solution by reminding me that board members have a broad fiduciary duty to the company and all its shareholders. They aren't just representatives of their own shareholdings. So I brought 10 Return Path baseball hats into the meeting, five black and five white. I literally made everyone in the room wear one hat when commenting as a shareholder and the other color hat when commenting as a director. That simple gesture helped everyone come to terms with the challenge of the situation and it led to a much happier end result.