Reinventing the Board Part II: The Role of the Chair in Increasing Board Effectiveness

11/15/11Follow @geshwiler

Technology companies’ boards of directors need better leadership. I made a case last month about reinventing the board of directors by treating the board as a team and doing annual assessments against company needs. Boards that are structurally more aligned with their company’s operations are better able to help them achieve success-or at least reduce the board’s contribution to company failure. That said, it’s hard for a CEO to do this alone. Even with a well-organized board, a lot of board meetings also are under-effective, ineffective, or worse, really stink.

Enter the effective chairperson.

The non-executive chair of the board has three responsibilities:

1. Set the board agenda for each meeting;

2. Run the board meeting; and

3. Manage board terms and help recruit new members.

Executive chairs take on additional functions and play an active management role, often including being an outward face with external stakeholders such as government entities, investors, and strategic partners. Those are important roles, but different from the role played by a non-executive chair. It’s also rare to have an executive chair in an early stage company. Non-executive chairs are very different; they talk less, listen more, and as one lawyer put it to me, “their job is to bang the gavel.”

Setting the Agenda: A big reason a lot of board meetings stink is they focus on the wrong things. If left to their own devices, management typically will set an agenda about what they want to talk about—or at least what will make them look good—rather than what is vital to the company’s long-term success. Alternatively, the board can operate on a rote formula, often covering activities such as sales, marketing, and engineering since the last board meeting rather than looking ahead to the future.

Even well-intentioned CEOs will have blind spots or resistance about what should be on the agenda, because they live inside their own tactical world and suffer from day-to-day stress. They may be unaware of or underappreciate strategic changes in the market. They also may want to postpone discussion of an important topic until they have what they perceive as enough time to address it sufficiently to look good in front of the board.

(Above, a short video with additional thoughts about what makes a good board chair.)

Instead, the chair should reflect on what tough questions should be addressed and which ones aren’t being asked. He or she may want to consult with fellow board members, management, and other informed parties in the market. These questions and an outline of the agenda should be circulated a week in advance of a board meeting. Early distribution of the outline can create constructive conflict about items of importance and ensure that management does not waste their time preparing elegant, but not very effective materials.

Unfortunately, what is typically considered best practice today is management preparing lengthy PowerPoint slides and distributing them one to two days in advance of the board meeting. Board members may or may not have time to review them and are often playing catch up when they walk in the door for the meeting. As a result, management often becomes frustrated—either when the conversation quickly derails from their agenda or, at the other extreme, board members sit passively listing to a parade of data, seemingly unappreciative of all the hard work that went into them and not adding any value.

Running the Board Meeting: Good chairs are facilitators. While many CEOs also are good facilitators, even some of the best ones I’ve seen have lost control of board meetings for one simple reason: management can’t manage the meeting when the board is questioning management.

Here’s how board meetings usually spiral out of control. Everything is fine for the first few slides, hour, or even until nearly the end of the meeting. Then, the CEO or another member of management mentions some piece of bad news. Or, a board member asks a pointed question where management hesitates or stumbles. A flow of further questions ensues from other board members. The discussion may—or may not—be important or relevant to the company’s situation.

The CEO tries to regain control of the discussion, but now there’s blood in the water. The board members intuitively or explicitly expect management is trying to shut down the discussion because there’s something even worse lurking underneath. Debate continues until everyone is exhausted or runs out of time, and board members and management leave feeling frustrated. In the worst cases, the non-management board members set up a subsequent conference call to discuss what they view as wrong with management and what must really be going on.

The CEO needs a lifeline. This is when the effective chair “bangs the gavel.” With their independence from management, they have the credibility to say the current discussion is unproductive, will reduce time for other important topics, or should be tabled for the time being and revisited when appropriate.

Even if a board is fortunate enough to avoid this type of downward spiral, the chair can improve discussion by drawing out more quiet board members and helping elucidate contrarian perspectives that might bring vital insight. Facilitating broad discussion should help the company, not hurt it. And, as a result, the chair should always be actively listening to the discussion and talking less. Some of the best chairs are silent for most of the meeting.

Managing Board Terms: It’s also awkward for the CEO to manage who is on the board, since the board decides who is CEO and sets their compensation. Trying to influence the board’s composition can be perceived as trying to stack the deck in management’s favor. Some shareholders, particularly institutional investors, may have rights to appoint directors as well. The independent chair is in the best position to facilitate the annual review process discussed in my prior article and coordinate with other parties to evolve each board member’s role or change the makeup of directors.

Ultimately, it’s a joint process between the chair and the CEO not only to manage board composition but also to set the agenda and manage the meetings. Both parties need to have frequent and open communications, reciprocity, and consideration—and a close, but not personal, relationship.

Frequently Asked Questions about the Role of the Chair

As I’ve discussed the role of the chair with board members and CEOs, I’ve frequently been asked the following questions. They mostly revolve around concerns that a chair is “taking over” from a CEO or somehow undercuts the CEO’s authority. To the contrary, the role of the non-executive chair is a subtle one, wielding more influence than power. If the job is done right, they help a CEO to be more effective and shine.

Does the chairperson have to have that title?

No, chair can be by common consent and sometimes is called the “lead director.”

Does the company need to list the chairperson on the website?

No, and particularly for early stage companies, doing so can create confusion with outsiders about who really is in charge.

Does the company need to have the role spelled out in its corporate documents, specifically its voting agreement or charter?

No, the chair or lead director role can-and probably should-be informal, with the chairperson selected based on respect from the other board members and management, rather than an named in a formal appointment.

James Geshwiler, a managing director at CommonAngels for more than 10 years, has financed over 40 software and Internet companies and worked with them through over 100 rounds of investment and related changes in boards of directors. [Editor's note: CommonAngels is the lead investor in Xconomy.] Follow @geshwiler

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  • http://www.ceolearningnetwork.com Martin Coyne

    Jim,
    Overall, very astute and accurate comments. From my experience as a director on companies in multiple stages of evolution and sectors, I’m struck by the importance of board leadership which can be formal or informal. Strong board leadership provides focus, important support for the CEO and the company while enabling all to reach full potential. A strong board leader also proactively addresses many of the issues in your previous post of 10/3/11 and can help avoid the pitfalls you discuss.
    Excellent summary for all CEOs and directors to read and heed.
    Marty

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