When Things Aren’t Black and White: How to Deal With Murky Areas
Startup Boards for CXO’s Series: Post 9 of 11
There’s a pretty good chance if you’re on a board of directors, you’re not great at holding your tongue. And that if you’re on any given board for any length of time, you’ll feel compelled to give difficult feedback either to the CEO, senior management, or the other directors. I can also say with certainty that having difficult conversations can lead to much better results than avoiding difficult topics altogether.
But when should you step in as a board member to address issues? Or an even more basic question to ask is, should you step in? Yes, you have a fiduciary responsibility and legal duties as a board member, but what about areas that are beyond the financial and legal realms? What are your options as a board member to delve into less defined areas, murky areas, or areas that are not clear-cut?
One of the tricky parts of being a board member is the grey area where you’d like to address something but it’s not quite something that a board has to address, it’s not quite a board responsibility. For example, I had an interesting conversation the other day with a friend who sits on a couple of boards. We talked about some challenges one of his boards was having with their CEO and the dilemma to some extent boiled down to this: a board is responsible for hiring/firing the CEO and for being the guardians of shareholder value, but what does a board do when it doesn’t like the CEO’s leadership style? Is there a situation where the board can suggest to, or nudge, the CEO to a different leadership style, or is that beyond the scope of the board’s responsibilities?
There are lots of different kinds of CEOs and corporate cultures. Some are command-and-control, others are more open, flat, and transparent. When I was CEO of Return Path I strived for the open, flat, and transparent leadership style and culture and I’m doing the same thing as CEO at Bolster. That’s my preference and I’m biased that open and transparent cultures lead to a more successful company. But I’ve worked in environments that are command and control, authoritarian, closed, and hierarchical. While that culture is less fun and far more stressful (to me, anyway!), it can also produce very successful outcomes for shareholders and for employees as well.
So what do you do as a board member if you don’t like the way a CEO operates, even if the company is doing well? I find myself very conflicted on the topic, and I’m glad I’ve never had to deal with it myself as an outside board member since for the most part, the CEOs on whose boards I’ve served have been philosophically compatible with me. I certainly wouldn’t want to work in an organization again that had what I consider to be a negative, pace-setting environment, but is it the board’s role to shape the culture of a company? Sometimes yes, and sometimes no. It’s murky. It’s not grounds for removal to dislike someone’s style. It might be grounds for feedback, or to make sure the Board is doing a 360 on the CEO to make sure there isn’t a deeper problem, especially if a CEO’s style is driving away talented executives. In the grey area of a CEO’s style versus substance it’s likely that the only situation in which a board can step in and act is if performance is negatively impacted. But, you don’t have to sit by idly and see how things play out if you are concerned about the CEO’s leadership style. You can be proactive in tackling a difficult topic like leadership style or any other topic.
As a CEO I always appreciated getting candid ideas and advice from my board members, but I realize that not everyone likes to get tough news and as a board member you could have a real fear of giving a CEO negative feedback, especially if you’re a first-time board member. Will you be fired as a board member? What if you’re the least-experienced person on the board–are your ideas still valid, still worth bringing up?
Let me state right here that you’re on a board because you are qualified, because your experience is relevant, because your ideas, advice, and suggestions need to be heard. You got hired to be the CEO’s boss, so you should feel like you have license to do that job! But there’s a time and place for everything, and while it might not be appropriate to blurt out something during a heated discussion, it’s still worth bringing up. Most CEOs will appreciate you bringing up feedback directly, 1:1, and in person wherever possible.
There are two additional spots available to boards to tackle thorny, sensitive, or murky areas: the Executive Session and the Closed Session. Not every board does both of these – some do a combination of the two – but I believe it’s a best practice for boards to do both at every meeting.
Executive Session. An Executive Session is a meeting of the board, and sometimes some observers, where the only member of the management team present is the CEO. You might have other people on the board (as observers but non-voting members) and you may have other people in the board meeting. It’s common for members of the senior executive team to attend meetings when their area is being addressed, whether that’s legal, finance, or any other function, or in general, which is my personal preference. An Executive Session is closed to all those people, and it’s a time for you and the rest of the board to have a frank discussion that’s usually more direct because board members are less worried about what they say when you’re the only person from the management team in the room. It’s like taking the meeting “offline” and provides a forum for discussion among the core board team members. Usually, this is when the CEO will give an update on how members of the management team are performing, especially if there are new team members or ones with performance issues. But for you as an independent director, this is an opportune time for you to raise issues and concerns in a smaller forum.
Closed Session. The Closed Session is a meeting of all directors, and sometimes some observers, where no one from the management team is present, not even the CEO. Although Closed Sessions are normally used to discuss CEO performance and compensation, they can be a good forum for you to raise any issue you’re concerned about without the CEO hearing it right away – for a first-time independent director in particular, it’s a good place to get counsel from other directors who may have more board experience. Closed Session topics usually get summarized by a lead director for the CEO after the fact, but that can be done anonymously. You might also find that raising an issue in Closed Session highlights something that other directors who don’t have your perspective missed.
Although the example I gave above of leadership style is a very situation-specific topic, there are other situations that are in grey areas that board members have to grapple with. I believe the best boards tackle the murky issues head on and quickly, and they use Executive and Closed Session to do that in a way that allows for open and honest debate.
-Matt Blumberg, June 29, 2021