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Berkonomics

Do you always follow the advice of your board?

This may be news, but boards of directors can offer bad advice. A typical board is composed of five persons in a company that has received outside funds from professional investors.  Two members usually represent the founders or management, two are from the investors, and one is often elected by the four to represent the industry in which the company works.

The financial investors typically have deep experience running companies, often in other industries.  The fifth board member often is an expert, but not an executive with operational experience.  Realizing that this description is a generalization that fits some, but not all, growing firms, the dynamics of the board are a key component in the effectiveness of advice and leadership given by the board.

[Email readers, continue here…]   It is not uncommon for the founders or executives on a board to defer to the three outside board members, responding to questions and defending previous actions. All this is proper to the extent that the two founders or executives do not leave their brains at the door when attending a board meeting, acceding to the suggestions of board members as if each were a direction or order.

I still recall vividly the board of a young company that was composed of the entrepreneur and four investors, each of whom had differing thoughts on how to use resources to grow the company, giving mixed signals to the entrepreneur who wanted greatly to please each and all.  That company embarked upon an expansion drive before perfecting the operation in its first city, as a result of the board’s direction to the entrepreneur, which was against his better judgment although he remained relatively quiet and certainly compliant.  “The board knows best” is not always true.  And in this case, the company over-expanded, did not have the resources to fix problems at its new remote offices, and died a slow death from issues of control and quality, all of which might have been mitigated had the company spent more time debugging the first-city operation.

  • Dave – you sure show your stuff! Think you should be attending my upcoming conference in L.A. which starts with a board meeting; all key executives in hospitality including suppliers! Could use a great moderator to get a fire lit with this board!

  • Rene Fritz

    Dave — right on target!

    I have many stories in coaching my clients that are similar to the last paragraph in your latest memo. I have been the Presidend, founded or co founded as CEO or Chairman, etc over 26 firms and in my years in YPO and my own Coaching firm Chief Executive Forum for over 30 years seen many examples of this.

    My comments in addition is You Must Tell your board or advisory board EVERYTHING you know and Do Not know before you ask for advice. When you leave out some part of the background of the issue you get slanted or very bad advice. Also, the board is at fault most of the time for not asking or not being aware of what is going on in the firm. One thing that can help is to have several people with different points of knowledge in the firm or “family” be in the meeting to share what they know and understand as well as the CEO or founder.

    All the best and you are doing a great job with your emails.

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