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Berkonomics

What to do with a dysfunctional board

It happens. Boards are elected by the shareholders, sometimes with preferred shareholders holding seats by right of their investment.  In that instance, often the investor selects the board member and the CEO goes along with the choice, mostly out of having no alternative at the time.

Then there comes the first – or better yet the fourth – meeting of the board following the appointment of a new member.  Remember that the board must by law be acting completely on behalf of the best interests of the company, not the investors, in all deliberations of the board.  For the first several meetings, all parties usually play nice as they get to know the company and each other.

Some board members come to the table with preconceived notions about the capabilities of current management.  We have explored this in previous insights.  With this insight, we are dealing with board members who are dominant, obviously hushing their peers and often interrupting, or those always anxious to change the subject to their own agenda during meetings, including challenging management by attacking individuals (called argumentum ad hominem), rather than their ideas and statements.  And some board members are just bullies, alienating the rest in a single sentence or meeting.

[Email readers, continue here…]  If you have never experienced such a board with members out of sync and out of sorts with each other or the rest, you have been lucky.  But you have missed one of the great challenges of your business career, depending upon the importance of the board, the size of the company, and the immediacy of decisions resulting from these events.

If you are the chairman, the CEO or lead director, it is your responsibility to return the group to the core issue and even move to another agenda item if running the meeting.  And if that does not work, temporarily adjourn the meeting to speak individually (and alone) with the offending board member out of earshot of the others.  Describe how the actions of that person affect you and how you see them harming the board itself.  If you get nowhere and you believe your cause to be just and perhaps representative of the group, return to the meeting and air the problem out with the entire board.

What if the person continues with his or her personal agenda or continues to disrupt?  I have had this experience more than once.  The solution I chose was to approach the VC, or another partner of the angel group, and explain the problem.  I would do this only if the problem was seen in consensus by the rest of the board.  In one instance, this brought about a replacement board member much more attuned to the duties and culture of the corporation.  In the other, the offending board member did back off in subsequent board meetings.

Designated board seats cannot be changed because of investment documents. In the worst of situations, you might ask another partner of the investment firm for an alternate board member. For non-designated board seats the solution may be to propose a slate of board candidates without the offending person to present to shareholders for a vote at the next annual meeting, if board members are elected annually.  Alternatively, it is effective – even if confrontational and emotional – to just ask the board member to step down and allow for another to be elected.  And if that person is the CEO, the board will find a more effective solution not at all to the liking of the CEO.  That too has happened in my board career.

In one extreme case, I was a member of a public board whose members could not agree on anything substantial, each claiming that the value of the company would be damaged in the market by proposed actions.  In this case, the board was not held together by a strong chairman or CEO.  I felt it my duty to suggest, then strongly support, discussions about merging with another company, which the board ultimately did.  In a merger, egos sometimes dictate who survives at the board level (and at the CEO level), and offending board members from one company are rarely retained.

Board members can be very professional in comportment and in their exercise of their duties.  Or not.  Putting up with bullies, or those with obvious conflicting agendas not in the best interest of the company, is a step toward mediocrity.

  • Having observed and been on various Boards (good and bad), one comes to value quality and Boards adding value. To prudently manage risk and improve the probability of venture success, it is critically important for everyone to be on the same page and meaningfully contributing to moving the business forward. Since there are many challenges to finding and engaging with those that can meaningfully help the cause, it’s always an interesting exercise to attract and keep the best people involved. Any suggestions to facilitate the process ?

    • Ron,
      Good board member candidates are always in demand. Consider a #2 type who has never been on a board but has the expertise you need as a candidate for an early stage board. Also, successful but young entrepreneur CEOs are just beginning to understand the value in being on other boards. The best way to attract “A” candidates is with an introduction by a close friend and an appeal for coaching. Two such individuals with similar experience on a board have often led to just a nodding of heads by the less aggressive one; so watch for duplication of skills.
      -Dave

  • Howard Levinson

    Dave,
    Enjoyed this one—you should have also explained “Bored”. Regards,

    Howard L.

  • Bob Kelley

    Unfortunately, your descriptions of dysfuntion are more common than most would think. Thank you for a great analysis of how to deal with these kinds of situations.

    Looking forward in one of your upcoming blogs, given your wide-ranging and deep expertise on the subject, in general, and venture backed boards in particular, as to how a CEO, and or Chair, can best identify the potential problem board members you’ve described above, and then strategically minimize their chances to get on the boardin the first place.

  • Michael O'Daniel

    I have had the joy of working (not as CEO, but a level below) with several boards whose actions and personal dynamics caused the organization to go out of business, or fall far short of reaching its potential. The challenge is to look beyond the personalities and the plethora of sometimes wacky ideas and recognize the nuggets of widsom and legitimate advice and direction that board members offer. In one case, the CEO unfortunately stonewalled a board member on one particular action that was actually critical to the company, while at the same time acquiescing to a strategic direction mandated by that same board member which was counterproductive to the survival of the company. Oy!

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