Are Board Meetings Useless?
Astronomer CEO and Head of HR found out the purpose of the Board of Directors last week at a Coldplay concert…
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Everyone Has a Boss
Last week the entire world got to witness one of the primary purposes of a Board of Directors — hire, evaluate, and (if necessary) fire the CEO.
If you don’t have the internet…here is what happened — the CEO of a tech company was caught cuddling with his Chief People Officer (both of whom are married) by getting caught on the kiss cam at a Coldplay concert.
There have been some glorious memes and reenactments…
At a VC-backed company, even the CEO has a boss — the Board of Directors.
The Board of Directors immediately put both of them on leave (and then the CEO resigned the next day) and the Board named the CTO as Interim CEO.
And now the Board is on the hunt for a new CEO.
If the CEO was willing to go out in public with his Chief People Officer like that then I imagine he created a pretty toxic culture. Based on some stories that surfaced from people who had worked with him, he seems like he did create a toxic environment.
Do Boards Often Fire CEOs?
No, but they probably should fire CEOs more often…
There are a few reasons why this rarely happens:
Creates bad reputation for VC firms involved if it happens often. Companies fundraising won’t raise from a VC if the CEO thinks there is a higher chance those VCs will fire them.
Very disruptive and distracting to the company
Often easier to demote the CEO (to CTO or some “cool” title based on their expertise)
In this case, firing the CEO (or forcing them to resign…) was the only option. You just can’t keep someone who did that while the whole world saw and made endless memes about it.
Does a Board of Directors Add Value?
To answer this you need to understand the Board’s primary purpose:
Hire, fire, and evaluate the CEO
Exec compensation and equity compensation management
Fiduciary Duty:
Act in the best interest of shareholders.
Approve Strategic Plans and Major Decisions:
Review and approve corporate strategy, annual plans, acquisitions, fundraising, major expenditures, etc
Monitor Performance and Risk:
Track financial performance and ensure risk management frameworks are in place.
Oversee internal controls, financial audit processes, and compliance with laws and regulations.
These are your Board of Directors’ primary purpose. The reason many folks think that Boards are useless is because they don’t understand their actual purpose.
Secondary Benefits of the Board
Most of the Board’s interactions are at the quarterly Board Meetings, which typically occur 2-3 weeks after the end of each quarter.
Besides the primary objectives listed above, there can be secondary benefits of a strong Board and well-run Board Meetings. Below are three important ones:
Help raise capital
Forcing function (evaluate strategy)
Providing advice
1. Raising Capital
Unless you are cash flow positive and never expect that there might be a need to raise capital (like for M&A), then you NEED to care about this.
If your Board/investors don’t trust you then not only are they a lot less likely to give you more money in the future, but they won’t reach out to others to invest. Good Board management and well-run meetings creates A LOT of trust in the executive team and the company.
2. Forcing Function
This is where 80% of Board Meeting value usually comes from.
Board Meetings force the CEO and executive team to take a step back and review the company's strategy, wins, losses, opportunities, threats, etc.
Don’t approach Board Meetings as just one big show for the Board of Directors — that would be a real waste of time.
3. Board Member Advice
Board members can give good advice, but I want to be very clear…
This is NOT the purpose of the Board and it is not high on the list of secondary benefits either.
The reason many folks say Board Meetings are a waste of time is they think advice is the main purpose. If you are hoping the Board (who spends a few hours a quarter with your company) is going to give you all the magical answers then your company is definitely doomed.
Can Boards provide valuable insights and advice? Of course. But they are thinking about the company <1% as much as the management team does.
Final Thoughts
Board of Directors and related Board Meetings are valuable if you understand where the value is. If you just treat Board Meetings as a check the box exercise then you won’t get very much out of it.
Check out my prior post (Board Meetings That Don’t Suck) for how I have seen the best run Board processes. It’s what I have seen work the best to get the most value out of your Board and Board Meetings.
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Great article — I believe this is just as relevant for public companies.
It would be a significant step forward if there were stronger disclosure requirements on board members’ business dealings with the company and personal relationships, ideally mandated by law, to better assess the scale of potential conflicts of interest and by extension to perform their duties (that you describe in the article). A VC fund might have better alignment of interests.