Your Board of Directors and your Advisory Boards are critical pieces of the startup puzzle. Finding a group of mentors or advisors that you can rely on for a clear-eyed view of your business when things get complicated is essential. Many founders want to create a board that essentially thinks their way or is willing to greenlight everything they do, but that is counterproductive when it comes to creating a strong team. As my Charlie Walker, one of my mentors, says “If you think exactly like I do, then why do I need you.” It’s important to have someone who is willing to look us in the eye and say, you’re going down the wrong path. You may not agree with them, but it’s important to have individuals who will give you their opinion.
In this article by Srini Pagidyala, he outlines the importance of your Board and 10 things you should consider when forming one.
10 Considerations for Creating a Killer Board in the Digital Era
Guest Post By Srini Pagidyala
‘Quality starts in the boardroom. Learning and Changing is not mandatory, so is Survival.’ – W. Edwards Deming
As businesses grow more complex, regulation becomes more demanding, activist investors & others putting more pressure on performance, radically changing business economics, the need for the board to rise to the occasion has never been greater. Whether you are in a startup company, midsize or large enterprise company, every company needs a BOD (Board of Directors) to address things that aren’t handled by the employees. We will discuss these later on in this article. Last Saturday (April 30, 2016) at Berkshire Hathaway’s annual meeting CEO Warren Buffett responded to a question regarding board member selection stating the 3 things he looks for in people who are interested in becoming a director for his board: People who are business savvy, shareholder oriented and have a special interest in his company. Nothing else matters. I mean, nothing else should matter.
Along the same lines, he also mentioned how he never pursues the big names to get on the board citing Theranos as an example. Theranos’s board is certainly star-studded: It has three former members of presidential cabinets, two former senators, and two retired military officials. The list includes former secretary of state Henry Kissinger, former secretary of defense Bill Perry, former secretary of state George Shultz, and former U.S. senators Bill Frist and Sam Nunn. But a Fortune story summarized the roster as, “Plenty of political connections, little relevant expertise.” And the big-name board has done little to stop the bleeding of the recent slew of setbacks for Theranos that was once valued at $9B and now being investigated by both FDA and SEC once Wall Street Journal exposed doubts about the company technology.
I strongly believe that Mr. Buffett is right once again in his views about the board. As I draw from my own experiences, I really didn’t understand the importance of the BOD for my first company, I thought I would be okay as long as I have a great team and personal mentors. Needless to say not having a BOD was a mistake, took us almost a year to realize that and thankfully it happened before we started experiencing radical growth. It took us another year and half with a revolving BOD to settle down with the quality BOD. As I talk to customers about creating a quality BOD, here are my top ten observations and the lessons learnt:
1. Outcomes: Never confuse Outputs (working on tactical items) with Outcomes (creating tangible value) while working with a board and BOD need to work more on strategies focused on delivering preferred Outcomes.
2. Role: Defining the role of the board is critical to achieve the outcomes. Here is what I have seen typically as the objectives of the board in no particular order. Strategizing on:
a. Identifying the New Opportunities
b. Managing the Risk
c. Selecting the Executive Team
d. Managing the Talent
e. Managing the Operations
3. Strategy: Defining what strategy means to your company and the context of the company itself determines the extent of board role in your company. If your company operates in a market that has a fairly simple and stable, the board may be well advised to remain distant and largely hands-off on strategy execution questions. In a more chaotic context, however, a board may choose to take a stronger, hands-on approach to strategy development.
So what does strategy mean to your company? While this questions sounds fundamental, you will be surprised the number of different answers you will get for the same question from different board members. Here are the five categories that most company strategies fall under.
i. Strategy as Planning – traditional view, yearly planning exercise
ii. Strategy to expand into new markets
iii. Strategy to respond to a Key Challenge
iv. Strategy to evolve company into the new age
v. Strategy to optimize the Stakeholder Value
4. Digital Transformation Expertise: If there is one overriding theme in the makeup of board across industries in the digital age is that in many companies there is no board member with an understanding of the impact of digital technologies (Social, Mobile, Cloud, Analytics, IoT) on company’s business and the preferred outcomes. Whether you are a brick and mortar company or a high-tech company, the need for digital transformation is here now. This gap creates a reactive board and all it takes is for companies to hire a board member with digital expertise to provide strategies towards each one of the five items discussed in item #2. Many companies even today employ outdated technology to run a number of their core operations limiting the potential of the company. Too often, the advice of the external consultants is too generic but having a board member with in depth understanding of these technologies and their implication to business outcomes is a game changer. Do you know that a good number of products can be transformed into a platform with the digital technology available today? Whether you are manufacturing coffee dispenser or vending machine or a light bulb, you can now transform your product into a platform, innovation adding more to your top-line and bottom-line. Case in point, Jack Dorsey, CEO of Twitter is also a board member for Disney. Sheryl Sandberg, COO of Facebook was also a board member for Starbucks. Forward-looking high performance companies seem to have understood the importance of having a board member with greater understanding of the digital technologies and its impact on company’s growth while this remains a HUGE gap for many companies in the small, mid-market enterprise and some large enterprises as well.
5. Three Types: The more I look at the boards, they seem to fall into one of the three categories or a combination there of. Flashy or Functional or Forward-Looking. Flashy boards with big name associations and little relevant expertise are ineffective, Functional boards on the other hand are a little too complacent while Forward-Looking boards are striving with high impact on long-term value creation.
6. Culture: A striving board can easily slip into becoming a complacent board without a culture of respect and trust and balancing it where directors and company executives can challenge each other’s ideas. An effective chair person is an important ingredient to establish this culture and chairman is also the right custodian of the company culture.
7. Communication: It’s not just what happens during the monthly/quarterly BOD meetings, it is also what happens during the days/weeks between those meetings. The more connection the members have with the rest of the group, the better is the performance of the board.
8. Values: Absolute honesty, collaboration and trust is required between the chair, the board and the executives to create a high performing company. There is no other way around it. Once a strategy is shared and agreed, the board needs to commit to it 100%.
9. Innovation: Innovation is the new frontier and a must have core competency for the boards in the digital era. Back to the item #4, the need for a digital expert is very high. A Digitally savvy board would think and approach differently about the opportunities and issues on hand. It’s critical that the digital expert not only bring the expertise to the board but also take interest in increasing the digital awareness by educating the rest of the board along the way.
10. Diversity of Ideas: Finally, it’s not about the power or politics. It’s about the alignment, diversity of ideas, creative and proactive ways to move the company forward by protecting stakeholder interests and producing preferred outcomes.
What is your board type? How are you maximizing the value of your board? Do you have a digital expert on your board? Is your board digitally savvy? Is innovation a core competency that is discussed and understood at the board level?
Srini Pagidyala is a Serial Entrepreneur, Digital Transformation Executive, Board Advisor & Strategist focused on delivering preferred business outcomes leveraging digital technologies (Social, Mobile, Cloud, Analytics & IoT) With over 10 years of experience as the CEO in building and scaling Big Data Analytics Solutions & Services company combined with 20+ years of experience in Strategizing, Selling & Implementing game changing Enterprise Solutions, he is now focused on advising companies looking to realize radical growth in the digital era. Areas of Specialization include: Growth Frameworks, Pricing Strategies, Innovation, Monetization, Digital Transformation, Blue Ocean Strategies, and Partnership Strategies. You can reach Srini at: SPagidyala@Gmail.com or follow him on twitter: @SPagidyala