Month: March 2020

6. Joe Baerlein on crisis communication: clear, concise, honest communication and, especially now, a strong dose of authentic empathy

Joe Baerlein, a nationally known strategic communication advisor for some of the country’s largest companies, trade associations, large non-for-profits, talks about what matters: always consider the long-term impact on the company’s brand and reputation – and never be afraid of providing truthful information or being proactive about providing it.

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Baerlein Partners

Joe Baerlein’s Bio

An example of authentic, clear and factual communication from Arne Sorensen, President and CEO of Marriott International with stakeholders:


If you are a CEO of an organization, you need to say we’re doing everything we possibly can.  We’re observing everything that the CDC, the various state departments of public health are telling you.  But we want you to know that we care about you. We are one community…this will eventually recede if we do everything. 

If the CEO of a particular company can’t deliver that message and come across as authentic after two tries, then I would say that’s not the messenger.  And you’d have to think about who might be the best messenger.  It could be the senior vice president of health and safety who may live this in his or her bones every single day. It could be the chair of the board – because people will smell in a second if you’re not authentic.  13:08

I think this [Covid-19] changes everything. Why? Because it’s unknown and I think smart CEOs are going to look at their board and say, what do you think? 7:46

[Information you provide to the press] must be 100% accurate because you do not get the proverbial second opportunity to make the first impression. 15.10


Companies have to have a communications vehicle that can speak to all of their publics, broadly defined, meaning who’s important to them: their employees, their customers, their vendors, the community where they do business. And they have to be able to talk in real time.

During the coronavirus crisis the separation of management and governance for boards will shift – it’s all “hands on deck.”  Companies need the expertise of their C-suite, of their outside experts and their board now more than ever because they need to figure this out, together.

When there is a crisis, the company’s brand and its reputation is a responsibility of the board.

When an unknown hits, you should at least have to have some operating principles on how you would react.  What are our highest risks? What could happen in this company from A to Z?  How would we manage those risks? What level of resources would we need?   What are the five worst things that could go wrong? What are the first five things you do?  It depends on what the business is, but it allows you to have a game plan, that you will alter depending on circumstances, when and if something bad happens.  But at least you have a game plan on how to respond when a crisis strikes.


Joe Ayoub: [00:00:00] Hello and welcome to On Boards: a Deep Look at Driving Business Success. Hi, my name is Joe Ayoub and I’m here with my co-host Raza Shaikh.

Hey Raza, how are you doing today?

Raza Shaikh: [00:00:21] Very good Joe and I’m very happy to be here with you co-hosting.

Joe Ayoub: [00:00:25] Good to be with you too.

On Boards is about boards of directors and advisors and all aspects of board governance, twice a month in 30 minutes this is the place to learn about one of the most critically important aspects of any company or organization – it’s board of directors or advisors.

Raza Shaikh: [00:00:44] Joe and I speak with a wide range of guests and talk about what makes great boards great, what makes a board unsuccessful, how to be a good board member, and more importantly, how to make your board one of the most valuable assets for your company.

Joe Ayoub: [00:01:01] Our guest today is a nationally known strategic communication advisor for some of the nation’s largest companies, trade associations, large non-for-profits, and specializing in reputation and advocacy matters.

Raza Shaikh: [00:01:16] Working with boards, law firms and businesses all over the country, he has managed over a hundred crisis and reputation assignments on a variety of topics, including Department of Justice, US attorney and State Attorney General investigations, sex abuse at private schools, airplane crashes, data breaches, and media investigations into high profile individuals.

Joe Ayoub: [00:01:43] We’re very excited to have as our guest today, Joe Baerlein.  Joe, welcome. It’s good to have you here on On Boards.

Joe Baerlein: [00:01:49] Great. Thank you.

Joe Ayoub: [00:01:51] First to our listeners. For those of you listening during the time that the novel coronavirus is still spreading, and we’re all trying to understand how to best conduct ourselves, we hope you’re all taking precautions to stay safe.

Joe, as we record this show today, COVID-19 is the number one topic for everyone. I think most people would agree, last week was unlike anything almost any of us in this country have ever experienced. It is an uncertain and unsettling time.

You’re the person that’s called when there’s a crisis, and certainly this qualifies as a crisis. So I’m sure you’re getting calls about messaging and addressing internal issues and many, many issues that are facing companies today, which they may have never before faced.

Can you tell us a little about what kind of calls you’re getting and what kind of questions are coming into you.

Joe Baerlein: [00:02:51] Well, I think what’s been going on, you’d have to divide it into this week, last week and the week before because, each of those weeks was different. I would say three weeks ago it was: “Tell me what you think about this. You think this is something we have to be concerned about?”

Last week when the stock market crashed and you saw governors of various states and finally the federal government acknowledging that this was indeed a serious pandemic, I think there was widespread “what do we do?” And I think the first thing you saw companies doing was how do we get our employees to work from home and with the CEOs that I’ve spoken to in the last week or so, I would say that was the major effort. How can we clear out all the people that we can to work at home?

This week now, have companies thinking in a variety of different ways. One: this may be longer than we thought, therefore, how do we think about planning for the near term and the longterm?

(Two) What is my responsibility to my employees, my vendors, and my customers over these next let’s say 60 to 90 days to be charitable here.

And then number three, what sort of preparation and response do they need to be thinking about.  And I would say that last one is really just occurred since, I would say the end of last week, up until 96 hours ago, we were in a different phase.

So as an example, my team, my team is a group of a specialists in security and preparedness, in video content, digital marketing, digital technology, microsites, which are websites for a specific target. I have an international government relations specialist. I have a survey research person.  Our team was hired by a major national retailer officially on Saturday. Their issues are how do we deploy people in their company all across the country?  How do they bring customers into their store and then get them to exit their store? And then, how do they communicate to their employees

And what was interesting, their sales force need to have information that they don’t usually get from the company headquarters. So we’re building this microsite, which will be geared towards specific information for their sales force  So, if you envision your traditional website that you’re all familiar with, this will be something specifically on the coronavirus, and it’ll be particular to this business’s operations, and it will include, you know, a Q & A, what should say a store manager know if asked by a customer on a daily basis, and that’ll change probably every 12 hours or less. There’ll be a statement from the CEO about what the company is doing nationally to protect their employees, their customers, their vendors. And then there’ll be information on how either employees, sales force or customers get additional information.

Joe Ayoub: [00:06:34] That sounds interesting.

One question that we talked about a little bit before was to what extent are boards of directors meeting now to discuss how their companies should be messaging?

 Every board I know is meeting virtually, none of them are meeting personally right now.  What should boards who are thinking about the well-being of their companies or thinking about potential liability or thinking about how to act responsibly during this very difficult time, what kind of conversation should they be having?

Joe Baerlein: [00:07:11] As both of you know, traditionally the bright line that separates board from the C-suite is, the C-suite and the CEO are responsible for day to day management, and the boards are tasked with looking at the long-term issues that face the company as well as the operational issues the financial reporting.

I think this changes everything. Why? Because it’s unknown and I think smart CEOs are going to look at their board and say, what do you think? What do you think? If you have a former CEO on your board. I think that’s going to be one of the first people that you as the CEO call. So I think we’re in a different ballgame.

Joe Ayoub: [00:07:56] Yeah. the, the separation of management and governance is really going to be a little blurred –  it’s all hands on deck. We need the expertise of our C-suite, of our outside experts and our board now more than ever because we need to figure this out together.

Raza Shaikh: [00:08:12] So Joe, now, when you’re getting calls from your clients, what are you advising them?

Joe Baerlein: [00:08:18] Well, first of all, they have to have a communications vehicle that can talk to all of their publics, broadly defined, meaning who’s important to them: their employees, their customers, their vendors, the community where they do business in. They have to be able to talk in real time.

I can’t tell you how many perfunctory emails I’ve gotten in the last 48 hours from businesses and organizations. We want to let you know what we’re doing on the coronavirus. I don’t even read them anymore because they’re old information and they don’t say anything .

I think the first step is to say, how do you figure out how you’re going to talk and communicate to those important constituencies that matter to your business.

Joe Ayoub: [00:09:06] So what should a company do in its communication to make sure that people like you and me don’t see the email and go, Oh, this is perfunctory, this is old news, this is, this isn’t going to tell me anything.

What do they need to be doing so people are actually going to read it and what they want to communicate is going to get to them?

Joe Baerlein: [00:09:28] If you think about it, we all have choices in what we decide to open, what we decide to read, what we decide to view. So one is the information has to be new, it has to be credible and it has to be, if not medical or science based, it has to reference that information. So if you want to stay on top of this today, you’re probably reading three or four major newspapers a day.

 So if I was a company, I would be looking to say, what can I tell people who don’t read The Washington Post every day or the New York Times or the Wall Street Journal? What can I tell them? You know, the aggregation of news, for example, is really important here.

Joe Ayoub: [00:10:13] So going beyond just giving them good information and going back to this, national retailer you mentioned, you’re setting up a microsite, you said, why kind of messaging. Not what are they going to say, but what generally, other than informational, should they be providing to their various audiences?

Joe Baerlein: [00:10:34] I think I would divide this into two parts. One is factual information so that people know if you’re XYZ company, you’re going to continue to be open for business, you’re going to change your hours, you’re gonna alter the way that customers visit your operation. You’re going to have more things online than you did before. You need to give them that.

But then I think what is missing in a large way across the board today is any degree of empathy about what people are going through.

I strain to see that in public officials, in business leaders, right? Which is, this is very uncertain. This has a degree of fright that we haven’t seen. Take 9/11 it’s comparable to that in my, in my mind. And I had an assignment for a company five days after 9/11, so I think you need to reassure, if you are a CEO of an organization, you need to say we’re doing everything possible we can.  We’re observing everything that the CDC, the various state departments of public health are telling you. But we want you to know that we care about you. We are one community. We are, in this case, one Commonwealth. I mean, I could almost write the words to say, this will eventually recede if we do everything right.

Joe Ayoub: [00:12:07] How do you deliver that message and make it sound like you really mean it as opposed to our people told us to say this, we really care about you. I mean, how do you make it so that someone actually gets this message and think – they’ve given this some thought? They actually might care about what is happening.

Joe Baerlein: [00:12:27] I look at that and say, if the CEO of a particular company can’t deliver that message and come across as authentic after two tries, then I would say that’s not the messenger.  Right, and we’d have to think about who might be the messenger, the best messenger. It could be the senior vice president of health and safety who may live this in his or her bones every single day. It could be the chair of the board because people will smell in a second if you’re not authentic.

Joe Ayoub: [00:13:08] Talk a little bit about the microsite that you’re setting up for one of your clients. What would be its purpose and how will it help that company. deliver its message and deliver the information at once to its audience.

Joe Baerlein: [00:13:23] The way to explain this, I think to your listeners, is: company websites are like giant ocean liners. They’re really hard to turn around. Microsites are like speedboats, right? They have very functional software tools on them that enable you to adapt very quickly to a changing environment.

So for example, if you wanted your customers or employees to communicate the position to an elected official, , you can build a box into these microsites that allows you to write your congressional delegation, so that a citizen or an employee could send a note to any one or all of the nine congressional districts quickly.

I think the second thing is the ability to fresh up information really fast. In some of these cases where we’ve had crisis situations, we’re changing information, altering it every three to six hours. 

And then the third thing is for a company who wants to reach, say, a sales force, you can make this password protected. So if I’m the store manager in Tulsa, Oklahoma, and the headquarters is in New York City, and I’m wondering what, what’s going on, I can go in several times a day and see updates. I can see the video from the CEO, I can see the Q & A, which gets altered. I can see any and all information in the store, hours of operation. That’s the value.

Raza Shaikh: [00:14:59] So in doing all of that, Joe for these communications, what factors should we consider when sending out those communications?

Joe Baerlein: [00:15:10] One, it must be 100% accurate because you do not get the proverbial second opportunity to make the first impression. Right? So you must be that.

You must be concise in the information that you are going to distribute, about whatever the situation is. And I would say the third thing is you have to let people know whether it’s employees, if it’s environmental issue, people in our community, you have to let them know you actually care about this and what you’re doing to alleviate this in great detail.  That’s an absolute necessity. If you put out anything less than that, people will then dismiss it. It’ll look like all those emails we’re all getting about what they’re doing

Joe Ayoub: [00:15:58] Makes a lot of sense.

So Joe, you’ve been providing advice about communications and crisis management for a long time. I believe your first experience advising a board was a number of years ago when you were still working with the Choate Group, which was the public strategy subsidiary of Choate, Hall & Stewart – you started that group in 1987, is that right?

Joe Baerlein: [00:16:19] Yes.

Joe Ayoub: [00:16:20] Tell me about that first situation you had that involved giving advice to a board and how that played out?

Joe Baerlein: [00:16:27] So this was one of the major national credit reporting companies, and they had an issue at that time where the vendor that they used did not understand this, municipal lien process in the state of Massachusetts.

And so what happened was that the first headline in the newspaper was that over a hundred thousand people had their credit affected by this erroneous interpretation of this municipal lien statute. This went on for three days, so on day four one of my partners decided to call me in on this.

The first meeting was with the general counsel of the company, the senior vice president of government affairs and I listened. So I, this was three o’clock in the afternoon and there was an hour long session about this and, finally, I said they’re going to go file their copy at five o’clock because it’s a business story on Page One.

What are you doing?  What do you have to give me? And they looked at me like I had two heads and I said, look, you know, if you’re telling me that this is not 100,000 people at risk, it’s less than a thousand – their research had shown that – then your goal has to be to get this off Page One and back into the business page.

Joe Ayoub: [00:18:03] Because at a thousand it’s not a Page One story anymore.

Joe Baerlein: [00:18:07] Right.  It’s a, it’s a story. It may be on page one of the business story, but it’s not a Page One, and it’s certainly not a Page One four days in a row. So we got to this hemming and hawing back and forth, and now it’s a quarter to five and I said, what do you got to give me?

And my partner said, well, we have a detailed letter that’s gone to the Attorney General, but that’s privileged.  And I said, well, let me see it, and I read the letter and it basically laid out all the ways that this was, this mistake, which they acknowledged was a mistake, really affected less than a thousand people, not 100,000.

So I said, give me the letter. Well, it’s privileged. And I said, look, here’s your choice: Page One or inside the business page.

And so at that point, a member of the board, who was a lawyer, joined the call and, he came in in the bottom of the eighth inning here, so to speak. And I did a summary of this and I said, look, here’s what we have to do in my opinion. The ground rules would be to the reporter: look, I’ll give you this on an exclusive basis, but only if it goes back into the business page. And then I said, and if, we are wrong, you can go back to putting this back on Page One, but I believe we’re right. And if we’re right, you’re looking really bad if you keep printing 100,000, cause it’s going to come out eventually that it’s less than 1,000.

So, the board member, said, go for this, and the general counsel, agreed, it was interesting the general counsel and the, and the board member of the company said, yeah, go for that.

 So I called the reporter and I said, look, I got something for you. Here’s the trade. It’s not 100,000, it’s less than a thousand, I have a letter to the Attorney General that lays out why.  I’ll give it to you and you only, but it’s got to go back on the business page. . He took the trade, I sent him the letter, the next day it was back in the business page.

Joe Ayoub: [00:20:12] So two things I take from this as a board member or someone that advises boards. Don’t be afraid of giving truthful information. Why would you hold that in your back pocket? And absolutely don’t be afraid of being proactive about doing it because holding it back, I would think minimizes or devalues its importance.

Joe Baerlein: [00:20:35] Well, and I think again, sometimes, lawyers might look at something very narrowly and say, well, gee, that’s a privilege document. And I’d say, as a nonpracticing lawyer, so what? If this means protecting the company’s brand and reputation, and in that case, this turned out to be the right solution.

Joe Ayoub: [00:20:56] The last thing you just said is, to me, why a board’s involvement in this is so important because the board’s responsibility is the company. So the company’s brand and its reputation is a responsibility of the board, and in this situation it is incumbent upon them to look at this very broadly.

Great, to have lawyers in the room – we have two in this room right now of the three of us – but from a board perspective you have to look way beyond, you know what’s privileged, what’s not privileged. Obviously keeping a mind, you know, you can’t violate the privilege if it’s something really critical that can’t go out, but you have to think about what is in the best interest of the brand of this company.

Joe Baerlein: [00:21:40] And many times, the first thing I say when I get hired, working with a lawyer I have not yet worked with, is I’ll say I was Of Counsel at Choate, Hall & Stewart, and I understand our first responsibility here is to protect the legal strategy and the legal rights. So 9 times out of 10, we’ll be on the same page, but there’s going to be an occasion in this assignment, likely when we’re going to be having a discussion about the legal rights and legal strategy versus the brand and reputation. And I said, we’ll talk that through. And you can see their shoulders just drop in comfort like, okay, this guy is not someone who throws the proverbial spaghetti up against the wall and wants to get the client in the newspaper or on television every day.

Joe Ayoub: [00:22:26] Right.

Raza Shaikh: [00:22:28] Joe, several years later, you were brought into an internal company situation by a member of the board regarding serious allegations that the CEO had a relationship with a woman working in the company. Tell us about that and, what happened and how you advised your client?

Joe Baerlein: [00:22:45] So this was several years ago, just to put it in context.

It was certainly pre Harvey Weinstein. It was pre the “me too” movement, but it was certainly at a time when most companies had policies in their handbooks about what defines inappropriate conduct or contac  between male and female employees.

What was interesting, this company was a fairly big company, but it was silent on  people in a senior role having a consensual relationship with a subordinate.

Joe Ayoub: [00:23:26] Just want to interject. It’s not just male and female interaction. It’s any kind of sexual relationship, whether it be male, female, or otherwise.

Joe Baerlein: [00:23:36] Right. And at this time I was just saying, this happened to be male female, the CEO of the company, a woman who was not a direct report, but she was an officer of the company. They were both single, right? That was  the situation.

Joe Ayoub: [00:23:51] So on its face, if you think about it, two unattached people, not reporting to one another, doesn’t on his face seem like a  bad thing, but there’s no company policy that addresses it.

Joe Baerlein: [00:24:08] Right? Correct. And I think you saw recently there was an issue, with the McDonald’s CEO who was dating a subordinate, but they did have a policy in place that said that was a violation of the policy in a he, I think he was allowed to resign. so that was very clear on its face. This was silent. and this was at a time, I think it was like 2011 or 2012 where there was certainly a heightened interest on these issues, between what was appropriate and what was not appropriate in office situations.

So I got brought into this by a board member who I knew.  And, it was interesting, the first meeting of the board, there were nine people on the board, it was eight to one to say no issue with this. And the one person, who was the person who brought me in, who said, well, we have to look at this because there’s no policy as to whether or not we would get hurt.

Joe Ayoub: [00:25:14] Question: was there gender diversity on the board?

Joe Baerlein: [00:25:19] Yes, but it wasn’t, it wasn’t a, I think there might’ve been two women and seven men, right? It was two, maybe three, but it was certainly not five, four, or four or five.

Raza Shaikh: [00:25:31] And Joe, is this when the board begin to realize that they have to manage aggressively some headline risk?

Joe Baerlein: [00:25:40] Yeah, I mean, I had several meetings with the board.

First there was a subcommittee, there were three people, the gentleman who brought me in and two others, and I just started talking about risk. And this woman had been promoted to her position within the last year to 18 months.  By him. But she did not report directly to him. I think she reported into the COO or the CFO.

 So there’s not a direct reporting, but he technically had to agree with the promotion.  So as you dug deeper into this, you saw there were degrees of complication as to how they might handle it.

Joe Ayoub: [00:26:23] So what did you advise them?

Joe Baerlein: [00:26:25] This CEO had done a wonderful job in the running of the company in terms of everything – profitability, you know, meeting all their financial goals. And there was a strong sense, well, there’s no reason to have to force him to leave. So I said look, let me paint a scenario for you, which is, you allow him to stay and someone out of those 10 senior vice presidents that, are in the same line as this woman is, decides to drop this to the press and say CEO “X” is having a relationship with Senior VP “Y” and, she just got promoted and that’s all they have to say.  And, you know, in some outlets, that’s enough. If you go the gauntlet from TMZ to sort of others, that’s a story, right. And then I said, the question becomes how big a story is this?

How long does this story go for?

Would there be others that come out and say, yeah, I agree she shouldn’t have been promoted to that job. Said, anonymous, you know, XYZ company Senior VP, and then all of a sudden you’re dealing with multiple day story. 

And the rule is if you can’t clean it up by the third story, then you’re in for a long haul.

And so when I said that I got some of the board to pause.  I think what got people to accept what I suggested is I said, look, by all accounts, this is a very ethical person who’s running this company. He has done nothing wrong in his past, and he read the same handbook that everyone else did. It said, I don’t have to disclose anything.

Joe Ayoub: [00:28:28] Completely silent.

Joe Baerlein: [00:28:29] Completely silent.  And I said so think about this. If this CEO gets beat up on the way out the door, and by the way, if you get to a fourth, fifth, and sixth story on this, there’ll be pressure on you to ask him to resign.

So if you really respect and admire this person, I would say allow him to resign and allow him to put his own reasons on why he is resigning, because if he’s that good, as you say, he’ll get picked up by another company in the next 6 to 12 months, and you can figure out what a generous severance is.

And then the question became on whether the woman should leave also. And I said, look, you could decide to do that if you want, but a Senior VP is not at the same level as the CEO.

And so what happened is they brought him in and he understood this and he said, yeah, I don’t want to get beat up on this, I don’t think I did anything wrong . So he resigned, there was some attention, but not a lot of attention. It wasn’t really, no, it was minimal attention.  And six months later, he was the CEO of another company.

Joe Ayoub: [00:29:47] So, actually the result was excellent. It does kind of underscore the importance of having that kind of policy really clearly laid out. Today, it’s kinda hard to imagine any company of any size would not address that. But the result the board came to was the result that would have come about had there been something in the book because it would have prohibited the relationship that they were involved in.

Joe Baerlein: [00:30:16] Yes. but, you know, when that one, as I said, it was a eight to one when I started. And then by the time I think we had six, seven meetings, it became the majority. And actually everyone unanimously thought, and then they brought in the CEO. I was not part of that meeting, but the executive committee met with him and he understood this

Joe Ayoub: [00:30:35] Right.

Raza Shaikh: [00:30:36] So with this fast track of, news on the internet, Joe, when do boards realize that the importance of aggressively managing headline risk is paramount for the company and for the boards?

Joe Baerlein: [00:30:50] Well, in most cases I have seen, there’s not a practical understanding on how that works. . So…

Joe Ayoub: [00:31:00] You’re saying not a practical understanding on the part of boards?

Joe Baerlein: [00:31:04] Yes. 

Joe Ayoub: [00:31:05] So what are, what are they missing?

Joe Baerlein: [00:31:06] Meaning, if you look at a board and you say: I got a former CEO on the board, I have my outside counsel, I have someone who is a partner in an accounting firm, down the line. There’s usually nobody like me,  and again, these are all very smart people in their field, but this is new to them .

So sometimes when I go into an assignment, I say this is how you need to think about proactively protecting the brand without stepping on day to day governance issues of the CEO.  But understand today with the internet, a reputation can be blown up in, in a day. It was before online, you know, going back to like 2000 you would say, okay. The 24 hour news cycle.

Just think about what a joke that is now, right? The information moves so quickly.

Raza Shaikh: [00:32:01] Oh, it’s a two hour news cycle.

Joe Baerlein: [00:32:03] And, I think the other thing that I say to them is  because traditional media has shrunk, many times the online world is the new assignment desk, meaning here’s a story. And you get calls from a respected entity that you have to run down something or ultimately turns out not to be truthful.

So I think what I say to boards is, one, it’s moving really, really fast. Two, you have people online who are not the same respected journalists that you see at the Boston Globe and the New York Times, Wall Street Journal, the Washington Post, where you can actually have a conversation with someone and say, look, let me make my case on whyI think this is wrong.

Joe Ayoub: [00:32:48] Now, you can’t do that anymore with a lot of people. It just doesn’t exist.

Joe Baerlein: [00:32:51] So in the online world, you get the story and then you’re playing the prevent defense.  It’s a bad place to start off.

Joe Ayoub: [00:32:59] Yeah. You know, it’s funny you talked about the kind of people that might be on boards, and I would say. It would be extraordinarily rare to have someone who’s used to dealing with headlines, crisis headlines, on a board.  So it probably applies to almost every board, no matter how well put together they are, no matter how well they were constructed for the strategic plan of the company, they’re not likely to have dealt with the kind of headline risk that you’re talking about.

How do they prepare for it so they’re not calling you? You know, as you said to me once , I always get the call when there’s a four alarm fire, so what can the board do in advance? So they’re not waiting until, you know, the horse is out of the barn or whatever metaphor you want to use.

Joe Baerlein: [00:33:46] Well, again, if you think about it, I think about an example I had on anthrax back in 2001. So I got hired by the largest direct mail company in the world, happened to be located in the United States. Basically your everyday junk mail that we all get, right. That’s what they move through the system.

And when the first case of anthrax was discovered in the US Capitol in 2001, I got a call from their outside investigative firm.  So I was brought in and they were nowhere near a headline, and they were a very decentralized company, but they had no one in that company all the way up to the CEO would ever had any experience with this.

So we spent eight weeks. Fortunately we had eight weeks, of going through all of the various contingencies. Of what could happen and what their response can and should be.

Joe Ayoub: [00:34:49] So you had a luxury in that case that you had eight weeks

Joe Baerlein: [00:34:52] Very often doesn’t happen.

Joe Ayoub: [00:34:53] Oh my goodness. I mean, today Raza just talked about a two hour cycle. I’m not even sure it’s sometimes not even, it’s less than two hours. Today with news moving or information moving so quickly – what should a board do to be prepared to take action as quickly as possible in the event of a headline crisis?

Joe Baerlein: [00:35:17] Think they need to look at the business that they are in and say, what are our highest risks? And then go through and role play. Ed Davis, the former police commissioner, who’s one of my agency partners, we’ll actually do that. We’ll, we’ll go through a roleplay and say, what could happen in this company from A to Z? What would be those risks? And then we’d say, how would we manage those risks? What level of resources would they need outside resources to go into the company?

Joe Ayoub: [00:35:48] So do a prep with the board for potential headline risk scenarios so that when it happens, they’ve already at least given some thought to it.

Joe Baerlein: [00:35:59] It’s actually a plan you get them, you’d give them a document that says, all right, you’re in the energy business. Here are the five worst things that could go wrong, right?  How do you deploy people. What are the responses? What internal resources might you need. So, you know, it depends on what the business is, but it allows you to have a game plan that you will alter, by the way, when, when and if that happens. But at least you have a template on how to respond.

Raza Shaikh: [00:36:29] And so, Joe, you’re saying that, for the known unknowns, you will have a plan for things that you know, can happen.  But that, does that cover unknown unknowns as well? Do you have a general plan about, okay, well how do we get together when a crisis happened that we never thought about or, or, never worked through before?

Joe Baerlein: [00:36:49] Coronavirus is a pretty good example, right? I mean, I don’t think, I think we were all sort of numbed by swine flu, Ebola, SARS, and said, okay, it’ll be handled. It won’t reach us.  When an unknown hits, I think you at least have to have some operating principles on how you would react.

Again, if you’re in a retail business, how do you deploy your employees and how do your customers access your premises if it’s a brick and mortar, right?  How do you get information if you’re a national company out to your workers? So it would vary, but I do think you could at least go through that exercise of planning what happens, what are the first five things you do?

Raza Shaikh: [00:37:37] Yeah.

Joe Ayoub: [00:37:38] Joe, it’s been great speaking with you. Thanks for coming in today and thanks for joining us here on Onboards.

Thank you all for listening today to Onboards with our special guest, Joe Baerlein. Please stay safe and take care of yourselves, your families and your communities as best you can.

And you, Raza, you take care too.

Raza Shaikh: [00:37:59] You too, Joe.

Joe Baerlein: [00:38:00] Right. Thank you both.

5. John Hession on investor-backed company boards: discipline, tough love and results

John Hession, legal advisor, business advisor and angel investor, holds the world land record for number of board meetings attended.  He’s been working with emerging growth companies for over 35 years and he has seen it all. 

He talks about the discipline, tough love and results required if investor backed companies are going to be successful.  It is a message that all boards would benefit from listening to and following.  

Thanks for listening!

We love our listeners! Drop us a line or give us guest suggestions here.



Well, if they’re investor backed (companies), you know, there’s an insistence on having a good strong board and that often means that simple phrase: tough love. 3:01

If you don’t hire a good board and build a good board, you don’t have great guidance for the company.  ….an investor-backed company, it needs results and oftentimes they’re going to be a more difficult, they’re going to be more challenging on management strategy. 4:00

Investor backed boards, are much more conscientious, much more deliberative, much more demanding on management (than most private company boards). “You need to solve this problem.” 8:33

I’m delivering this advice (to you as CEO of the company), Joe, and it has to come through everything.  Because I would like to see you succeed. And even if I have to give you tough love, it’s not personal. It’s because I want to see you succeed. 15.47

You can’t have the CEO/founder be the chair.  If you’re going to build an outside board, the chairperson, usually has to be someone who’s got a lot of scalps on the belt, a lot of scars, a lot of experience, and been involved in boards.  16.29

Bill Moffitt, was probably was one of the best chairs I ever worked with. He had a way to drive the discussion, drive the agenda, to stop tangential discussions to stay focused on those action items that I talked about and demand performance and, on the action items. 

He was the most masterful, yet at the same time, urbanely diplomatic chairman I’ve ever had the pleasure of working with.  He was just so good about assigning tasks, not only to the management team. But to other board members. 17.13 

What if you don’t find Mr. Perfect (as a Board chair)? How do you find the next level? How do you find a chair that you can make it work? Because the person you described, you just said he was one of the best chairs you’ve ever seen. Not everyone’s going to deliver all the goods. What do you do if, you can’t find that person or the chair is not that person? 18:49

1202B stock (capital gains stock) …. is the heart and soul and sinew of American capitalism. Why? The first $10 million of gain is zero capital gains tax. Now, who said the uncle Sam will, they’ll give you a gift from town to town Joe. 23:09

Big Ideas 

The disciplined approach used to identify board members in investor backed companies should apply to all private company boards as well.  It can be a board of five, seven, eleven – it doesn’t matter.  Exactly what do we need?  What are the skills, expertise, attributes that we need in this person and let’s go find him or her.

It also applies to off-boarding unproductive board members.  It happens that there may be a more definitive incentive to do it in investor back companies. But what’s the difference between those companies and a really productive, successful family company board where some of the board members really are just mailing it in? 

Transparency and trust are fundamental to the management/board relationship, no matter what size company, what type of company.  And “brutal honesty” goes both ways.  So a founder has to be brutally honest with himself or herself.


Joe: [00:00:00] Hello and welcome to On Boards: A Deep Look at Driving Business Success. Hi, I’m Joe Ayoub I’m here with my cohost Raza Shaikh. How are you doing Raza? 

Raza: [00:00:10] I’m doing pretty good, Joe, and I’m very happy to be hosting with you. 

Joe: [00:00:14] Good to be with you. 

On Boards is about boards of directors and advisors and all aspects of board governance.  Twice a month, in 30 minutes this is the place to learn about one of the most critically important aspects of any company or organization: its board of directors or advisors. 

Raza: [00:00:32] Joe and I speak with a wide range of guests and talk about what makes great boards great, what makes a board unsuccessful, how to be a good board member, and how to make your board one of the most valuable assets of your company.

Joe: [00:00:46] Our guest today is a legal advisor, business advisor and investor extraordinaire, who’s been working with emerging growth companies for over 33 years. 

Raza: [00:00:56] He has worked with over 500 companies at various stages of growth for a variety of industries ranging from life science, medical devices, clean energy, to software, hardware and healthcare information systems, and through every stage of the company’s growth.

Joe: [00:01:14] We’re very excited to have John Hession is our guest today. Welcome, John, we’re excited to have you here on On Boards. 

John: [00:01:21] Thanks for having me. It looks like it’s going to be a fun afternoon. 

Joe: [00:01:24] We’re going to do our best.  

John, you know, people exaggerate all the time. It’s the society we live in, but when you tell me that you average one board meeting a week, because I know you, I actually believe you. That means that you’re attending 50 board meetings a year. How many does that, come out to over the last 10 years of your career? 

John: [00:01:44] Well, I think the math is simple. You take 50 times, 10 and you got a lot, several hundrerds, if my new math shows me right.

You know, I would say it can be different. Like this week I’m only here for a short week, but I have three board meetings, a quickie tomorrow, a long one tomorrow afternoon, and then a conference call on Friday. So that’s a pretty typical week and you multiply that by, 45 48 weeks a year.

Any number of companies. Some require more than others. I have a company in Ayer, because of extreme condition, financial condition it was in board members need to navigate and monitor carefully. We literally had a board meeting a week from September through end of November until things got straightened out.

So they can vary. But on average, you figure at least 50 board meetings a year. 

Joe: [00:02:36] So the sheer volume of board meetings you attend must give you a perspective that most people simply don’t have.

 On this show we say a board of directors or advisors is one of the most important aspects of any company or organization.

Mostly you work with investor backed companies. Do you think that is true of those companies as well? 

John: [00:03:01] Well, if they’re investor backed, you know, there’s an insistence on having a good strong board and that often means that simple phrase, tough love.

 I am usually on investor backed companies. They could be angel investors, like classic angel syndicates in Boston: Boston Harbor Angels, Launchpad, Hub Angels . It could be venture backed companies, with classic venture funds, anywhere from Flagship to Comcast, and in between. So it’s all over the map. 

I urge young companies, cause often times, young companies walk through my door and they don’t have a board formed and I urge them, look, you need to get one or two good outside people with strategic advice, with operating experience, for the challenges you’re going to face in the next 6 months to 18 months. So you want to hire somebody that has expertise or experience addressing the same challenges you will face.

So yes, it’s important because of what you just said. If you don’t hire a good board and build a good board, you don’t have great guidance for the company. 

Joe: [00:04:05] Hmm. You’re singing my song. That’s great. 

You started doing this work, I think, but Dick Testa in the 80s that must’ve been a pretty interesting time.

John: [00:04:13] It was a fun ride. It really was one of the more memorable experiences of my life. I actually worked for Dick Testa, George Thibeault and Steve Huwitz. I affectionately referred to him as the three Amigos of Testa, Hurwitz and Thibeault. I carried their bags on and off for five or six years. I cut my teeth and burned my elbows at the knees of George Thibeault, Dick Testa and Steve Hurwitz and I got great incomparable education that very few young associates, second through fifth year would ever see in their lifetime. 

Joe: [00:04:48] What did you learn then that still resonates today because there must be some differences, but there must be some things that  don’t change with the decade or the economy.

John: [00:04:58] Well, I think the best advice I ever had, was Dick Testa saying, John, understand the business logic first, then you can think about the legal strategy.  Understand the business problem first, figure out a business solution to the problem, then figure out the right legal strategy. . So I’ve always approached problems, not from a legal perspective, but from a business solution perspective. And I think that stood me well, both, for what I do now, which is both a business and a legal advisor to companies, but also as an angel investor.

Joe: [00:05:34] You know, it seems like obvious advice but it also is one of those things that some people don’t really get it, I think 

John: [00:05:44] That’s a fair comment because I think particularly in the legal industry, there’s a tendency to come up with, hidebound solutions. They’re not creative, that don’t analyze the business problem, pull out the textbook, pull out the last form, pull out the last document.

Maybe that’s a solution. You have to actually listen to the problem first and then you try to craft a solution that addresses the needs of the company. 

Raza: [00:06:12] And John, for investor backed companies and startups, I have a saying that they are their own category of boards. 

Let’s talk about what some of the differences are, there are of course similarities as well. But, what do you think, makes them different than large public company boards or, other nonprofit boards? 

John: [00:06:29] That’s a great question, Raza ,cause I have sat in on public company boards during that time and, I think the difference is with a private company, the outside board members, the non-management board members tend to get more actively involved in the company.

I’m not suggesting that they are getting their knees bruised by day to day tactics, but they are getting knee deep in the strategy of the company. They’re trying to figure out ways of their networks, their connections that can advance the business proposition for the company. 

They’re more nimble. They’re often not there just at a board meeting. They’re there showing up, on a weekly basis to see how the company’s doing. So they’re contributing more than the four quarterly meetings a year where you get the tried and true investor presentation and then you go off for another quarter. 

The really good board members that I’ve worked with, they’re actively involve, elbow to elbow, with management of the company to try to help drive strategy, make connections. 

Joe: [00:07:32] So some of what you said sounds like it applies to all private company boards, but some of it sounded like it was more tailored to investor backed boards.

Can you just talk about the difference that you see in the investor backed boards versus private company boards generally? 

John: [00:07:49] Maybe just doing a dramatic metaphor, an investor-backed company, they need results and oftentimes they’re going to be a more difficult, they’re going to be more challenging for management strategy.

They’re going to be more knee deep in the data and the information. Whereas I have seen private company boards that are not investor backed and  for lack of a better bromide, you might say, their golf buddies are on the board and they kind of rubber stamp what the owners want to do.

They’re listeners, they’re not active participants. And I don’t mean it to be disrespectful because for everything I say, there’s always the exception that swamps the rule. But for an investor backed boards, they’re much more conscientious, , much more deliberative, much more demanding on management. You need to solve this problem.

You got this problem. How can we help? Who can we bring to the table? You know, what other advisors should we be hiring. There is a much more concerned attitude towards driving the company forward. 

Joe: [00:08:57] I think the discipline you described that applies to investor-backed board should apply to all private company boards as well.

Would you agree with that? 

John: [00:09:05] I absolutely. You use the right word I didn’t think of: discipline. It is a much more disciplined process with an investor backed company, and you often see a minimum of six and sometimes as much as, eight meetings a year,  certainly every quarter.

A lot of companies, when investor backed companies, they do staggered board meetings. In other words, one will be in person, live several hours. I have one tomorrow in Quincy that’s gonna run from two to six,  but intermittently followed by a one hour conference call update. Okay. Where are you from where, when we last met, that usually is just a fast synopsis of where the company is. What every good board, the outside board members usually create an action item plan, either before or at the end of the meeting say, okay, next board meeting we have these five things to solve. And usually they demand that the beginning of the next meeting, first 15 minutes are, okay, where are you on the five action item points?

What have you done? But what’s interesting, Joe, is in between the good board members are talking to the company on a weekly basis about driving that process. But discipline and tough love  are two good words.  Three good words to use. 

Raza: [00:10:20] John when you work with companies, what role do you, like to play or how do you help companies?

John: [00:10:27] Well, I like to think of myself as a connector. So what did I do yesterday morning for breakfast? You know, greasy spoon in Newton? I brought two people together. One who has two outside board members. We’re doing a recapitalization of the company. It’s a digital therapeutics. I introduced, in December, someone that they need on the corporate development side.

I asked him because of this corporate development person, and I have a 20 year experience working with companies together. And then, probably a week ago I said, Hey, look, Dave, would you do me a favor? Did you have breakfast with me and the founder of this company? There’s a lot we gotta solve here.

Maybe you can see a way to get active or get involved. So I do things like that from time to time. I spend my weekends with clients or others, off the meter. As long as I’m home before 9:30 and they pay for the greasy eggs and the bad coffee. I try to put people together. 

I try to connect people that can be helpful to the business. Some of them end up as directors of the company. 

Joe: [00:11:27] I want to go back to a couple of things on investor backed boards. 

Talk a little bit about the difference in composition of an early stage company. Who is likely to be on it?  What are you looking for in that kind of board member and do they have different expectations. You’ve talked a little bit about maybe more frequency, are there other expectations that a board member on an early stage or investor backed company is likely to have?

John: [00:11:58] So you would see typically, a five person board for investor backed company in the first couple of rounds, seed, Series A, Series B. It’s generally five. It’s usually indubitably, the CEO, whether a founder or otherwise has a seat at the table. You want that. You have to have that. That person’s usually, maybe not the chairman, but he or she is usually driving the agenda for a board meeting. . You also would have, if you have investors, typically two investors, and then you may have a representative of the common, so it’s two, two, and one.

What do I mean by that? CEO and maybe a founder, director, two investor directors. Usually the anchor tenant, the lead investor, and maybe you know, someone who’s written them second or third largest check. But the first thing they all agree on is :what are the problems this company will need to solve? Will need to confront, will need to attack in the next two years?  And what type of problem is that? So I’ll give you, without naming the company, I’ll give you an example. 

The company that I was talking about on a Sunday breakfast, we need, we’re now at a point where we need to take this product, it’s a digital therapeutic,  through the regulatory cycle, but it’s not a drug. It’s digital therapeutics. And so the problem is that’s a tough industry right now because it’s brand new. It’s virginal frontier. Who is the right person to help drive this company as an outside board member, because we have to solve a regulatory problem. So the person needs FDA experience, but not in the drug space.

We have to solve a growth problem. So that person, he or she needs operational experience. And most importantly, the universal element in all of this is we’ve got to solve a funding strategy. So you sort of want to an outside board member who’s , skinned his elbows, has some gray hair, plenty of it, or none whatsoever, addressing those challenges over the next 18 months, two years, you bring that person to the table. You actually have to pay some equity, give up a little bit of equity. Finding that right individual who’s going to help the rest of the board solve the problems I just identified: regulatory, clinical proof of concept, funding – cause we’re going to need $10 million – and operational growth. We’re going to have to help recruit and drive a team. That’s a tough proposition in an industry that’s brand new.

Joe: [00:14:38] So I think that kind of disciplined approach to identifying board members runs across building any kind of board.

It can be a board of five, seven, eleven it doesn’t matter. It happens that in the size you’re talking about, that first independent is probably more critical, but as you build any board, I think that approach is exactly right. Exactly what do we need?  What are the skills, expertise, attributes that we need in this person and let’s go find him or her.

John: [00:15:13] With one important ingredient in that recipe.

 I fully endorse what you’re saying. The  diplomacy is very important here because you got to deliver tough instructions, tough love, and you have to do it. so it’s very paramount. Look, I’m doing this. I’m delivering this advice. You know, Joe, you’re the founder. I’m delivering this advice, Joe, and it has to come through everything.

Because I would like to see you succeed. And even if I have to give you tough love, it’s not personal – it’s because I want to see you succeed. 

Joe: [00:15:48] So let me ask you this. If the founder/CEO is also the chairman of the board, but not particularly well suited to be chair, do you in a situation where the board is small think about having a lead outside investor like you would in a larger board or how do you deal with that if that happens to be the case? Cause I’ve seen that and I’m positive you have too. 

John: [00:16:10] Yeah, that’s a great question because you can’t have the CEO/founder be the chair.  If you’re going to build an outside board, the chairperson, usually has to be someone who’s got a lot of scalps on the belt, a lot of scars, a lot of experience, and been involved in boards.

I will tell you a great story company Firstlight Diagnostics. The founder  realized  what they needed at the board level. They had a ton of investors all moving in different directions, and they really needed someone to help someone with a lot of street cred, a lot of deep credibility and an enormous amounts of diplomacy.

And so they brought in this guy Bill Moffitt, who probably was one of the best chairs I ever worked with.  He had a way to drive the discussion, drive the agenda, to stop tangential discussions to stay focused on those action items that I talked about and demand performance and, on the action items.

He was the most masterful, yet at the same time, urbanely diplomatic chairman I’ve ever had the pleasure of working with.  He was just so good about assigning tasks, not only to the management team. But to other board members, 

 Raza, you gotta just, you know, here’s the five action items that come out of this program.

Don, founder, you gotta solve this regulatory issue. Understand this government contract matter, and look for somebody in this. Raz, he’s an outside board member. Or he’s an investor board member. He’d say, Raz, you got to go check your contacts and, and, and look for this, check for that. See who can be likely strategic partners here that we can bring in.

So he would  assign responsibility to everybody that made a board be very active, very participatory, and also it drove, attention to detail where a lot of board members, sometimes just, and not on this company, but a lot of board members sometimes show up, and that’s about it. 

Joe: [00:18:13] He sounds like the perfect chair and it sounds like not only did he have all the qualities that you have suggested, but he also worked well with the founder, which is, yeah, why are they important? 

What if you don’t find Mr. Perfect? How do you find the next level? How do you find a chair that you can make it work?

Because the person you described, you just said he was one of the best chairs you’ve ever seen. Not everyone’s going to deliver all the goods. What do you do if, you can’t find that person or the chair is not that person?

John: [00:18:49] Well, number one, what you have to do, and here’s the problem  I have also witnessed.  If a board member, an outside board member, we can’t get rid of investor directors.

You’re not going to be able to get rid of the common founder, director, you know? So I’m, let’s say Joe, I’m the CEO of the company. The founder director has a seat at the table as long as that person owns X percent of the company. The investors wrote the check. There is no way they’re not having a seat at the table.

It’s the last person, the independent. It’s just like making a decision on a C-level executive. If that person, he or she, is not performing in six months, you need to move on. You need to get rid of them and find another,  Cause the worst thing you can do, and the same discipline applies to a board member. A Board member who’s getting equity, but not contributing, you need to let that person go.

Joe: [00:19:42] I’m going to say something I said before, the discipline you just described about off-boarding, unproductive board members should apply to all private company boards. It happens that there’s a more definitive incentive to do it in the kind of companies you’re working with. But what’s the difference between those companies and a really productive, a successful family company board with some of the board members really are just mailing it in?

John: [00:20:12] I would agree with and you will see that, those companies are usually prospects for a private equity takeover. And what the private equity firm usually does is bring in the type of person I just described. Someone who can lead from the outside. be encouraging, to the inside management team but at the same time, demand discipline, demand, action, demand results,  and that’s, that’s unfortunately the way you have to drive that. 

Raza: [00:20:41] And John, can we switch to talking about for these investor backed companies that are early stage, can you also talk about how the compensation for board members work – is there a cash component? Is it always just restricted stock or it depends? What’s the norm for compensation for board members? 

John: [00:21:00] Well, it’s actually over my 35, 36 years. It’s really within a band. It depends on the company. You might. See if it’s a more mature company, let’s say two, three rounds of financing, the outside board member might get an annual stipend.

A public company’s entirely different.  Public company that outside board members usually getting a very attractive stipend, for a guaranteed number of meetings, as well as restricted stock units. If it’s a public company. Private company, and its odd, Raz, the data is so uniform. I don’t care what anybody says.

The universal metric is this: non-qualified options, unless the person can buy and prefers to buy restricted stock. If it’s an LLC, it’s a different comp structure  but for a C corporation, the only mechanism you generally have is a non-qualified stock option.

This is all technical guys and, and I, I see you guys are glazing over, but I’ll give you some medication later because here’s the thing, there’s a, there’s, if there’s one thing you you would leave an outside board member with is think about 1202B. Cause if you can get stock, you know, it’s a gift from Uncle Sam.

Raza: [00:22:10] That’s the Qualified Small Business Stock  (QSBS)  and the 83B all investor backed companies know to file their 83B, don’t forget to do that. 

John: [00:22:21] Absolutely. But the good, the great thing about 1202 and now I’m getting legal and technical and you can dope slap me in 30 seconds is: it is the heart and soul of American capitalism 

1202 B stock, which is capital gains stock. The company has to have less than 50 million in assets at the time you get it. You have to hold the stock for five years. When people exercise an option, they’re usually cashed out.

They can’t run the five years, 1202B stock. In my best Southern accent. Is the heart and soul and sinew of American capitalism. Why? The first $10 million of gain is zero capital gains tax. Now, who said that Uncle Sam won’t give you a gift from time to time, Joe. 

Joe: [00:23:09] Well, that sounds good.

Raza: [00:23:13] John, it just so happens, I know founders who have taken their entire windfall tax-free 100% with the 1202B .

Joe: [00:23:23] Let me ask you this though. Could you talk a little bit about how the boards of these investor backed companies change as they grow, become more successful, have additional rounds of funding.

It starts maybe with the five as you describe it, but then given the changes, assuming it’s successful, it must really evolve into something else. 

John: [00:23:46] And the interesting thing is that also creates the challenges. Because I have found, in my experience, you get a board of nine people or more. I mean, it’s like Caligula. It’s like a Roman orgy. There’s a lot of grape eaten and nothing gets done.  

Oftentimes when you do that, Joe, you have a subcommittee to focus on, let’s say operations or audit or nominating new directors or particularly compensation committee. You typically see it’s the same, you know, logic that prevails.

The CEO, he or she always has a seat at the table. The founders, depending on the size of the founder faction and particularly if the founders are still active in the company, if they’re no longer active in the company, the common might net not get a seat. But if the founders are still active, typically you see common getting a seat.

So there’s two. The problem you have is if you have too many investors on the board and they, they don’t represent a diversity of opinion and I’m sure the investors will excoriate me for saying this, but  you can get too, lost and not thinking about the longterm strategic thing.

So if you had a board member of seven, I really recommend, two, minimum, outside directors, preferably three. So if you said three outside directors, each of whom can help solve some of those challenges, maybe separately, one in a life science company, maybe one’s a regulatory person, one’s a clinical person, one’s a funding person, there’s your three, and then your other four are, you know, CEO and a founder and two investors.

The other element in this, in this landscape is, do you have new investors? And those new investors who are writing bigger checks, a bigger evaluations may say, hey, time for change on the investor side, that’s even a more challenging discussion cause you also have to be willing to have existing investor directors who are also willing, knowing that the price of money requires a seat at the table.

And if those investors are writing bigger checks, maybe it’s time for a Series A board member, preferred investor, to step aside and bring in. And that’s a challenging discussion as well. 

Raza: [00:26:05] But John, you’ll often also see that and at later stage Series C or D that, At this point. Now on the board, there’s a Series B investors and a Series C investor and common stock investor and time comes to sell the company.

And depending on what the offer is and the how the waterfall is going to play out, there’s going to be a very divergent possibility of interest between the board members. Although the board collectively supposed to represent. 

John: [00:26:40] All shareholders, shareholders, not just …

Raza: [00:26:42] What do you see there?

John: [00:26:44] And that’s often the tension that you have, not just with management and investors, it’s the entire landscape.

What do I mean by that? As you just described? Let’s follow up on your scenario. You’ve got, you know, later around investors that have come in at a price, at a good valuation, maybe it’s the valuation’s 4 or 5X, the Series A valuation, the Series A investors who are still sitting at the board and they’re in their five years, if they’re in the tech space, then they’re desiring liquidity. Why? 

Cause their blended return might be 5, 6, 7X. Whereas you sell the company too early after the Series B or C or whatever the later round investor is, the return is not as significant. So there is a natural tension on the investor side. The other problem you have to look at is, and most entrepreneurs don’t pay attention on this, where is the fund in its life?

Because, for example,  universal math, that has been for all my 35 six years, most funds have a lifespan of 10 years with two to three years of unraveling extension. If the fund is in its seventh or eighth year, and it’s a Series A investor, that fund has enormous pressure to harvest, to get to liquidity. If it’s a Series B investor and they’re in their third year, well they got a 7 year horizon for a liquidity harvest.

They want to be more patient to get a better return and management -where are they in the process? If they’ve been slogging in the trenches for the last 5, 7 years and they looked like their equity is under water, you know, they may want an exit to just to get out, but they’ll have a separate carve out plan.

So that the dynamic and the tensions among all of these elements of the landscape really have to be carefully managed and being honest. Part of my job. What I do.

Joe: [00:28:41] I want to go back to something you said before. ,You talked about the quote “difficult conversation” that you have to have when it’s time for an investor, or any board member, to leave the board.

It could be an investor that has been on the board for a long time and a new investor has come in and cut a bigger check. It could be someone that just not as relevant to the issues the company’s facing. Who has the conversation? 

John: [00:29:09] I think this is where having a good chairman, you know, I mentioned that fellow, Bill Moffitt, having someone who appreciates those issues, but, can talk to, and this is a one-on-one conversation.

You never have this conversation at a board meeting. So that person might talk to the founder, might talk to the other investors, you know, particularly. And get a consensus and then, you know, go back to the earlier investor and say, look, I think it’s time to step aside or you haven’t been contributing.

The easiest case is the person is not contributing as also not paying attention and frequently not showing up. If that happens, you really need to take more direct measures. 

Joe: [00:29:53] Sure. That makes it easy, but let’s assume someone’s showing up. And let’s also just assume for the sake of this conversation that you don’t have the perfect chair, but the board looks around and the founders look around and the investors are looking and thinking, this board is not what it needs to be.

Who provides the impetus to make the changes that need to happen?

John: [00:30:16] That’s a good comment. You know, I think part of it is, my job is to sit down with the CEO or the founder. Usually face to face. You’d never do this on the phone, usually over a meal, breakfast or dinner and say what you just said.

Look, we’re just, we’re not making progress. It’s time for change. People are, are, have lost interest, you know, if they’ve lost interest, it’s in your own best interest to find someone who’s going to be, become more passionate  Maybe if they’re not fully vested in the option, you know, you let the, the rest of it,  like almost like severance in the employee context. You let it forward vest to the end because you’ve asked them to leave. 

Joe: [00:30:59] Does it sometimes take more than one to have this conversation? In other words, will you sit down with, so will you sit down with the chair or the founder or some combination? A couple of folks will sit down with the board member and have that conversation? 

John: [00:31:15] I think for human interaction purposes, a lot of psychology here, I think separate one-on-ones. Why? You put three people, four people at a breakfast meeting, you know, three across the table from the non-performing board member.

Nobody likes to be in that scenario, so it’s going to take a while. You do it diplomatically and you do it over, and that may take three or four meetings over three or four weeks. You try to do it probably within three to six weeks maximum because that person has to, it’s the tough love that’s often delivered by the board, the independent board member to management. Now it’s the tough love delivered by management or founder an investor director to a non-performing board member. Absolutely. 

Raza: [00:32:02] John, another topic we want to talk about.

We’ve seen investor backed companies such as Wework or Theranos where there’s a huge blow up in the end and there is a visionary CEO or a founder involved. How does the board let the situation get to that point and how do you see that in general? Not, not necessarily specifically for any of these. 

John: [00:32:27] I haven’t witnessed that, you know, that kind of behavior. I think what happens there is big bold ideas. Everybody’s investing; prices constantly rising; board members sitting there, well, management must be doing a good job the last round was, you know, $100 million pre-money. The next round is $400 million pre-money and the third round is $750  pre-money and everybody’s writing a check so why should I care?

And it comes back to the word you use, Joe, when we started this and the word I used: discipline. And tough love. And usually what happens when the valuations riding North at an ever -increasing pace, some of those basic elements start to wither. 

 I haven’t been involved in it that often, once or twice, actually, one of them was a public company. It shall remain nameless. The outside board members didn’t challenge management. That’s what they’re supposed to do. Challenge management. Why is this? ‘

I will tell you, because I had a friend from a venture fund that looked at Theranos and early on and said to me, John, there’s no way they can do this scientifically.

I’m a venture investor. I’m a former, you know, three times serial entrepreneur. I’m a scientist that ran a lab, one of the best grant producing labs in a major hospital in Boston. I’m knee deep in science. And I asked them endless questions about the science and I kept getting poo-pooed and told, look  nobody else is asking these kinds of questions. you know, do you want to invest or not? Because we have plenty of others. 

And he and he wanted to do the diligence. And he said, you know what? When somebody responds to you that way, what kind of relationship you’re going to have, even as a board member? So he passed.

Joe: [00:34:24] So I think that what you said is exactly right. Transparency and trust, I think are fundamental to the management/board relationship, no matter what size company, what type of company.

I do wonder though how, what I’m going to just refer to as “Theranos Syndrome” because it was such an egregious case and we know so much about it. The entire board were comprised of very experienced people. They’d all been on boards before. They had all sorts of really impressive background. Not one of them knew anything about a regulated industry.

How does one protect against a board that appears to be so well, so, so experienced, and yet is completely unwilling to hold the CEO accountable? 

John: [00:35:17] That’s because the board was composed of people who didn’t solve the quote “challenge “problem that we started this conversation with a half hour ago. Pick a board member that know what your challenges are.

A good board member will ask them. I asked them, what do you have to solve in the next 6 to 18 months for a young company that’s two lifetimes. What do you have to solve? What capabilities do you have to bring to the table? What are the most challenging aspects that are inflection point events. You solve it, you get to an another inflection point, and then you have to find people who have solved that problem before, who, or have had enough experience solving that problem.

So if you look at Theranos and you look at all their outside board members, you know, Henry Kissinger’s, an intelligent human being. Well, he doesn’t know anything about clinical technologies and taking products to market in an FDA -regulated industry. No offense, Henry, if you’re hearing this. They didn’t find they, they found board people with reputations, not the person who has the experience to address the immediate challenges of the company.

Joe: [00:36:34] Which was constructed to raise money. 

Raza: [00:36:36] Yeah, that’s the problem. It was that that was the challenge they were supposed to solve .

Joe: [00:36:41] So on the smaller boards, doing a self-assessment may not make sense. I think you’ve described kind of a, a more granular, personal process. 

What about boards that are nine people? Should there be a regular self-assessment, a real assessment ,where board members are required to really look at themselves. Other board members maybe are weighing in on their, their fellow board members . What are your thoughts on that? 

John: [00:37:11] There probably should be, but there never is. Number one. people are, people are too busy. 

But I think if you fundamentally care about the management team. And it’s usually the CEO who he or she’s bringing you in. If you care about the CEO and want that person to succeed, you’ll assess your own performance. You know, one whether or not you have the time.  You’ll make recommendations for other board members, that goes on all the time.

Good board members are always making recommendations for other board members. You know, and it’d be honest with ya, what do you do for the company that’s struggles, that’s slipping, that’s banging its head against the wall, you have to find an extraordinary person who’s willing to jump in, get a lot of mud on himself herself and, you know, wrestle at some tough problems and it’s a lot more work than, you know, typically entails. It’s the company that’s struggling that really requires the most help. 

Joe: [00:38:08] Yeah. There are a lot of boards out there that are struggling. I deal with those boards regularly. And while I appreciate what you’re saying, that in a perfect world, board members who like the company, like the CEO, like the founder will self-assess and do the right thing. That is a very, like I said, that’s the perfect world. The perfect world doesn’t exist mostly in governance, unfortunately. 

John: [00:38:32] Yeah, and just about everything else too, Joe. So, but I think if you have people who believe want the company to succeed, and it’s not just about money, it’s not just about increase in valuation.

If you work with good people and bring in good people who want to see others succeed, and also serve as good mentors, particularly for younger people, who need that coaching and guidance, they just haven’t. You know, you know, they haven’t been bruised often enough. So that’s important. 

Joe: [00:39:03] John its been great speaking with you. Thanks for joining us today. 

John: [00:39:06] All right. Thank you. Thanks for having me.

Joe: [00:39:09] And thank you all for listening to onboards with our guest, John Hession. Take care Raza. 

Raza: [00:39:15] You too, Joe. 

John: [00:39:16] Thanks for having me. 

4. Board Diversity, private company boards & the impact of social media: a conversation with Beth Boland

Beth Boland is a force to be reckoned with.  Named one of Massachusetts “most influential lawyers,” Beth was first initiated into the world of shareholder defense working as a clerk for a district judge on the Mike Milken and Ivan Boesky cases. Now chair of Securities Enforcement & Litigation Practice at Foley & Lardner LLP, she also serves as President of the New England chapter of the National Association of Corporate Directors (NACD). 

An expert on how boards operate, she champions the expansion of diversity on boards and has worked tirelessly to bring gender diversity to the boardroom.

Thanks for listening!
We love our listeners! Drop us a line or give us guest suggestions here


“I think folks [in private companies] are really growing away from the idea of thinking of their board as a potential nuisance that they have to deal with, and [thinking of it] as one that is really a strategic asset.” [12:10]

“I guarantee you that there are some rock star women and aspiring directors of color who will knock your socks off.” [19:05]

“Take care of your people, who will take care of your product, which will take care of your shareholders.” [27:40]

Big Ideas 

The increasing interest of private companies to run their boards more similarly to their publicly held counterparts. [09:50]

Board diversity. [14:53]

Shareholders are insisting that companies recognize and address a much broader range of stakeholders to benefit their shareholder’s long-term interests. (22.16]

The growing trend, and recent Delaware court decisions, to hold boards accountable for the interests of stakeholders beyond only shareholders. [22:38]


Beth Boland’s Website

Beth Boland on LinkedIn

B Corps

Business Roundtable

NACD New England


Joe: [00:00:00] Hello and welcome to On Boards: A Deep Look at Driving Business Success. Hi, my name is Joe Ayoub and I’m here with my cohost Raza Shaikh. Hey Raza. 

Raza: [00:00:11] Hi Joe, happy to be here with you co-hosting. 

Joe: [00:00:13] Good to be with you. On Boards is about boards of directors and advisors and all aspects of board governance. Twice a month in 30 minutes this is the place to learn about one of the most critically important aspects of any company or organization: its board of directors or advisors. 

Raza: [00:00:33] Joe and I speak with a wide range of guests and we talk about what makes a board great, what makes a board unsuccessful, how to be a good board member, and more importantly, how to make your board one of the most valuable assets for your company.

Joe: [00:00:51] Our guest today is a highly regarded securities attorney who represents clients in shareholder suits, SEC and Attorney General investigations and consumer class actions. 

Raza: [00:01:03] She serves as the securities enforcement and litigation practice chair at the law firm of Foley and Lardner, and also serves as the President of New England chapter of NACD, the National Association of Corporate Directors.

Joe: [00:01:20] We’re very excited to have Beth Boland as our guest today. Welcome, Beth. 

Beth: [00:01:25] It’s great to be here. 

Joe: [00:01:26] It’s great to have you as our guest On Boards. 

So your background as an attorney is really interesting. Can you tell us a little bit about  what you did that led you to focus on shareholder defense work?

Beth: [00:01:40] Sure, sure. I, after coming out of law school, I was so fortunate to get the best clerkship in the world, which was clerking for a very famous judge for the Southern District of New York in Manhattan. And, the docket that he had on some of the key cases were the Michael Milken and Ivan Boesky insider trading cases, I was clerk on those and got started there, really got hooked.

Coincidentally, I just got off the phone right before I came over here to the studios with a New York Times reporter who called me up to comment on a certain board situation and it turned out that he wrote the book that I read when I was a clerk. called Den of Thieves on Michael Milken and Ivan Boesky and so it was such a small, you know, small world sort of thing. 

We also sat by designation on the court of appeals for the DC circuit, and Ruth Bader Ginsburg was one of the judges who was on that panel for that week. So I was able to work with her very closely on developing, drafting opinions that she then issued and what a great experience. I thought she was awesome then I continued to think so.

Joe: [00:02:54] She is awesome. What a great start to a legal career. How do you top that? 

Raza: [00:02:59] Beth, how did, your work as an attorney then lead you to become involved with the NACD?

Beth: [00:03:05] Well, you know, after representing boards of directors and advising them and defending them for however many decades, it was a natural evolution to be asked to go on the NACD board. And from there, I got very interested in the work that NACD was doing. And at one point when the prior president was stepping down, I got the phone call to say, Beth, we have thought about it and have nominated you to be our next president, so I stepped right up. 

Joe: [00:03:35] How long had you been at the board when that happened? 

Beth: [00:03:37] Oh, about eight years or so. 

Joe: [00:03:39] . And it was Bob Popeo who proceeded you, is that right? 

Beth: [00:03:41] He did. 

Joe: [00:03:42] How long did he serve as president? 

Beth: [00:03:44] I think it was four years and this is now my fourth year, going into my fourth year as president, I will be handing over the reigns to Cathy Minehan, the former president of the Boston Fed, in a couple of months.

Joe: [00:03:57] What a fabulous succession. Did you do succession planning in advance or did this work out? 

Beth: [00:04:03] Absolutely. I did succession planning.

About a year ago, I sat down with Cathy and said, what do you think? And then we planned it out. 

Joe: [00:04:10] Yeah. Good for you. I mean, it’s the best practice. It’s good to hear that it’s going on at the NACD. 

Beth: [00:04:15] Right? We try to practice what we preach. 

Joe: [00:04:17] How big is the board? 

Beth: [00:04:19] The board is about 20 to 25 people, depending on any given point in time. 

Joe: [00:04:24] Do you have term limits on the board? 

Beth: [00:04:26] We do. We do. Again, we practice what we preach. 

Joe: [00:04:28] Excellent. 

Beth: [00:04:29] We do three, three year term limits, so up to nine years on the board. 

Joe: [00:04:35] Great. you know, following Bob Popeo is, you know, big shoes to fill. When you took over, what issues or initiatives did you want to focus on?

Beth: [00:04:44] Well, Bob had really led the organization into a transformational change and really upped our game tremendously. And so what I saw my mission to do was to fill in the infrastructure so that we could continue that in a sustainable way, both in terms of drawing more on all of our board resources for the tremendous programming that we have, as well as establishing the committees to really think longterm about our programming, about our finances, about our marketing and so on.

So really building it out as kind of a business. 

Joe: [00:05:21] Does New England chapter kind of act on its own? Is it following the lead from other, other regions? How does that work? 

Beth: [00:05:28] Yeah. the National Association of Corporate Directors has 22 chapters around the country.

Each chapter is really quite independent in terms of their programming, their structure, their board, and so on. We are all independent 501 (c) 3s)   and we do look to our sister chapters as to, you know, the type of programming that they do. But we really have full freedom to do our own and kind of forge our own path.

Joe: [00:05:55] So what are the things that have happened since you’ve been President that you’re the most excited about? Most proud of? 

Beth: [00:06:00] Oh, a couple of things. First of all, our Director of the Year dinner rocks! Okay. May 4th, 2020 Westin Waterfront Hotel – be there.  

Joe: [00:06:12] I want to say this, it’s on my calendar.

Beth: [00:06:14] Fantastic. Fantastic. We have a tremendous roster of honorees that are really truly the, director visionaries, sittiing on multiple boards and who really have led transformational change on their boards and done so with grace and dignity. So,  we expect a very full crowd. We typically have the governor, the attorney general, the speaker, the mayor, coming out to it.

And, we’ll expect to have a similar roster this year. 

Joe: [00:06:43] My first one was last year. I thought it was fantastic. How did it come about? 

Beth: [00:06:47] Well, I’ll tell you, approximately 12 years ago, maybe we’re in our 13th year,  a former president by the name of Ed Pendergast had the wonderful idea to institute this dinner and to really honor some of the key people, you know, directors who’ve really shown extraordinary leadership.

And from there it just grew. It just. Kind of rocketed, especially as Bob Popeo took over. And then, now in the last four years, what I’m most proud of is how we have diversified, not only our board, but also our honorees. So you see really a diverse slate of folks and, we continue to sell out.

Joe: [00:07:26] Yeah. No, it was a full house last year. I do remember.  What are the other things that you are really happy about? 

Beth: [00:07:31] Also our programming is, I mean, you guys have been to some of the programs and, the level of speakers that we have, whether it is, you know, the CEO of GE when they came into town, or folks like Cathy Minehan, or Eric Rosengren, we had a great program where Cathy and, Eric led that on current economic forecast, we are planning to have Admiral Jim Stavridis, who used to be the allied commander of NATO, who is going to talk with us right around the November elections. and that’s going to be incredible. 

Raza: [00:08:08] And Beth, I can personally testify, a few years ago, I went through the aspiring directors bootcamp at NACD and I thought, it was a compact, morning till night,  dense and a wonderful program. 

Beth: [00:08:20] Right, right. We  pack your brain from eight o’clock in the morning till five o’clock at night, and then I think, y’all might’ve been at our, program kickoff our  fall program kickoff last year.

We had four  really, articulate and thoughtful CEOs on the stage. the head of John Hancock, the head of State Street Bank, head  (of) Boston Scientific and the CEO of IDG as well. I couldn’t be prouder of our programming. 

Joe: [00:08:48] Yeah, no, it’s been fantastic. And it’s really been, it seems like it has more momentum than ever.

Beth: [00:08:53] Yes, it does. 

Joe: [00:08:54] So one of the things I’ve been really interested about is that in the past the NACD, really focused on public companies, and there’s been an increasing focus on private companies, which I think is really great. How did that begin to happen? 

Beth: [00:09:07] Well, I’ll tell you,  we were actually approached by, there is another organization that deals really almost exclusively with private company boards and they were trying to kind of lift off in New England and they approached us and said, can we join forces?

And we said, sure. You know, this is really an important issue for our members. As you know, more and more public companies are now going private. And second of all, those that are private are becoming increasingly focused on adopting good governance practices. So we saw the opportunity there and, then,  when they came to us,  the light bulb immediately went off and hence that series was born.

It’s been very successful. 

Joe: [00:09:49] . But I have observed that private companies are increasingly viewing their boards, in a professional way   and doing the things that public companies do to make sure they have the right mix of skills and  expertise and attributes.

Why is that happening? 

Beth: [00:10:07] Well, you see it in a couple of different ways. Number one is the corporate governance law and liability issues are equally applicable to private companies as they are to public companies. A lot of people don’t realize that, and so private company boards are ones that are recognizing that they too can have liability if they don’t do the right thing.

So there’s kind of the risk side, but also, especially as those private company boards are either planning to go public or want to position themselves to attract more board talent, they are upping their game as well. So it’s not just purely a defensive issue. It is also to move the organization, the,  company forward.

Joe: [00:10:56] Yeah. So, I mean, are private companies recognizing how valuable a board can be?

Beth: [00:11:02] I think that’s true. I think that is definitely true.

 It used to be, in many respects, especially on the private company side,  venture capitalists and so on would populate it, but now we’re really moving to more a model that you have a number of independent board members that are joining those boards and providing that strategic value to the company and to the CEO.

 Raza: [00:11:26] I think for the private companies, one of the reasons also might be that companies are choosing to stay private longer. There has been a little bit of a drought in the IPO market, for example, in recent years that only recently unfroze a little bit. 

Also, it does seem that the capital formation and venture formation starts as private companies so there are a lot more of those  and I think that’s what I’ve observed as well, that even at the startup board level, which is private company boards,  there has been a lot more, recognition of the importance of a good board, and further as they grow to professionalize that board.

Beth: [00:12:09] Right. . I think folks are really growing away from the idea of thinking of their board as a potential nuisance that they have to deal with as one that really is a strategic asset. 

Joe: [00:12:20] Yeah. I’m seeing it though in the family owned businesses. Not just the venture and private equity funded companies.  Family businesses in the past, I think often did look at boards as a nuisance or maybe were concerned that they would somehow lose control, even though that’s not true and really failed to see how valuable it can be.

I mean, you know, for doing well, why do we need outsiders here?  There’s a great article by Cindi Bigelow, who’s the chairman of the board of Bigelow tea.

She wrote an article about, going to her parents and saying, I’m thinking of having a board for our company and their reaction, like a lot of family owned businesses was “why do we need that?” And she wrote a great article about 10 years later, she looked back and thought, this is the best thing I’ve done for my company.

So , if people like that, or obviously people like you, people that have been talking about governance and the importance of governance has maybe, I don’t know, seeped into the private sector. Is that, is that possible? 

Beth: [00:13:23] Well, I think so.  What you see is as more and more of these stories of board liability and boards that have been asleep get into the news, there’s a lot more recognition about, Oh, they’re, but for the grace of God could go, we.

And I do want to recognize A.D. Makepeace who is our private company honoree for the director of the year awards. Their story is really an extraordinary one. Going back to the idea of family owned businesses, they have been family owned. They’re now on fourth, maybe fifth generation cranberry growers originally  on the Cape, and they brought in about 20 years or so ago an independent CEO, a non-family CEO, and now he has just stepped down and they’re on their second non-family CEO and have been just a true success story of making that transition from wholly family owned and controlled to that mixture of family versus independent. management. 

Joe: [00:14:30] Yeah. You know, I think you’re right. Stories like that. I, I know that story. I’ve heard that. but stories like that are probably in part, responsible for families looking at their companies and realizing outside expertise can be helpful. 

Beth: [00:14:45] Right .

Raza: [00:14:45] It seems like that the board of directors for private companies is the growing market for boards. 

Beth: [00:14:51] It is, it is. It definitely is. There’s two real growth stories in terms of board expansion or  that market for directors.

Number one is the private company boards, because there are far fewer public company boards nowadays, whether it’s through a public boards that have gone private or private companies that are, you know, professionalizing their board and really looking to those outside directors.

But also in the wake of California adopting the board diversity requirement, you see a lot more boards that are even expanding by a seat or so in order to meet those diversity requirements. 

Raza: [00:15:36] Beth, actually, that’s what we wanted to touch a more on. So, NACD and many other wonderful organizations have been doing work for gender and other diversity on boards.

Can you talk about  the progress that has been made and what has been accomplished? 

Beth: [00:15:52] Well, I would like to say that we’ve made a lot more progress. We meaning, you know, writ large around the country that we would have made more progress than we have now,  which is why you see statutes like in California, that used to be, “we would like you to be more diverse” to “thou shalt be more diverse” and other states around the country following suit and saying the pace of progress is not fast enough and we need to now mandate, or at least threaten mandating that sort of diversification. And you see that kind of dovetail as well with the “me too” movement, much more emphasis, especially now when you have “me too” issues within a corporation.

And if you don’t have some diversity around the board, then number one, is that board going to have enough independence to be able to address those issues? And second of all, what are the symbols? What are the takeaways that people who look at the board, either from outside or within the company, say that they’re really taking this seriously. 

Joe: [00:17:03] It’s always been true that diversity on a board makes it a better board. So it’s discouraging that it’s taken this much to get only where we are. 

As far as I know, I think we talked about this before, California is still the only state that’s actually adopted a statute that that addresses gender diversity.

Beth: [00:17:20] That’s correct. But there are a number of other States, including Massachusetts, that are considering it. 

Raza: [00:17:25] And Beth I saw the  article in the Boston Globe last month, that the state’s largest companies, have finally added  women on their boards. So, the so called zero zero list.   Talk about that and how, further initiatives are being taken by NACD and other organizations, to continue to make progress on that.

Beth: [00:17:45] Well, great credit needs to be given to the Boston Club for measuring that progress or lack thereof  Every year they come out with a very, time-intensive study on the 100 largest companies by revenue. And what is their diversity on their board, or at least gender diversity on their board and in their senior management.

And as you mentioned, Raza, they have a term for those that have zero women in senior management and zero women on their board called the zero zeros.  Yes, there was quite a bit of, fanfare about the very last company in Massachusetts that was a zero zero.  Shirley Leung and the Boston globe highlighted that and then they most recently added a woman to their board. 

Joe: [00:18:34] , Zero zero does not sound like a list that anyone wants to be on!

Beth: [00:18:37] It’s not a list that anybody wants to be on. 

Joe: [00:18:40] You have to call attention to it to put pressure on those who are making the decision to actually take action.

Beth: [00:18:48] Yeah. And what we’re seeing, I’ll tell you, I mean. People talk about it, but I will tell you it is true.  When you hear, whether it’s senior management or the board chair say, well, we’ve looked, but we just haven’t found that pipeline. It means they haven’t looked hard enough because I guarantee you that there are some rock star women and aspiring directors of color who will knock your socks off.

But they just weren’t in the circles that they were looking at either them, you know, the board directly or their search firm. But there are a number of different groups, that I’ve been involved with above and beyond the Boston Club that are working very, very hard to bridge that gap.  I think in the past year we’ve been far more successful, but the, the resumes that come across our desks are just like incredible.

Joe: [00:19:41] So, you know, it’s really a matter of making it a priority. I was just involved in building a new board for a bank. The board is larger than a lot of other bank boards. It’s 11 people, and we have four women on the board.  I mean, you look at this board and it is such a strong board  because the CEO of the bank really wanted to make it diverse. That was a goal from the start. 

So when people say, “Oh, we can’t find women candidates who will fit in on our board”- I agree with you, I think a lot of times it just because they’re not looking.

Beth: [00:20:18] Right, right. And now we’re seeing, that there are some boards that instruct their search firm to say, come back only with a diverse slate, whether gender diverse or ethnically diverse.

And only if we don’t find the candidates that we really need for this board, then we will move beyond that. 

Raza: [00:20:41] Beth, you call it the “last mile” problem as in, bringing it to the last mile. What are the steps for organizations from NACD to the Boston Club  to help with that last mile?

Beth: [00:20:52] The Last Mile – that is the moniker that, some of us have chosen. 

There is a small group of, women who have come together, many of us, Boston Club members, and so on. Who have said, we need to shake things up a little bit differently.  We’ve been at the static rate far too long, look at the Boston Club numbers and what is it? What’s that missing link. Okay. 

And we call it the last mile because as a reference or illusion to the telecom industry and, , hooking up or the utility industry hooking up that very last mile is the most expensive and time intensive. And so what we have done is basically take the Boston club’s list and go through and say, okay, who knows the  CEO of this organization of this company, or the chair of the board, or the head of the nom gov committee, or whatever it may be.

And we sit down with them and say,  what are the obstacles that you were finding? And if it’s a question of candidates, we can help you with that. And people that we personally vet and know and know your board and know this candidate so that we can say that this candidate will fit, 

Joe: [00:22:00] You know, it’s classic grassroots campaign organization.

That’s what it is. So it’s an informal group?

Beth: [00:22:06] Yes,  we really just kind of come together and, you know, said, what can we do to change this? We’re all frustrated and need to do something.

Joe: [00:22:16] That is fantastic. 

So . I’d like to talk a little bit about the changing landscape of board responsibility.

You said in a recent article that “shareholders are insisting that companies recognize and address a much broader range of stakeholders to benefit their shareholder’s longterm interests.”  

Can you talk a little bit about what’s going on with that?

Beth: [00:22:37] Sure you see two different but related trends that are coalescing now.

On the one hand, you have the Delaware courts, whether it’s a publicly traded company or a privately traded company, saying very clearly in their decisions: you as a board member can no longer just sit back and passively accept, whatever the landscape is for your company and whatever management may tell you about that.

You need to affirmatively be asking the right questions. Nobody ever votes to say. “Oh, we’re going to have a sexually hostile work environment” or we are going to evade emission standards or impose new bank accounts on our customers who don’t want them. 

Nobody ever votes for that  but what directors have a duty to do is to ensure that the compliance infrastructure there meets the risks that that particular company  faces and that there are metrics that they’re asking the right questions. 

In the past, in the “bad old days”  it used to be that the courts would say, you know, unless basically you’re moribund, then , there’s no liability. But that’s all changing. 

In the last six months, there been two decisions that came out from the Delaware courts that said we will no longer just allow you to be passive as you were in the past. And you know, not have liability. You need to be active. You need to know what the risks are and ask management the right questions. Are we addressing those risks? So on the one hand that’s going on with the courts, 

On the other hand, what you see are like the business round table talking about we need to look at a lot more constituencies  then just our shareholders. Shareholders, of course, are the owners of our company, but they’re not the sole stakeholder that we need to pay attention to as we make those decisions. 

So you see both of those, trends coming together, and that makes boards take a look around and say: we need to up our game.

Joe: [00:24:53] So who are the other stakeholders that companies are really starting to focus on? 

Beth: [00:24:57] You look at the Business Roundtable in a statement, and they identify its vendors, its employees. It’s the community in which they’re located or when in which they operate their business. So, there are, there’s supply chain  folks, you know, third party vendors down the chain. 

So there is a whole host of tentacles that a business, a company’s business operations touches and that they need to think about because otherwise it’s not sustainable. 

Joe: [00:25:27] Putting aside what the law is saying, why is it just really good business for boards to do that?

Beth: [00:25:35] Yeah. Well, the boards need to, it’s good business because otherwise they’ll have some supply chain issues. You know, they’re using the lowest cost vendor out of Bangladesh to do their manufacturing, but unless they’re paying attention to them. You know, those vendors could be exploiting their workforce.

And then it does two things. They can’t keep their employees and they get a lot of bad press.  Reputational risk is an issue that boards are becoming far more sensitized to. 

Joe: [00:26:10] Do you think social media has raised the stakes , on reputational risk? 

Beth: [00:26:14] Oh, like astronomically astronomically.

The court of public opinion is a far more jealous court and a demanding court then, the, judicial decisions that you might get six months or 12 months down the line. 

Joe: [00:26:31] So I, what I got from your article a, one of the things I got from your article was that the court is actually kind of catching up to the trend rather than leading the trend.

Beth: [00:26:40] I would say that that’s true. . One thing that, that if you look around the country, there are a lot of state that adopted statutes in like the late 1980s, early 1990s that require companies that say to the board, either thou shalt or thou should or may  consider the interests of those other stakeholders.

And then it kind of went dormant for a little bit. But then again, it ramped back up in the last 10 years or so and a number of additional states have adopted those, what we call multi-constituency or multi-stakeholder statutes. And, then you see the BRT, the business round table statement being a seismic shift, recognizing that, and the courts then following behind, but both of those together.

Beth: [00:26:40] I would say that that’s true. . One thing that, that if you look around the country, there are a lot of state that adopted statutes in like the late 1980s, early 1990s that require companies that say to the board, either thou shalt or thou should or may  consider the interests of those other stakeholders.

And then it kind of went dormant for a little bit. But then again, it ramped back up in the last 10 years or so and a number of additional states have adopted those, what we call multi-constituency or multi-stakeholder statutes. And, then you see the BRT, the business round table statement being a seismic shift, recognizing that, and the courts then following behind, but both of those together.

Joe: [00:27:34] Powerful combination. 

Raza: [00:27:36] I think in terms of value creation, I see it as they say that, take care of your people who will take care of your product, who will take care of your shareholders. So I think it’s, it’s that chain of  values protection that brings the other constituents ,in addition to the stakeholders, in the picture for businesses to run. 

Beth: [00:27:57] And on that point as well, think about the, the power of employees now. , Everybody always talks about all our talent is our greatest asset, and so on. But , it is now amplified so much because those employees feel empowered in a way that they never did before.

Whether it is staging a walkout, because we just gave a severance package of $80 million to somebody who, you know, we think was a serial harasser or whether in  the case of Wayfair. So interesting that, you know, there was a person in there, do you know, who did their procurement, some, you know, fell in procurement who got a request from, Homeland Security to supply goods and so on, to detention centers, immigration detention centers.

In the past one, couldn’t even. Imagine that, first of all, that word of that would have seeped around enough within the company, but second of all, that they would have organized a walkout.

Joe: [00:29:00] Right.  That’s one way to make an impact. That’s for sure. 

Raza: [00:29:03] Beth, on the, startup and new company creation side, we’ve seen a rise, or I’ve seen a rise of the trend where  companies are incorporating as benefits. Corporations are B Corp’s of explicitly stating that there, is a mission oriented and a profit oriented venture. And you know, that, continues to be, another trend where, companies want to do, the mission as well as the, profits. 

Beth: [00:29:31] And on that, on that score, I thought it was brilliant. 

. About two days after the business round table came out with their statement, and I remember I was reading the wall street journal hard copy. I see a full page ad from the BRT.

I nearly fell off my chair when I was reading it, and then two days later in the New York times, there was a full page ad of a number of different CEOs of B Corp’s that said. Come join our club. Wow. And I said, that’s brilliant. That was very smart. 

Joe: [00:30:03] So what is the advantage of the B Corp? What is the motivation  for referring to yourself as a B Corp?

Beth: [00:30:09] Well, I think, and you know, it imposes a lot more responsibility on the company and there’s like certifications that you have to go through and they’re quite rigorous. In order to continue to be a B Corp, but the advantage obviously is,  as more and more employees and customers and clients become mission-driven, it signals to the market very clearly we are a mission driven organization. We are going to practice what we preach and we are going to put our good name behind it and our incorporation behind that. 

Joe: [00:30:44] You know,  when you do that, it means that people can hold your feet to the fire. 

Beth: [00:30:47] Exactly, exactly.

Raza: [00:30:49] A nother trend or possibility that I’ve seen is something called the longterm stock exchange. And the idea is floated by, Eric Reis of the lean startup fame, to say that, I think somebody mentioned that now your typical shareholder is.

You’re a shareholder for only like 10 seconds or something like that because of algorithmic and high frequency trading. And that just misaligns the incentives. Your shareholders are not really your shareholders. they’re just gaining from the volatility and movements. and there, there’s these, initiatives where they are trying to align, things towards the longterm and to align it with the stakeholders and shareholders.

Have you seen anything about that? 

Beth: [00:31:34] Well, I think another venue in which you see that are the increasing number of companies that are adopting proxy access, you know, for their directors, nominations for their directors on their proxies. And those are limited solely to those shareholders who have to, you know, hold a certain amount of stock.

It can’t just be one chair. but they have to have had it for a certain longevity. Okay. And so you see more benefits being offered to longterm shareholders that are not available to short term traders. 

Joe: [00:32:12] Has anyone challenged that?

Beth: [00:32:14] Oh yeah. on the proxy axis, what happened was the SEC came out with regulation, a number, maybe it was four or five years ago, saying that we are going to mandate proxy access for shareholders who, are above a certain level and have held for a certain amount of time that went to the courts and that was invalidated.

And so now there’s a whole movement of shareholders who are asking that companies, I wouldn’t say voluntarily adopted, but put it on our ballots so that the shareholders can vote for it, or they’re just adopting it on their own. So, so even though that particular regulation is not on the books now, you see more and more companies simply adopting it on their own.

Joe: [00:33:04] I could see how it really would add to the long-term value of a company because if you’re owning a share for 10 seconds or less, I mean, you’re not really an owner. It’s just a, it’s a,

Beth: [00:33:16] …different relationship to the company. 

Joe: [00:33:18] You have a completely yeah, you have a completely different relationship. You don’t care about the long-term growth. 

Raza: [00:33:24] To me it sounds like almost a society’s going to soul search and , ultimately come to the conclusion that the only way to assure. shareholder value is by looking at other things as well.

Beth: [00:33:40] That’s Right.

Raza: [00:33:41] In the longterm. So,  hopefully that trickle backs to, legal jurisprudence, cases, other things that happen that will make it a regular part of the business landscape.

Beth: [00:33:53] I think the, the question that  the lawyers, at least are grappling with is in the wake of the Business Roundtable revised statement of purpose. How is that going to actually impact when you decide to sell the company, when you have one of those strategic transformations? 

Are the Delaware courts going to stick in the future with shareholder is king. The only duty you have is for maximization of shareholder value and you know for that transaction, or will there be some companies that said, you know what, we’re going to take a, perhaps a lower price. But with a different company, a suitor that we think really is going to be a better fit for our employees.

And that really is the driver for us. And how much of that, outside of immediate shareholder impact, are the Delaware courts going to allow in the future in the wake of that statement? 

Joe: [00:34:53] Maybe it just leads to a broader view of what it means to maximize shareholder value. 

Beth: [00:35:00] Yes, 


Joe: [00:35:01] It’s not as narrow as maybe right now the Delaware courts are saying.

Beth: [00:35:05] Right  the price right now, but rather that longterm, especially in a merger where shareholders, they just change stock in one company for the new company and so they, continue to have that interest in the company and shouldn’t they be wanting that there is that longer term view of, you know, it’s not just the money that we’re getting today for our shares.

It is that longterm, return that we get on our shares. 

Joe: [00:35:33] Exactly.

Beth, it’s been great speaking with you. Thanks for joining us today. 

Beth: [00:35:37] I am delighted to have been here. Thanks so much for having this podcast. It really is a great service. 


Joe: [00:35:44] And thank you all for listening to On Boards with our guest, Beth Boland. Take care Raza 

Raza: [00:35:50] You too, Joe 

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