Month: October 2020

14. Diane Hessan on what makes an effective board member and an effective board

Diane Hessan is successful entrepreneur, CEO, author and has been highly recognized for the broad range of impactful work she has done.  And she has served on virtually every type of company board and seen the work of the board from many perspectives.  In the fascinating conversation, she shares her insight and opinion on the experience of running and serving on a board.

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Links

https://salientventures.co/

www.cspace.com

https://muckrack.com/diane-hessan

Quotes

First Board Experience

My first board experience was very hands on.  It was a real passion project because we all were completely dedicated to the mission.  I started by spending way too much time on operating issues and eventually sat back and became more strategic.

I thought it would be great for my family and my job and my learning, to broaden my horizons and to learn how to do some other things. I had a conversation with a friend of mine who was on a whole bunch of boards, and I just said to him, I feel like I want to do something bigger. I feel like I want to give back and not focus on myself so much and yeah, he said, what are you passionate about? I said, I’m passionate about kids. I’m passionate about antiviolence, I’m passionate about homelessness.

He was just like “Diane. I have a great organization for you and they really need marketing help” because that was why people wanted me on their boards at the time. It really was a great fit and I basically got it by talking to somebody who had already been there.

There were times when I would say something and I learned to say, “is this a board issue or is this not a board issue?” I mean, I was just very explicit about it. 

Changes in the Boardroom because of Covid

Every organization that I’m on the board of no matter whether they’re for profit, nonprofit, et cetera, have had talks about the impact of COVID on how their employees are working, how they’re building culture, how they’re recruiting, retaining, onboarding, what the impact is on people working from home, when they should open up again, whether they should give their employees free stuff to be able to be more effective at home, how they handle the huge challenges of employees who are parents and how to make everyone feel fairly treated there.

(Companies are) Looking for shifts in customer behavior and customer requirements is also a really interesting topic.  Most of these companies have new go to market strategies, new strategic partnerships, interesting new acquisitions, and I think in general, new ways of actually reaching out into the marketplace and building strategy around that.

And for me it’s meant much more time on my boards of just doing my homework and reaching out and try to see what other companies are doing and just generally getting educated so that I can be as helpful as possible. 

What makes an effective board meeting?

I think the great board meetings are when the CEO says, “here’s your deck or here’s three pages about what’s happening in the business. I have three issues that are keeping me awake at night, and I really want your help on them. Here they are. A, B and C.  Please come prepared to help.”  Spending a board meeting with four hours of PowerPoint is the worst most boring thing in the world.  And it really doesn’t help.

Big Ideas/Thoughts

Learned about being a Board member from being a CEO

Number one, when your business is going well, you want your board to just ask questions and beat you up and challenge all of your assumptions.  You’re energized.  You’re doing well.  You want a board that gives you watch outs and says, well, what about this? And could we grow this faster?

When a business is not going well, you don’t really, as a CEO, want to get beat up. So, when things weren’t good, I really appreciated board members that were supportive, that helped me look on the bright side that shared with me information about how other companies were also struggling.  So, when things are good, you want to tough board when things are bad, you want a board that walks in your shoes and also knows how to be supportive.

I learned how sometimes asking questions is more valuable than giving advice to the CEO.

One of the things that I learned from being a CEO, but also from being a board member.  Guess what: the board meeting is not just about the CEO making the board happy. The board meeting is also about making the board members feel that they’re contributing.

One of the things that I’ve done in one of my boards…. We’re going to talk about this for the next hour and a half.  I’m going to leave the last half hour of this conversation to just go around. I’m going to give each one of you a chance to just do two to three minutes more of final thoughts on this issue….Sometimes you’re in a big room, you got a lot of people talking. You feel like you can’t get a word in edgewise. I know I feel that sometimes and if you’re an introvert, and some of my best board members have been introverts, they just give up, they just don’t want to interrupt and jump in and say, I have something.

So if people know that they’ll have their say at the end, because you’re going to go around the room and give everyone a chance to talk, you sometimes get extraordinary advice from people who otherwise just would have given up on participating… and after a while you get really good at packing your 120 seconds with everything you wanted to know. 

We all as board members want to feel that we’re adding value and we can’t do that unless the board process works really, really well

On the broad range of company boards

I wanted to broaden the industries in which I work and it is particularly fun as a board member to just dive into an industry where you’ve never really looked at financials before.  You’ve never really thought about how they make any money.  And you have to learn an entirely new language. It’s just a great stretch experience

Term Limits

I don’t love term limits, but I love bringing fresh faces onto a board.  In some industries that’s more valuable than others. If you’re in an industry, banking is an example, sometimes business knowledge, knowledge of the industry and knowledge of the company and its functions has an outsized impact on your ability to be successful on the board. And year after year, the more you learn, the more valuable you become.  You get to the point where you have somebody that’s been on the board for 10 or 15 years and they are outrageously valuable. They have the history, they still are full of impact, et cetera, and it’s hard to say goodbye to those people.  But every time you bring on a new, extraordinary board member it changes the conversation. It opens up the possibilities. It brings in all kinds of perspectives that you thought you never had before, and I think that’s really valuable. Especially now that the world’s changing so fast. As the world changes, the skills that we need and the perspectives that we need are also changing. 

Boston as a collaborative investment community

Boston is an extremely collaborative community, so that whereas other ecosystems like San Francisco or New York have a reputation for being competitive – you know:  My fundraising is bigger than yours. My product is better than yours. My app is cooler than yours. My black turtleneck is blacker than yours, – in Boston I really believe that the biggest question that you get asked when you’re trying to build a company is “what I can I do to help you?”

Transcript

Joe: [00:00:00] [00:00:00]Hello and welcome to On Boards: a Deep Look at Driving Business Success. Hi, I’m Joe Ayoub and I’m here with my cohost Raza Shaikh. On Boards is about boards of directors and advisors and all aspects of board governance. Twice a month, 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: [00:00:33] Joe and I speak with a wide range of guests and talk about what makes great boards great, or make a board unsuccessful, what it takes to be a valuable member and how to make your board one of the most valuable assets of your company.

Joe: [00:00:50] Our guest today is Diane Hessan. She is a successful entrepreneur, CEO, researcher, and author.  She is the founder and [00:01:00] chairperson of C Space, formerly Community Space, which was the first company to leverage social media to help companies get insight and inspiration from their customers , where she was CEO for 14 years and as Chairperson remains an advisor to the company and its clients.  Diane serves on a number of boards over a range of industries, including private company, public company, and nonprofit boards.  She has co-authored the book Consumer Centered Growth- Five Strategies for Building Competitive Advantage, a business week bestseller that is published in 11 languages, and she has keynoted over 50 events in the past five years, focusing on leadership, entrepreneurship, women’s issues and customer centricity.

Raza: [00:01:55] In addition, over the last four years, Diane has been engaged in an [00:02:00] longitudinal study of the American voter. She has personally interviewed nearly a thousand voters from all States ages and ends of political spectrum and has been online with them weekly and she looks for trends, shifts, and common ground.  She has written over 50 op-eds about her findings for the Boston Globe and has shared her perspective on many national and local television shows.

Joe: [00:02:29] Welcome Diane. It’s great to have you as a guest on On Boards.

Diane: [00:02:34] It’s great to be here. Thank you for having me.

 Raza: [00:02:37] Diane. Your board work is extensive. What are some of the boards on which you’re currently serving?

 Diane: [00:02:44] Right now I’m on eight boards. Four of them are nonprofit boards and the other four are for-profit boards. Of those for-profit boards, one of them is a public company, one of them is [00:03:00] about to become a public company.  One of them used to be a public company and we took it private and the other was a private firm acquired by a private equity firm. So we’ve got the whole range there, all kinds of drama.

Joe: [00:03:12] Wow, that does cover a lot of ground.

Raza: [00:03:14] Your for-profit board work reflects a wide variety then in terms of industries, sectors, as we know, and company size, how did that come about?

Diane: [00:03:24] The first for-profit board I was ever on other than my own, was way back.  I was brought onto the board of Crabtree and Evelyn, which most women anyway who are listening to this know is a chain of stores that sell soaps and lotions and creams and all of those good things that we all buy because we think we’re going to have time to use them and it was an extraordinary experience.  The CEO of the company, was a business school classmate of mine and I went on and in that process [00:04:00] really learned a lot about how to be a good board member.  I started by spending way too much time on operating issues and eventually sat back and became more strategic, et cetera. It was really a lot of fun to do that. 

My second board was a similar situation – a former colleague of mine who had built Panera.  And I moved from working on beauty products to working on sandwiches, soups, salads, and all kinds of wonderful, good-for-you stuff and I was on the board of Panera for five years while we were a public company. We took that private.

Those were kind of in my wheelhouse, because as someone who has spent a lot of time thinking about working with consumers, those were two really consumer-oriented businesses. Then as things expanded, I wanted to broaden the industries in which I work and were as particularly fun as a board member to just dive into an industry where you’ve [00:05:00] never really looked at financials before.  You’ve never really thought about how they make any money.  And you have to learn an entire new, an entirely new language. It’s just a great stretch experience.  So that’s when I added a bank, Eastern Bank and a tech company, Brightcove, et cetera.

Joe: [00:05:15] On the first board did someone take you under their wing? Was the CEO helpful? Were other board members helpful? , Were there people that really helped you kind of learn  what you needed to know in order to really be an effective board member?

 Diane: [00:05:29] There were times when I would say something and I learned to say, is this a board issue or is this not a board issue? I mean, I was just very explicit about it.  As a woman, you can’t hang out in the women’s room most of the time with all the other girls and say, well, “how do you think it’s going” very often? You’re there by yourself. So, you have to figure out other “ways to just learn how to make things happen.

I will say that the number one learning experience I had for how to create a great board was when I was a CEO, because then I [00:06:00] had my own board and I had some absolutely extraordinary board members who made a major contribution to the success of the company and through the experience of seeing what worked and what didn’t work with my own board, how to leverage them, what kinds of comments were helpful and what wasn’t helpful. It’s just much easier to be on the other side of the desk later on.

Joe: [00:06:24] How long after your initial board experiences, did you become CEO and have your own board? How much time was between those events?

Diane: [00:06:34] Yeah, the only boards I was on before I became a CEO was I was on that Crabtree and Evalyn board and then I was on one nonprofit board Horizons for Homeless Children, which is a well-known local nonprofit in Boston and all of the others were either while I was a CEO or afterwards.

Joe: [00:06:54] So let me ask you about that very first board experience, Horizon for Homeless Children. [00:07:00] It’s always interesting to me what someone’s very first board experience was like, talk a little bit about what that was like your very first board?

Diane: [00:07:09] Horizons was very interesting because we were a startup.  While I was on that board, we changed our name. We changed our product market fit.  We added some new business lines, et cetera.  We were an organization that was pretty much devoted to building, play spaces within homeless shelter, to actually, help so that, if a mom cause a lot of these people with homeless children are single moms, when they were out looking for housing or trying to get them a job or something like that, we had a playspace, staffed with volunteers so that we could play with the kids and hang out with them while the moms were doing the important stuff and figuring out how to make their lives move forward. We ended up building childcare centers and we ended up changing our name from the Horizons Initiative to Horizons for Homeless Children and we changed our go to market strategy [00:08:00] because the ways that we were raising money and the people who we were reaching out to actually changed.

So my first board experience was very hands on. It was a real passion project because we all were completely dedicated to this.  It was in a business where it was pretty easy to see the impact that we were having, but it was a board filled with a lot of, at the time, pretty young, pretty successful professionals who were excited about literally creating a brand new organization that was going to make a major dent in the universe.

It was a fun experience for me because very few of us had been on a lot of boards before, and we all grew up with each other. I was on that board for 25 years.

Joe: [00:08:47] Wow.

Diane: [00:08:47] And, you know, we all got to the point where we felt so proud of what we had built, but on that board, it was way more hands on way more time consuming and just way, way more [00:09:00] involving because of the fact that it was a brand new organization.  As we got bigger, we had staff and the staff started doing a lot of the work.

Joe: [00:09:07] That is typical of smaller nonprofits but I got to say what a great mission and first board experience .

Diane: [00:09:15] It really was, Joe.  It’s funny.  I always felt that I don’t want to, I have to figure out how to say this the right way, but I always wanted to have a big life.  I didn’t want to just like have a job and have my family and, you know, do that.  Not, it’s not that my job and it’s not that my family is not the most important thing to me. It’s not that I wasn’t really, really engaged with my job, but I felt that those two things had me very, very focused on a very narrow slice of the world and I thought it would be great for my family and my job and my learning, to broaden my horizons and to learn how to do some other things.

I had a conversation with a friend of mine who was on a whole bunch of boards, and I just said to him, I feel like I [00:10:00] want to do something bigger. I feel like I want to give back and not focus on myself so much and yeah, he said, what are you passionate about? I said, I’m passionate about kids. I’m passionate about antiviolence, I’m passionate about homelessness.

He was just like “Diane. I have a great organization for you and they really need marketing help” because you know, that was why people wanted me on their boards at the time. So I, it really was a great fit and I basically got it by talking to somebody who had already been there.

Yeah. Sounds perfect.

Raza: [00:10:30] Diane, coming back to present day, we are in the middle of the global pandemic.  Have any of your board meetings been in person and how was that?

Diane: [00:10:43] Of all of my boards, over the six months, I have had one in-person board meeting –  and it was weird.  It was Eastern bank, which is a very successful bank that has a reputation [00:11:00] for, doing a lot of work when it comes to social justice, diversity inclusion, et cetera. And then the middle of everything going on with George Floyd and really kind of opening everyone’s eyes to what’s happening with systemic racism, we decided as a board that we needed to get together and get educated about it and that it wasn’t a Zoom meeting.  We all got together in a very large room, all 12 of us, you know, with our masks sitting far apart, which is what felt weird because we know each other so well, and we’re used to kind of coming together and hunkering down.

Joe: [00:11:35] Sure.

Diane: [00:11:36] but we did that because we thought that being in more intimate environment and actually literally being able to see the whites of oureyes with something important to do. We fortunately were far enough apart from each other, that we felt comfortable kind of taking our masks off so that we could see our faces, but it did remind me that the benefit of being on zoom in these times, as opposed to being in a room [00:12:00] together is you don’t have to wear a mask on zoom.  You can actually see each other, but otherwise it’s been pretty far apart and they’ve been fine.

Joe: [00:12:08] Was the board meeting, was it effective? Did it help to be in the room together?

Diane: [00:12:13] It did help to be in the room together for that kind of conversation.  In general, I think there are pluses and minuses to everything I’ve found that for most of my boards, doing everything remotely has actually been fine.  For some people, I mean, look, you don’t have to get on an airplane and fly to your meeting. You can take longer for the meeting because people aren’t rushing out to go home.  What I miss the most, like on my Brightcove board, where we’re just really having a great time right now and of course, Brightcove is a video cloud platform so our business has been very exciting and growing. What we really miss are our board dinners.

We miss sitting around [00:13:00] with Jeff Ray, the CEO and drinking wine and talking about not just on the business, but what’s going on in our lives. And so I think with you and fine remotely. What we miss is the bonding that can lead to so many other thing is when you build a machine as a board and, you know, we miss those dinners.

Joe: [00:13:23] Yeah, I couldn’t agree more. I think the socialization of the board, I really miss that and it isn’t, it’s not essential, but I think it becomes really important over time for a board to come together.  It’s like any kind of team, the more you know each other and have a chance to understand each other, I just think it makes a stronger team and I really missed that.  I think that is a critical component

Raza: [00:13:49] I noticed is that existing relationships have carried into virtual and video format, I would say reasonably well with all the [00:14:00] limitations, but newer relationships are much harder if you had never met a both in hiring and investing and maybe if you imagine adding a board member these days, it would at least be different than what the prior experience had been.

Diane: [00:14:20] Absolutely Raza.  In fact, on Brightcove, I’m head of nom-gov, we just added it two new board members and we brought them on and, you know, they came to our first remote meeting the other day and I realized that I spent so much time with these people and I don’t know if they’re tall or short. 

Joe: [00:14:37] Yeah, right !

Diane: [00:14:38] The idea that I spent so much time recruiting new board members, and we’ve all interviewed these people and  now we’re training them and we’re helping them understand how the board works and we’ve never even shaken hands is just, as you say, it’s just very strange

Joe: [00:14:53] Well, at least you know for a fact there’s no height discrimination.

[00:15:00] Diane: [00:15:03] Exactly! One of them, her name is Tsedal Neely, and she’s a Harvard Business School professor and I literally had said to her at some point we just need to, I live in Boston also. So we thought, well, you know, if we each walk two and a half, three miles, We can kind of meet halfway along the Charles River and at least wave to each other.

Joe: [00:15:21] Have you done that yet?

Diane: [00:15:22] We have not done that yet. You just reminded me.

Joe: [00:15:25] What are some of the differences in the type of conversations you’ve been having in the board room?

 Diane: [00:15:30] Every organization that I’m on the board of no matter whether they’re for profit, nonprofit, et cetera, had talks about the impact of COVID on how their employees are working, how they’re building culture, how they’re recruiting, retaining, onboarding , they’re letting people go et cetera, what the impact is of people working from home when they should open up again, whether they should give their employees free stuff, to be able to be more effective [00:16:00] at home, how they handle the huge challenges of employees who are parents and how to make everyone feel fairly treated there.

I mean, there’s just a whole set of conversations there around culture and human resources issues. There are a lot of conversations about what’s happening with the customer, which is of course my favorite thing to talk about, but customers and their needs and priorities and what they want to talk about and what they hear want to hear from brands has completely changed.

Looking for shifts in customer behavior and customer requirements is a really interesting topic.  Most of these companies  have new go to market strategies, new strategic partnerships, new interesting acquisitions and I think in general, new ways of actually reaching out into the marketplace and building [00:17:00] strategy around that. So, you know, you could just go on and on. And, of course, for companies that are challenged, we’re looking at how do we reengineer things? How do we cut some costs or how do we reallocate costs? It’s a huge change all at once and that makes it really really interesting in the boardroom. And for me it’s meant much much more time on my boards of just doing my homework and reaching out and try to see what other companies are doing and just generally getting educated so that I can be as helpful as possible.

Joe: [00:17:31] Yeah. You know, not surprising and actually something we’ve heard a lot, more time because whether your company is doing well or not so well, it’s still, it’s different. And that difference requires more time and attention from the board.

So let’s go back to something you said before, which is how valuable it was to you to be a CEO and have your own board.  When you, then, you know, we’re sitting on a board, it had given you a really different perspective. Tell us a little bit [00:18:00] about what you learned, how did it help make you a better board member?

Diane: [00:18:03] Yeah. well, I guess there were a few things. Number one, when your business is going well, you want your board to just ask questions and beat you up and challenge all of your assumptions.  You’re energized.  You’re doing well.  You want a board that gives you watch outs and says, well, what about this? And could we grow this faster? And here’s how it, you know, you want advice on focus, et cetera.

When a business is not going well, you don’t really, as a CEO, want to get beat up.  At Communispace, we had three years of hell followed by 10 years of exponential growth. During that three years, there was nothing my board was going to tell me in terms of bad news that I not only didn’t already know, but I had just lost hours and hours of sleep over.  So when things weren’t good, I really [00:19:00] appreciated board members that were supportive, that helped me look on the bright side that shared with me information about how other companies were also struggling.

You know, that, helped me get new customers that thought about helping me, you know, fill in places in my leadership team where I really needed help, et cetera. So when things are good, you want to tough board when things are bad, you want a board that walks in your shoes and also knows how to be supportive.

I learned a lot about how sometimes asking questions is more valuable than giving advice, right question at the right time has you leaving with a whole new set of issues, I learned that PowerPoints are like spending a board meeting with four hours of PowerPoint is the worst most boring thing in the world.

And it really doesn’t help, you know, I don’t know, raising your hands. Yeah. I mean, I will tell you that I, [00:20:00] you know, I do. I think I speak for most board members. I do my homework. I get the board deck. I have a board meeting tomorrow at two o’clock. I will have read and digested that deck in full by 1:55 PM.

I do not need anyone in that organization to come in and read me that deck, review the deck, let me know what I ought to look at in the deck because I’m there. 

So I think the great board meetings are when the CEO, and I did learn to do this, when the CEO says, here’s your deck or here’s three pages about what’s happening in the business. I have three issues that are keeping me awake at night, and I really really want your help on them. Here they are. A, B and C.  Please come prepared to help. You know, when, when we’re here, I will lay out a little bit more about what’s going on with those three issues and then let’s really talk and I want you to be as candid as possible.

[00:21:00] Those were the meetings that were helpful to me. So as a board member, whenever I’m sitting in PowerPoint hell, I do after the meeting, pull the CEO aside and say, I have an idea for how you might be able to get more out of this meeting.

Joe: [00:21:13] Oh my God.  I could not agree with you more. When I give boards advice or when I’m working with a CEO, the number one thing is: don’t make it all presentation, and assume that board members have done their homework and then focus on the things that matter exactly what you just said.  I can’t think of anything more boring than sitting in a meeting, looking at a PowerPoint that you’ve already spent the time looking at and thinking about when you could be, hopefully, adding something to, you know, what the conversation should be.

Diane: [00:21:48] Yeah.. You know, this seems so obvious, but it’s not like people will say our board meetings are really interactive. I, we, after every parentheses, big, long, boring PowerPoint [00:22:00] presentation, we have 15 minutes of Q and A, but I’m not talking about Q and A  I’m talking about our real in depth conversation where, you know, everybody is digging deeply into an issue. One of the things that I’ve done in one of my boards, in fact, I’ve actually done this with, board committees also is if you have a large group, the other thing that’s worth doing when you have a lot of people in the room is to just signal something and say, look, we’re going to talk about this, right?

I’m going to make this up. We’re going to talk about this for the next hour and a half. However, we’ve got a dozen of us in this room. I’m going to leave the last half hour of this conversation to just do around. We’re going to go around the room. I’m going to give each one of you a chance to just do two to three minutes more of just final thoughts on this issue

Joe: [00:22:54] I love that.

Diane: [00:22:55] And one of the reasons it’s great. If you know, sometimes you’re in a big room, you got a lot of people talking. You [00:23:00] feel like you can’t get a word in edgewise. I know I feel that sometimes and if you’re an introvert and some of my best board members have been introverts. They just give up, like they just don’t want to interrupt and jump in and say, I have something. So if people know that they’ll have their say at the end, because you’re going to go around the room and give everyone a chance to talk, you sometimes get extraordinary advice from people who otherwise just would have given up on participant.

Raza: [00:23:27] I think that’s a great technique.

Joe: [00:23:29] I love that technique. I think that is absolutely brilliant, I really do.

Diane: [00:23:33] It’s so great.  And you know, I love being a board member in a meeting like that because I’m not like I’m not taking up the air time. I’m kind of taking notes. I’m listening to what everybody else is saying and after a while you get really good at packing your 120 seconds with everything you wanted to know. So you get, you get two minutes and I say, okay, I have two minutes. Okay. Have three things to say A, B, [00:24:00] and C, and you just go for it. So it makes the board members sharper and more articulate over time. Also, if you build it as a habit.

Joe: [00:24:06] Well, I,  think  I understand yet another reason why you’re on eight boards,

Diane: [00:24:12] Right, I’ve done everything wrong.

Joe: [00:24:14] Right. But your experiences. You’ve learned from your experience and where you’ve come out is a place where you add so much value because of the perspective you’re bringing. I think it’s terrific.

Diane: [00:24:28] Here’s one of the things that I learned from being a CEO, but also from being a board member.  Guess what: the board meeting is not just about the CEO making the board happy. The board meeting is also about making the board members feel that they’re contributing.

I mean, I don’t know anybody who’s on a board that doesn’t say to themselves. I wonder if I’m adding value. I wonder if I’m adding enough value. I’m I wonder if I’m making a difference. [00:25:00] We all want to do that, and we can’t do that with PowerPoints and a bunch of Q and A, and in situations I’ve experienced that I find myself, like this afternoon, right after this podcast, I’m getting on the phone with the CEO of one of my boards, cause I have some additional thoughts and I just couldn’t get a word in edge wise. The last time it’s a board meeting and we’re going to have a seperate conversation about it. Cause I’ve got strong feelings about a particular issue and I just, you know, didn’t have the time in the meeting.

So we all, as board members want to feel that we’re adding value and we can’t do that unless the board process works really, really well.

Joe: [00:25:42] Absolutely right.  But that does kind of lead me to a different thing that we’ve talked about before and that is, onboarding and maybe more importantly off-boarding. So what you said is true for every good board member, you’re thinking about, am I adding enough value? [00:26:00] Have I been on the board too long? Is my voice no longer heard, whatever that may be? That’s what board members, good board members should be thinking, you know, am I really adding value here, but not, everyone’s a good board member.

So I’m curious about your experience, either as a board member or when you were a CEO, about how you have approached, or how you’ve seen others approach, off-boarding those members who either are no longer valuable, maybe they never really were, but should not be on the board anymore because, Raza and I have had this conversation a number of times, it seems to be one of the most challenging things, even for the best CEOs and the best board chairs and the best nom gov chairs. It’s an area that isn’t always handled as well as maybe it should be.

Diane: [00:26:47] Yeah. Well look, there are formal and informal ways to do it.  I mean the formal ways to do it are just to have term limits and say, everybody gets to be on for five years or 10 years, [00:27:00] or everybody’s got to get off when they’re age 72 or, you know, so term limits and age limits and there are ways to do that.

The problem with those to me is for the great board members, they get to age 72 and you say, Oh my gosh, up the age limit to 75, because there’s no way I want to lose Raza. Absolutely. Or you say, we need to change the term limit. You know, let’s do two terms of five years each because this person’s amazing.

I’m not sure that the formal ones really do the trick. When you have a board member that’s not working, it’s either the responsibility of the CEO or the chairman of the board slash lead director or the head of nom gov to at some point , on an annual basis, take a look at the board and how it’s working, get feedback from the board on whether they, I mean, you can pretty much tell quickly if you’re doing annual assessment, how things are working and whether everyone’s contributing.

I just did that with one of my boards where as head of [00:28:00] nom got, I went out and I interviewed each person on the board for 45 minutes just saying, how’s it going? Well, how are the meetings. What do you think? Do you feel like you’re making a difference? If you had to pick one thing to do differently, And I had a whole questionnaire put together that I’d be happy to share with you.

Sometimes issues arise, where there’s just someone who is not carrying their weight or who’s being super domineering or obstructing, or who’s just not adding a lot of value. And I think the sooner that you flag that for the person the better and the way to flag it is just the way I did it when I was a CEO. I mean, you sit down with a person and you say, Joe, how’s it going? Because you seem really unhappy. Or I’m just wondering, you know, you don’t seem as engaged as you used to be what’s going on.  So you’ve just got to call it and you’ve got to [00:29:00] tell the person ASAP that it’s not working, not when you’re ready for them to leave.

Just, you know what I mean? When you fire an employee, the easiest way to fire an employee is to say, Raza. I know this is not going to surprise you but we’re done.

Joe: [00:29:14] Yup.

Diane: [00:29:14] And you can’t say that first part of the sentence, unless you’ve had conversations with that individual before.  If they don’t shift, you say, Joe, this is not going to surprise you but we need to think about you’re moving on within the next year. And it’s not always easy.

Joe: [00:29:30] Yeah, I know. I totally agree.  So what happens with board members who, don’t hear the message?

 Diane: [00:29:36] I will tell you that, I’ve had, that actually happen twice and, it just, it takes a really, really long time to figure it out.  But the problem is not that they don’t hear the message. The problem is there are people who hear the message and quote, refuse to leave. And, you know, if [00:30:00] someone is experienced enough and, and seasoned enough and respected enough that you brought them onto the board in the first place, you don’t want to ruin your reputation with that person. You don’t want to be disrespectful to them, but it’s a conversation of: we’ve been talking about it and based on the following three things, we think at some point within the next six months, we ought to replace you with somebody who has this kind of expertise and you try not to make it personal.

You say, you know, we need to have, we need to bring somebody onto the board. There there’s universal feeling that we don’t want to add to the size of the board. We want to bring somebody on with this level of expertise and we have overlap here and, you know, or whatever the situation is. But sometimes you go back to the person and say, look, with one of these people, the problem was that they were dominating the conversation, ordering management around, interfering in things that they had no business interfering.

And we talked to the person, he didn’t change. So we finally basically [00:31:00] said we’re done. And he resisted for a really long time. It’s about saving face. You just don’t want to participate if you feel like you’re not making a difference and he left, but the board had PTSD as a result of it. I mean, the next time we brought somebody on every person had to interview that person and we did a very, very extensive background check, et cetera.

Joe: [00:31:21] Well, that makes sense. Do you like the idea of term limits as a general rule? 

Diane: [00:31:27] I don’t love term limits, but I love bringing fresh faces onto a board.  In some industries that’s more valuable than others. If you’re in an industry in which, and, and for me, I think banking is an example. you know, sometimes business knowledge, knowledge of the industry and knowledge of the company and its functions it has an outsized impact on your ability to be successful on the board. And year after year, the [00:32:00] more you learn, the more valuable you become.  So you get to the point where you have somebody that’s been on the board for 10 or 15 years and they are outrageously valuable. They have the history, they still are full of impact, et cetera, but it, you know, and it’s hard to say goodbye to those people, but I think, you know, every time you bring on a new, extraordinary board member it changes the conversation. It opens up the possibilities. It brings in all kinds of perspectives that you thought you never had before and I think that’s really, really valuable.

Joe: [00:32:35] Yeah, it makes sense. I agree.

Diane: [00:32:37] Especially now the world’s changing so fast, right?  I mean, I grew up in marketing. I’ve been in marketing, you know, I’ve basically been marketing companies since 1976.  I will tell you there’s almost nothing that I did to become successful in marketing that’s absolutely critical today.  I mean, understanding your customers still critical, understanding how to [00:33:00] build a brand still critical, but lead gen and demand gen and managing the funnel and content market and search engine optimization all of the things that are really, really critical for a lot of companies, especially in tech now, yeah, I didn’t know any of that. So I just think the world’s changing, therefore the skills that we need and the perspectives that we need are also changing. 

Raza: [00:33:22] I want to switch the conversation a little bit. You’ve been part of the Boston and New England ecosystem for a pretty long time. How do you see business innovation, venture money raised, the attractiveness for talent and competitiveness of this region with respect to others in the country?

Diane: [00:33:40] Yeah. Okay. I’m going to be totally unobjective here. You know what, I’m just like, I love Boston. I love Boston because it’s filled, there are zillions of people in this city who are more brilliant than I am, who are working on, you know, what we’re proud of here is that we [00:34:00] work on really, really hard problems. I mean, if I gave you a list of the 30 fastest growing companies in Boston, you would probably understand no more than half of them. I mean, so many of them are working on things that no one really understands and so we’re trying to solve very important problems and I think that’s really great.

It’s also an extremely collaborative community, so that, whereas others, other ecosystems like San Francisco or New York have a reputation for being competitive. You know, my fundraising is bigger than yours. My product is better than yours. My app is cooler than yours. My black turtleneck is blacker than yours, you know, or whatever, you know, in Boston. I really believe that the biggest question that you get asked when you’re trying to build a company is what I do to help you?

And I think that feeling that our success is a collective undertaking is really, really helpful, especially [00:35:00] when things are not going well. So I’m a big fan of building a company here.

Raza: [00:35:04] I landed in Boston and I’m kind of a testament to that story. I’ve always been very welcomed and everybody has been extremely helpful to me as an immigrant, a founder of companies and then investor in companies. So I absolutely it’s, I think it’s one of the most wonderful places where you can be.

Where do you now see heading looking to the future? You know, the relative position of Boston, are you optimistic or are you thinking that there are things that Boston area still needs to work on?

Diane: [00:35:41] Oh, I’m sure there are always things we need to work on.  Look, we have certain areas that we’re very strong in. I mean, we are very strong in biotech, for all the obvious reasons we have, you know, we’re the center of healthcare, the universe, if you’re anywhere in the world and you are really really sick, there’s a chance that you’ll end up in Boston, [00:36:00] so biotech is big, as is anything related to healthcare. IT, tele-health or any industries like that. So there are areas where just by nature of the fact that our biggest industry, I can’t remember how this works out. I know our two top industries are education and healthcare. So anything related to entrepreneurship in those areas, we’re going to be extremely strong.

I think the fact that we’ve always been known as working on hard problems has us way stronger in B2B, so B2B enterprise software, B2B, artificial intelligence, et cetera. Those are going to be stronger for us than I’m building a consumer app and I’m going to you know, sell it to Apple and flip it and you know, I’ll be rich. Those happen in Boston, but it’s not, we’re not the center of the universe for consumer tech,

Raza: [00:36:55] We’re more on the, you know, here’s the really tough additive [00:37:00] manufacturing process with Desktop Metal or other things that really, really require a fundamental innovation.

Diane: [00:37:08] Absolutely. And you know, yet we’re also at critical mass.  So I know people building, you know, fashion businesses here.  I know there’s a, there’s a great food innovation cluster in Boston.  I mean, there are those basic businesses and you know, we’re big enough now we’re at critical mass.  So that even if you are building something that doesn’t necessarily sing Boston to you, you know, you can find a dozen other people who are really passionate about that and probably find some investors who will be willing to hear your story. And you know the last thing is our capital is here. So, we, you know, when Boston is also the capital of Massachusetts, it’s much easier for people who are trying to get funding from government or get some kind of collaboration from government or who are working on regulation because we have the city and the mayor, but we also have everybody who’s hanging out at the [00:38:00] state house trying to make Massachusetts number one in everything possible.

Raza: [00:38:04] And I would say since I have landed, I think there have been 11 parades and I think that that’s the best four teams as well.

Diane: [00:38:16] I know, I do think about that with young children. Like they never knew when we were bad at sports.

Joe: [00:38:23] My daughter has no idea what it’s like to have bad sports. None with Tom Brady left Boston she was lost because her whole sports experience is, you know, for the Patriots is Tom Brady is the quarterback. They have no idea how spoiled they have been.

Diane: [00:38:42] I know,

Joe: [00:38:42] I sound like an older generation saying that but it is so true.

Diane: [00:38:46] It is true. And yet now, you know, she’s going to be fine because we have Cam Newton and as far as I can tell, he’s a warrior. I mean, the guy is fantastic and people are so excited about, you know, having, having him on there. So we have been really [00:39:00] lucky.

Joe: [00:39:01] We have been really lucky.

Diane: [00:39:02] Yeah. 

Joe: [00:39:03] Let me ask you, we’ve talked a little bit about this. There’s been progress. Albeit, you know, relatively slow, for many years in diversifying boards with respect to gender and people of color.  From your perspective, how have recent events, including obviously the death of George Floyd, how has that impacted where we are with that now?

 Diane: [00:39:29] I have always thought the diversity is really important and it goes back to avery difficult experience I had three years into my CEO job.  I was trying to hire a new CEO. I found the person I wanted. It was a critical job. The guy who I wanted had a great background and I told him that he was the guy and I said what else can I tell you? He said, well, I just need to think about this a little. Can I get a tour of your company? And I remember people have heard this story before, but as I gave him a [00:40:00] tour of my company, I walked around realizing that I had a very white company and I found myself walking past the desks, taking him on a weird tour, past the desks of the people of color who worked for us, because as we were doing that, I thought, Oh my gosh, I don’t know if we’re going to look like the kind of company where he feels like he belongs. He didn’t take the job. He never told me that that was why, but the following day when he turned me down, I sat with my leadership team and I said, we are white and it is a competitive disadvantage for us because there are a whole bunch of people out there who are not white who will not want to come work here. This is the end of that chapter.

Joe: [00:40:45] One thing you said that I think really hits the mark is that people have increasingly begun to appreciate that failure to diversify, gender and color, hits the bottom line. [00:41:00] Okay. So whatever your perspective was before, whether you thought it was a moral issue, whether you thought it was the right thing to do, all of which is true. The fact is that it has gained momentum because companies are realizing that it really will affect the bottom line for many of the reasons that you’ve suggested and the other thing you said about, yeah, those people out there, the pipeline is there. So the comment that I had heard in the past. Well, you know, we really can’t find that person that is just not true and people know it’s not true.

Diane: [00:41:33] Yeah. we just added to our Brightcove board two women of color and we were very intentional about preferred. You know, we also had other specs around the skill set that we wanted. We were hoping to be able to get somebody that had very deep technology experience. We were hoping to get somebody that knew a lot about remote work. I will tell you we had 12, 12 candidates for those jobs and [00:42:00] we had four finalists.  And the two that we didn’t take, I am literally talking to them on a weekly basis because they’re so valuable right now. I mean, these people are all getting phone calls, but we did not have a pipeline problem. Getting the list of 12 after I reached out to my network, took about two weeks. And we have  just extraordinary new board members, but the people who we said no to, I mean, it’s heartbreaking that we said no to those people. So, you know, when you hear it’s a pipeline problem, I think that’s, I think that’s old data.

Raza: [00:42:37] Lot of the time people do reach out to their network and that network tends to be similar to you.  Not everybody’s like yourself to really know and make an effort to connect with people that are different than you.  What would [00:43:00] you recommend to people what they do for uncorrelated network or reaching out beyond all the people that they know that are exactly like them?

Diane: [00:43:11] You know, I think that, I think that building your network is the most important thing that people need to do these days. Not, maybe not the most important, but one of the top, most important things. I mean, think about it. Think about how much time for the two of you and for your listeners. Think about how much time you think about getting a master’s degree of any kind. Now millennials don’t spend a lot of time right thinking about that anymore cause they don’t think it’s as useful.

But for me, I spent an enormous amount of time thinking about getting a master’s degree, what I wanted to do, taking the test and then spending two years hanging out, getting that degree and now I have that and it’s an asset that I value and I think we all have other things whether it’s what school you went to or what skillset you’ve built [00:44:00] over the years. I think that we need to think about building our network in that category. How much time and effort and skill and priority will you place on building your network as an asset? Because I will tell you at this point in my career, I would take my network way before I would take my Harvard MBA as an asset that I leverage all the time and for me, sometimes I’m just doing it to help other people. I mean, somebody will call me and say, you know, I’m looking for somebody who can do blah, blah, blah. I mean, the joy in being able to easily just say, you know what? I know you’re looking for this kind of person. I have somebody great. You know, let’s put the two of you together is really fantastic, but I think you, as a professional, you have to build your network and when you do that, you don’t have to be the smartest person in the room anymore because you have all of these other people to help you solve your problems and fill your jobs and as a board member [00:45:00] to just get things done much faster. So I think we just need to value it more.

Joe: [00:45:05] But it’s somewhat goes back to board composition, because if you’ve built the right board and it is diverse in the way that we’ve always said it should be, which has everything – experience, perspective, everything else – then that collective, that collective database of people that they know should be able to locate what you need for the board.

I mean, if you’ve built the board, right? Your nom gov committee collectively should have a collective network that can identify the next people that you need on the board. So it just comes back to who’s your board and have you really built it the right way.

Diane: [00:45:42] Yeah, definitely and we spend a lot of time on a couple of nom gov committees and we spend a lot of time talking about those issues. It’s job one on those committees to say: how are we as a board?  What are we missing?  Just like when you’re a CEO, you sit with [00:46:00] your leadership team and say, what skills are we missing?  What do we look like as company?  Yeah.

 You know, in tech very often, people are super proud of gender and you know, racial diversity and everything but, you know, the average age of the company is 12, right and you get a really really talented software engineer coming in who can solve all the problems and they don’t want to work there cause it’s like, you gotta be kidding like, who am I gonna have coffee with, or are these people all coming in at noon and leaving at midnight because I want to work six to six. So, you know, there you’re always working, you’re never done right.

Joe: [00:46:37] Diane, it’s been great speaking with you. Thanks so much for joining us today. I hope you and your family will continue to be well and stay safe.

And thank you all for listening today to On Boards with our special guest Diane Hessan, please stay safe and take care of yourselves, your family, and your communities as best you can.

Raza you [00:47:00] take care. I hope you and your family continue to be well. And they are staying safe also. Yes,

Raza: [00:47:05] Joe, we are all staying safe. thank you and I hope you and your families as well.

Joe: [00:47:10] Yes. Thanks. Take care. Bye bye.

13. Ed Pendergast: What it takes to be a board member that every company wants

Ed Pendergast has served on numerous boards – public, private, and nonprofits – for more than 40 years. Very few people have had the opportunity to serve on such a broad range of boards over such a long period of time as Ed, and for good reason. He is the consummate board member. Armed with a deep understanding of business finance and operations, and what it takes to be an effective board member, Ed exemplifies the qualities that every company seeks on its board.

Thanks for listening!

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

Links

https://dunnrush.com/

http://pendergastco.com/

Quotes

Impact of the pandemic:

“Well, it’s varied pretty dramatically. I sit on five boards…and some of them have been hit very hard, some are booming. It seems to depend upon the industry they’re in or the impact that coronavirus has had on the business.”

“You probably have heard more talk in the last few months about supply chain than you have in the rest of your life.”

“In our investment bank, we are advising companies generally not to sell the business right now because valuations are so strange.”

Question: If you’re advising a family owned, operated business, and they’re thinking about forming a board for the first time, but they’re hesitating and there are several reasons why they do. What advice do you give them?

Answer: Well, I advise them not to start out with their uncle’s lawyer and their brother’s banker, but that they try to think about “why are we having this board?” What type of skill sets do we need that would be helpful to this business and try not to pack it with all people you’ve known for a long time? It’s okay to have a couple of people that you’ve known a long time, but it’s very helpful to think outside of the box.

Question: When people say “we don’t have time of the money for a board, what kind of advice to give them? What do you tell them?

Answer: Well, what’s the return on the investment? If we can bring together five people with great talent, some of which you don’t have in your business who can help in business development and it costs you $50,000 and it generates a strategy that builds the business from $50 million to $250 million, pretty cheap. On the other hand, if you don’t put it together properly, it can be a pain in the ass and not be successful.

When there’s a crisis is when the private company board is really helpful to calm things down. How are we going to get through this? How are we going to work our way out of it?

Big Ideas/Thoughts
Board meeting haven’t changed much – we’ve had a focus on coronavirus that we didn’t have before , but board meetings always have talked about risks and how do we deal with risk and what are the risks we haven’t foreseen? And how do we think through that process?

One difference is that when you’re in person, you have some casual time, you usually have a meal. Something when you’re off the topic. When you’re on a zoom board meeting, you’re on topic, the fraternization, the getting together, the personal aspect of it is missing and so it’s harder to gauge how people really feeling or what’s going on. When you’re sitting across from somebody at dinner, you really get a different approach. And that’s particularly true in boards where we have traditionally had the senior leadership team present at the dinners.

And that’s key because one of the major parts of being a board member is to make sure that the people are the right people. That they’re performing properly, that motivated properly, and develop properly. And that’s harder to do through video conferencing.
Going forward, I think you’re going to see a lot of closings, a lot of bankruptcies, particularly companies relying on disposable income: airlines, restaurants, hotels, casinos, even clothing. I think it was Bloomingdale’s that said they’re only selling tops.

On why more private companies are forming boards
Well, part of it is that the visibility of governance has expanded dramatically. I think a good deal of it as to what the National Association of Corporate Directors has done, to raise the visibility, the standards of sitting on a board have clarified over the years and, many people who have started their own business had worked for a larger company and have seen that there was some efficacy to the board in family businesses. Particularly when family members say we need somebody outside of the family to have a role here so that we can listen to people who have had outside experiences.

Question: One thing that seems to be a constant challenge for many companies is refreshing the composition of their boards. The board that may have been right five years ago is not necessarily the right board today. What is the best approach of reviewing the composition of the board and offboarding when necessary?

Answer: Refreshing the composition of a board is probably one of the thorniest issues any board faces. One way to address it is to have a regular evaluation process. How is the board going? How are individual board members are doing? How committees are being operated? It’s a tough process. I have some ex-friends that I have counseled off boards and, as I sometimes say, it’s not who got you here it’s who is going to get you there.

Transcript

Joe: [00:00:00]  Hello and welcome to On Boards: a Deep Look at Driving Business Success.

Hi, I’m Joe Ayoub and I’m here with my co-host Raza Shaikh.  On Boards is about boards of directors and advisors and all aspects of board governance. Twice a month, 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 or makes a board unsuccessful, what it takes to be a valuable board member and how to make your board one of the most valuable assets of your company.

Joe: [00:00:50] Our guest today is Ed Pendergast who has served on numerous boards, public, private, and nonprofits for more than 40 years. For [00:01:00] more than 25 years, Ed has served as President of Pendergast and Company, the corporate financial consulting firm, which has advised a wide variety of companies on corporate financial strategy.

Raza: [00:01:13] He has also been a Managing Director of investment bankers Dunn Rush and Company since the firm’s inception in 2009.  He works across several industries helping owner-managers increase their company’s value.  He has been President of the New England chapter of National Association of Corporate Directors, Massachusetts Society of CPAs and Small Business Association of New England.

He  also served as Vice Chair of Greater Boston Chamber of Commerce. We’re excited to have Ed Pendergast as our special guest today.

Ed: [00:01:47] Great to be here.

Joe: [00:01:49] Welcome Ed. It’s a pleasure to have you On Boards.

Ed, can you let us know on the boards on which you’re currently serving, what has been the [00:02:00] impact of the pandemic environment on those companies?

Ed: [00:02:03] Well, it’s varied pretty dramatically.  I sit on five boards, actually, and a nonprofit board. And, some of them have been hit very hard.  Some of them are booming.  It seems to depend upon the industry they’re in or the impact that coronavirus has had on the business.

For instance, one of them, DeMoulas Supermarkets, when they were first in the pandemic they were at a point where they could only be open for 50% of the time that 50% of the capacity that they had before, but people are buying more because they don’t want to go to the groceries more often. So DeMoulas has really been impacted with employees more than they have anything else.

One of the companies that is a supply chain consulting firm, called Maine Point, [00:03:00] that has been a period of time when people were so distracted by the coronavirus, that they weren’t doing anything about supply chain, but that’s changing pretty rapidly.  You probably have heard on television in the last few months more talk about supply chain than you had in the whole rest of your life.

One of the companies is a software service company and they are it’s called Fonative, and they, are connected to call centers and for awhile, the volume on call centers was somewhat diminished, but that has resurged.

Another company is called Tikus Cranberry and we are having trouble finding enough product to satisfy the demand. 

The last private company is called Municipal Headquarters.  We upfit police cars [00:04:00] and, while the demand for police cars hasn’t changed, the uncertainty of budgeting in the municipalities has made it difficult for us to be the predictable.  We’ve done well and continue to do well, but there are real challenges because police departments have been very distracted by the coronavirus in particularly, most recently.

The last board that I sit on is the Old North Foundation, which is a organization that supports and maintains the Old North Church and provides education and tours and a lot of items around trying to have people understand the history of the formation of this country. The coronavirus has been a disaster because we couldn’t open up. and traffic is what makes major part of our revenue.  We tried to [00:05:00] open a couple of weeks ago and the timing right now is the first part of August, and, the traffic was so low that we had to close down for the rest of it.

Joe: [00:05:10] Boy, that’s too bad.

Ed: [00:05:12] So many of the foundations that I know about are in survival mode now.  So you can say it is very different across the board.

 In our, investment bank, we are advising companies generally not to sell the business right now because valuations are so strange.  Although there is one company where the buyer says I will pay pre-COVID prices. We’ll see if that’s true, but generally the M&A businesses been quite a bit slower because of that.  Although it looks like it’s picking up also, but it’s a very strange time. 

Joe: [00:05:51] You know, it’s not surprising that companies have been impacted what surprises me is sometimes you don’t see what the impact [00:06:00] would be. You know, when you talked about, for example, the police cars.  Well, the fact that budgets are questionable, people don’t know what resources are going to be allocated and how, that’s not necessarily something that anyone would have foreseen, even if you had a great risk strategy in place.

Ed: [00:06:20] Yes, the disruption in so many industries is way beyond what you thought about.  I’ve had  associations with a couple of universities around here, Bentley and Northeastern, and they both are struggling to try to figure out, can we do it in person? Can we do it remotely? Can we alternate? How do we do that?  So there’s a, a lot of disruption.

Joe: [00:06:46] Yeah, that is going to be a difficult question for every educational institution.

Looking at boards, so all of the boards now of course, we’re meeting in some kind of virtual format.  I’m interested: other [00:07:00] than saving time and expense, we all have experienced the fact that it’s, you know, we’re saving some time and we’re saving some money. What’s been the general reaction to meeting in this format?

Ed: [00:07:11] Well, I think it’s been more positive than otherwise because you can have a meeting pretty quickly. For instance, in one of the boards we have a board member who lives in London, one lives in Florida, one lives in Kansas City.  And if you wanted to have an in-person board meeting, there’s a lot of time and energy to get it going.  We have an issue that we, as we did today, we had a board meeting, and, we were able to put it together in no time.  So that’s a big change.  And the teleconferences we used to have in the past were not as near as satisfying as video conferencing.  Video conferencing is much more satisfying.  You can see people, you can get their reactions, you can get a feel for them.  I still would [00:08:00] love to be in person, but, as a practical matter, I’m not sure at least for the next maybe year, certainly next six months, that we’re going to have any in person meetings.

Joe: [00:08:14] Yeah, I think you’re right about that. The meetings themselves, how have they changed , how are they different other than the fact that they’re virtual?

Ed: [00:08:23] They haven’t changed much.  I would say that because we have a focus on coronavirus that we didn’t have before , but the board meetings always have talked about risks and how do we deal with risk and what are the risks we haven’t foreseen? And how do we think through that process?  But I would say generally, I wouldn’t think there’s been any real difference in the board meetings.  The material comes through the internet, through email.  The meetings tend to be about the same length, although people find after two hours [00:09:00] on zoom, they have to take a rest, bio or otherwise, and then we come back and so I wouldn’t say that it hasn’t been a significant change in how the boards are operating.  The committees are a little bit more of a challenge, but I think it’s, it really hasn’t impacted it in a major way.

Joe: [00:09:22] Are there sensitive issues that you find more difficult to address virtually than you would in person, and I’ll just take one for instance.  There’s one board that I’m on, and I find that when we’re talking about, kind of an assessment of board members or, you know,  who we might invite off the board or invite on the board, that kind of conversation, I have to say, feels a little bit difficult when it’s virtual.  Somehow it seems more comfortable when it’s in person. Have you experienced any issues that just didn’t seem quite as comfortable because you’re not in person with other board members?

 Ed: [00:09:59] I [00:10:00] would say no.  I think that all you see as the top half of people. Oh yeah. I don’t know what’s going on with the rest of them. In fact, that the Old North Foundation, we hired an Executive Director that we never saw outside of zoom. It was weird. So we never saw her and never actually shook a hand.

I think the,  difference is that when you’re in person, you have some casual time, you usually have a meal.  Something when you’re off the topic. When you’re on a zoom board meeting, you’re on topic, pretty much. The fraternization, the getting together , the personal aspect of it is missing and so it’s harder to gauge how people really feeling or what’s going on. When you’re sitting across from somebody at dinner, you really get a different approach. And that’s particularly true in boards where we have traditionally had the senior leadership team present at the dinners.  So we’re not getting that.  [00:11:00] And that’s key because one of the major parts of being a board member is to make sure that the people are the right people. That they’re performing properly, that ther’re motivated properly, and develop properly. And that’s harder to do through video conferencing.

Joe: [00:11:20] That social tim – with fellow board members and with senior management, that really is missing, there’s no real substitute for that.

Raza: [00:11:30] Joe and Ed, I’ve seen groups basically add those times, like water cooler meetings or, you know, other off meetings, although it’s still in virtual format, but an attempt to approximate or recreate a little bit of that.

But yeah, it is challenging. New relationships are challenging.

Ed: [00:11:47] And you can’t make the asides that you might make in an in-person board meeting where you’ve missed something person next to you. What was that? You really can’t say that [00:12:00] in the videoconference. Yeah. Right.

Joe: [00:12:03] It’s just different.

Ed: [00:12:04] I guess, in some ways I misspoke initially, because as we talked about it, I realize the differences, maybe deeper than I had thought beforehand, because I’ve been pretty happy that I’ve been able to keep track of what’s going on in our boards, and in our companies, but as you talk about it, it kind of feels a little bit more…

Raza: [00:12:25] Some people have commented that making new relationships is much harder.  Ed as you mentioned, like, you have hired somebody that you’ve never met and we have invested in companies that we’ve physically not met the entrepreneur, but that part is much harder.

It is a huge benefit that if you knew the people going into the video format, that you were still able to kind of say kind of roughly work the same.

Ed: [00:12:51] I think hiring and onboarding is much different and, bringing on new board members,  I like to put them [00:13:00] through the paces as much as possible so that they understand all the vagaries of the business and we understand all the bumps in the road that we might face with a new board member.  And that’s true of employees as well, it is frustrating.

Joe: [00:13:17] Yeah, it really, it’s funny. It permeates so many aspects of what we take for granted.

Raza: [00:13:24] And just to add to that, I would say at least in the last five years, there have been plenty of successful companies that are remote only.  People did figure out how to create a culture, how to know each other, despite being remote.  I think with time all the folks that are now forced to be in virtual will also find ways and figure it out.

Ed: [00:13:51] Except for I think a lot of the companies that were almost completely virtual, they did have in person interviews of people, they were hiring, which they [00:14:00] can’t have now.  Some of them didn’t did it without that, but pressing the flesh, as they say, shaking hands, having a drink with somebody, having a meal with somebody, you got an entirely different picture of the person than you do when you’re on stage in the interview process.

Joe: [00:14:16] Agreed. Absolutely.

Ed, let me ask you this: if the pandemic continues for many more months, as unfortunately many people believe it will,  and it has a continuing impact on the revenue of the companies that are in a difficult situation, what do you foresee?  Will those companies whose businesses are being impacted in a negative way be able to ride this out?  Or are we going to see a lot of closings and bankruptcies down the road?

Ed: [00:14:46] Well, I think you’re going to see a lot of closings, a lot of bankruptcies, particularly companies relying on disposable income: airlines, restaurants, hotels, casinos, even clothing.  I think it was [00:15:00] Bloomingdale’s that said they’re only selling tops.

Raza: [00:15:05] There’s another category of companies. There are ones that are clearly directly impacted, but I think, but Joe is also kind of thinking about is the, the companies that were just maybe not doing as well already.  Do you feel that with the availability of cheaper credit and debt from the government and all the things that we will actually see, maybe zombie companies that are able to kind of carrying on?

Ed: [00:15:31] It’s going to make a big difference is how the credit markets are willing to lend.  I think that when the interest rates go low, the company sales is great for us. Banks aren’t as enthusiastic about it because their margins tend to get narrowed, so I am not sure that the lending will be as aggressive as it was before the pandemic.

On the other hand, [00:16:00] if you think about it, there are Venture Capital funds, and Private Equity firms and Mezzanine Funds that have money they need to get rid of.

Raza: [00:16:08] A lot of dry powder.

Ed: [00:16:10] They need to invest.  So there may be some risks taken, but I think that it will be focused in on industries where people think there’s a real opportunity to grow.

I think the restaurant industry, I just don’t know. They always have thin margins. Now they having trouble getting their product and customers are leery about going in. Right now, we’re down on the Cape in Harwichport and we’re not going into restaurants.  If the restaurant doesn’t have curbside or delivery, we’re just not patronizing. I found on the other hand that, if you say by the way, I’m I can come in, but I’ll give you $20, somebody comes running out with the food.

Joe: [00:16:55] Yeah. Most places are able to do that now.

Raza: [00:16:57] Ed, what was your early board [00:17:00] work? You’ve been doing this longer than I have been alive!

Ed: [00:17:03] Well, probably the most people been alive.

 Well, I started out really working with associations.  When I became a CPA, I felt that getting active in the society, Massachusetts Society of CPA’s, was important.  So I donated a fair amount of time to it.  And in time they decided that maybe I should become President.  At that time, they used to alternate between a big national firm and a local firm for presidents.  I was a local firm so working on that board was the, probably the first real board work I did.

I got active in the Small Business Association of New England, sometimes called SBANE, in the same way . I felt that it was a great vehicle to develop my practice. The contacts also, I could make contributions with my expertise [00:18:00] to the association. So I worked with that for a long period of time and I became President of that sitting on the board and then became President.

I got very interested in governance because I started sitting on boards and starting to go to the National Association of Corporate Directors meetings, and eventually became a board member and then become Chair of the New England chapter.

And the same thing a little bit with the Greater Boston Chamber of Commerce.  So the word got out that I had sat on a few boards, had some financial expertise, and those were characteristics that many boards were interested in.

 Raza: [00:18:34] Ed, you recently spoke about that a number of years ago, you decided not to be as interested in sitting on public company boards.  What led you to that decision?

Ed: [00:18:47] Well, the public company boards I sat on were frequently what we called Reg. A offerings, which no longer exists, small offerings and the more I got [00:19:00] involved with them, the more I realized that as I got a little older, that the fiduciary responsibility of being a public company board member was weighed fairly heavily on me. 

And, I was chair of the board of public company, a medical device company, where the CFO quit and then the CEO quit.  I became CEO and doing all those road shows with small public companies got to me to the point where I realized that  the difficulty and small public company had to stay public and to grow was pretty strong. The risks were high and the fiduciary responsibility weighed heavily on me.

And I was always amazed that and boards that would be a board member or two that would sit there and not participate at all.  And I felt, [00:20:00] why am I sitting on this board when I got board members that should be working to help?  So I decided that I didn’t really need to be on a public company. In the process, I started to serve on a number of private company boards, which I find more interesting because the impact you can have on a private company board, sometimes is much more significant than you can in a public company board.

Raza: [00:20:24] And Ed, we heard this statistic in our earlier podcast episodes that since 2000, I think the number of publicly traded companies is about half from what it was then. It also reflects what is going on generally in the public markets.  By implication, there’s a lot more activity in the private markets and as you’ve mentioned, I think that’s probably a better place to contribute as board member.

Joe: [00:20:51] Ed, can you talk to us about your experience sitting on the board of family owned and operated companies. How does it differ from the non family-owned [00:21:00] private companies?

Ed: [00:21:01] Well, you get involved with the pathology of the family and, the family members have long history, many of them from birth and maybe multigenerational and when they go from generation to generation, it’s a trauma of what do you do with dear old dad who’s maybe not as effective as he used to be and the young daughter who really wants to run the business is more capable than dad.  So no matter how you try to avoid it, you get into the family . And when I was doing consulting with family businesses, I used to joke that there were three outcomes. That I could help them really address the family issues that would be great, or they couldn’t and decided to sell. But then also the third thing if we weren’t making a lot of progress, the one thing they [00:22:00] could agree on was either to fire me or for me to fire them.

Joe: [00:22:03] Good to have a point of agreement.

Ed: [00:22:07] I had one family business where there were 14 cousins in the business.  Three families, two of the families were fighting with the third family and the two families that were fighting came to me, they were I think nine cousins in that group.  I persuaded eight of the nine on a plan of action, the ninth, who was the one that actually brought me into the process, was the only one that wouldn’t go along.  So, the company is still around. It’s got a lot of visibility and if the world knows what I knew about the company, they would have a very different perspective.

Then the boards frequently are a mixed family, mixed independence.  I sit on a family board where, or I did for  quite a while, Legal Seafoods, where it was a complete independent board, [00:23:00] except for the CEO.  And I I’ve sat on family boards where I was the only non-family member, and then you become the consigliere to the family.

I don’t know if you really are a board member or what you are, but, family business is a very different.  I think you’re always kid that you have to be a little bit of a masochist to work with them, but I really enjoy it because they frequently, the culture of the family business is so much more caring about the employees because they look at them as part of their family.

Joe: [00:23:34] Right.

Ed: [00:23:34] And that that’s good or it’s bad because sometimes they keep people around a lot longer than they should. but, you know, the, DeMoulas family takes care of the employees.  They really worry about the employees.  They have many families who are, employees, uncles, cousins, and the like, and that atmosphere for the employees is a wonderful atmosphere.

[00:24:00] Joe: [00:24:00] You know, one really positive trend that I’ve noticed is that more family owned and operated businesses now have boards.  In the past that wasn’t always true.  I’m curious what you attribute this trend to – why have family-owned businesses really recognized that having a board might be helpful to them, what has changed?

Ed: [00:24:24] Well, I think part of it is that the visibility of governance has expanded dramatically.  I think a good deal of it as to what the National Association of Corporate Directors has done to raise the visibility, the standards of sitting on a board have clarified over the years and, many people who have started their own business had worked for a larger company and have seen that there was some efficacy to the board and family businesses, particularly family members say, you know, we need somebody outside of just [00:25:00] the family to have a role here so that we can listen to people who have had outside experiences, sometimes as an advisory board, sometimes as a fiduciary board.

Joe: [00:25:12] If you’re advising a family-owned, operated business, and they’re thinking about forming a board for the first time, but they’re hesitating and there are several reasons why they do.  What advice do you give them?

Ed: [00:25:28] Well, I think that I advise them not to start out with their uncle’s lawyer and their brother’s banker, but that they try to think about, well, why are we having this board? What type of skill sets that we need that would be helpful to this business and try not to pack it with all people you’ve known for a long time. It’s okay to have a couple of people that you’ve known a long time, but it’s very helpful to [00:26:00] think outside of the box. As a little example, I set an advisory board up for moving company. There’s the fellow that started with the moving company. Young man, was growing fast and he asked me to organize the board and that frequently, if you have somebody who knows how to organize a board, that’s helpful.

So I brought in a fellow who’d been very successful in a business, it was a tire business. So moving and tire, maybe they’re not the same, but they serve kind of the same types of employees and so it’s got some similarities. And I have another young man who’d grown his plumbing business significantly. Again, the types of employees are similar. And I brought in the banker that I knew who done a lot of work with small businesses, and it was very successful, because we’d figured out what are the skill sets we need? What would compliment this man?  [00:27:00] He needed financial advice. He needed, organizational advice.   He needed to have a, somebody who we viewed as a contemporary, the guy that had the plumbing business.  We’ve been successful and so it really worked and to his advantage.

So it’s an art, and frequently people turn to their accountant or their lawyer.  And sometimes that works.  Sometimes it doesn’t.   I’ve felt that the accountant may not have the understanding of what the skill sets are needed for a board.  And the lawyer might not either, but it’s more likely a lawyer, and recruiting board members, depending only upon the size of the business, can be very different.  That moving business was a relatively small business.  And we’d paid pitilty.  People were interested because they wanted to get board experience.  They were willing to work for almost nothing.  Now, some other boards, you’re going to have to pay [00:28:00] some money. And so you can attract different types of people.

Joe: [00:28:04] Yeah, you know, I was going to ask you sometimes, you know, one of the things I do is help, businesses form their first board.  And one of the things I hear is, well, it’s a lot of time commitment and it’s going to cost us a lot of money.  When people say that to you, what do you, what kind of advice to give them?  What do you tell them?

Ed: [00:28:24] Well, what’s the return on the investment?  If we can bring together five people with great talent, some of which you don’t have in your business who, can help in business development and it costs you $50,000 and it generates a strategy that builds the business from $50 million to $250 million, pretty cheap.

On the other hand, if you don’t put it together properly, it can be a pain in the ass and not be successful.  And also private company boards [00:29:00] when there’s a crisis is when the private company board is really helpful to calm things down. How are we going to get through this?  How are we going to work our way out of it? I think frequently I suggest that in order to put your foot in the water, you set up an advisory board and you say to the people, I want to try this out for a year and see if it’s what I want, because it may well turn out that some of those advisory board members are not people you’d really want on a fiduciary board and you don’t know that until you’ve gotten used to them for a period of time.

Raza: [00:29:35] In general, as a board member, what responsibilities does serving on a board include? What should every board member understand about his or her responsibilities?

Ed: [00:29:48] Well, I recommend everybody that’s interested in being on a board is the NACD, National Association of Corporate Directors, has a two day Director Professionalism course, [00:30:00] it’s something that I’ve taught in the past. And I’ve taught at both, to a group that were not in the same board.  I’ve taught in board where we can do it in a day.  And, it really outlines all the fiduciary responsibilities, but also how you need to think of yourself as a board member.  Many people sit on boards with no training and I don’t think that’s a good idea.

NACD puts on, generally once a month, a program on different aspects of boards, some private company, some public company boards and so it’s education and I’m a lifelong learner, and I think that if you’re not a lifelong learner in this environment, you probably won’t even know how to handle your cell phone.

Raza: [00:30:49] One thing that seems to be a constant challenge for many companies is refreshing the composition of their boards.  The board that may have been [00:31:00] right five years ago is not necessarily the right board today.  The level of commitment, and the attention, you know, that’s needed by the board members to adapt to the change as well.  What is the best approach of reviewing the composition of the board and offboarding when necessary that you would recommend?

Ed: [00:31:19] That is probably one of the thorniest issues any board faces. One way to address it is to have a regular evaluation process. How the board going, how individual board members are going, how committees are being operated.

It’s a tough process. I have some ex-friends that I have counseled off boards and, as I sometimes say, it’s not who got you here is going to get you there. And, just in line a little bit, with what you’re talking about, somebody [00:32:00] who was an A board member at a $50 million dollar company, board becomes a B member at a 200 million board and a C million and 500.

Some people can grow in it and one of the things I’ve been thinking about in preparation for this is about having three year renewable.  The terms, because normally considered to be automatic and renewable.  It doesn’t mean you’re going to go off, but that you are being looked at every three years rather than every year.  And, a third of the board and is going to be doing is going to be being reviewed by the other two thirds. And at that point, if you get a self-evaluation, you sit down and say, well, this is what the other board members have said about you. They like you, they just think that your time has come to leave.  It is a thorny issue.

 I was on the Legal Seafood [00:33:00] probably for 25 years and I finally decided last year that, you know, that’s a long time.  I know the family very well and how independent can you be when you’ve been there 25 years.  I got so involved and I do this with most of my boards, I will talk about “we” rather than the company  It becomes pretty important to you that the company is successful.

Joe: [00:33:27] Well, good for you that you actually were thoughtful enough to realize that at a certain point you get so close to the family or to the company that the notion of independence  is really in question. I would suggest most board members are not that thoughtful about it. I mean, they don’t really. Think about their independence being potentially compromised.

Ed: [00:33:48] Many people, I’m afraid, sit on boards because it’s prestigious or maybe it’s the money but more often is prestigious and they feel that [00:34:00] it would be demeaning if they have to go off the board and that’s unfortunate, but that’s the way some people feel.

Joe: [00:34:08] You know, we talked a little bit earlier before we started the podcast about what’s going on in terms of diversity.  Let’s talk a little bit about the importance of diversity, all types of course, there is skill set diversity and there other times, but specifically gender and racial diversity on boards has become, and appropriately so, it’s very important.  Can you talk a little bit about how that has evolved  and what impact it’s had on boards, that you’ve been able to observe?

Ed: [00:34:39] Well, here’s a lot of statistics about this.  If you start with having women on the board, it’s clear that when you have two women on the board, they’re much more effective than when you have one because , the men on the board treat a single woman on the board differently than they do when there are two and I think it’s clear that [00:35:00] the discussion takes a different level when you have a woman on the board. And I said before the old boy network stuff doesn’t work quite as well. And that’s good. so I think that the increase in having women on the boards has been wonderful for board governance.

As far as people of color, it’s clear that this country’s population’s moving more and more toward having a majority of people of color and they should be represented.

Raza: [00:35:33] Ed, finally, we have a rapid fire set of questions for you.

What have been the two best boards in your board career and why?

Ed: [00:35:41] I had a sneaky suspicion you’re gonna ask me that. And I think that the best boards are the ones where I’ve learned the most.  The company PLC Medical, which I was involved taking public, became Chair of the board, became acting CEO.  It was just an amazing [00:36:00] experience, going on the road shows, I learned so much, so it’s the boards where I’ve learned. It’s more than whether this is a great board.  It’s what, what have I learned in the process.

Raza: [00:36:12] What board best practice do you recommend that most boards should follow?

Ed: [00:36:17] Ethics.

Raza: [00:36:20] Number one rule you would implement for conducting board meetings if you were the board chair?

 Ed: [00:36:26] Keeping to the subject and parking issues, if they got too complicated in the discussion.

Raza: [00:36:33] Favorite book or books?

Ed: [00:36:36] Well, I’m reading a lot of Scott Turow who is a wonderful author, but I’m also reading a book on The New Jim Crow, and it is just an amazing book of how do you start to learn and understand the level of how people of color have lived . And part of the [00:37:00] reason it’s so surprising is there are so many, well-placed very successful people of color professionals that are people I’ve known for a long time. And never really understood that they had to say to their kids, “Hey, you can’t go here. You have to carry your driver’s license with you wherever you go.” I understand that. So that’s, that’s kind of where I am right now.

Joe: [00:37:25] It’s something that a lot of us are learning

Raza: [00:37:27] Nonprofit or mission that matters the most to you?

Ed: [00:37:32] I think the one that was most edifying for me was called Crittendon Hastings House. when I became more on the board and then became chair, we were providing transitional housing for homeless mothers, mothers, children, and we merged it with a Women’s Industrial Union, now it’s called EMPath, Economic Mobility Path. And, it developed a program of [00:38:00] taking a poor person, working with them over a five year period, and at the end of that five years, 80% of those people are coming out of that program ,making $18 an hour or more and have saved $10,000. And many of them have gotten degrees in the process. and so being able to transform people’s lives from poverty to stability is just an incredible goal.

Joe: [00:38:28] Ed, it’s been great speaking with you today. Thank you for joining us on On Boards. I hope you and your family will continue to be well and stay safe.

And thank you all for listening today to On Boards with our special guest Ed Pendergast. Please stay safe, take care of yourselves, your families, and your communities as best you can.

Raza, you take care. I hope you and your family are well and staying safe also.

Raza: [00:38:57] Yeah. That’s Joe we’re staying well and safe. Thank you. [00:39:00] And I hope the same for your family as well.

Joe: [00:39:03] Thanks.

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