Joe: [00:00:00] Hello and welcome to On Boards, a deep dive at what drives business success. I’m Joe Ayoub and I’m here with my co host, Raza Shaikh. Twice a month, On Boards is the place to learn about one of the most critically important aspects of any company or organization; its board of directors or advisors with a focus on the important issues that are facing boards, company leadership and stakeholders.

Raza: Joe and I speak with a wide range of guests and talk about what makes a board successful or unsuccessful, what it means to be an effective board member, and how to make your board one of the most valuable assets of your organization.

Joe: Our guest today is Paul Braverman. Paul was a partner and CFO at Wellington Management for over 20 years, during which time he helped it to create an enviable company culture and [00:01:00]helped it grow from approximately $25 billion to $700 billion assets under management. Among the many responsibilities he assumed at Wellington, Paul served as a board member on its subsidiaries, as well as key firm governance committees.

After he retired with the support of the four founding partners, he wrote the definitive history of Wellington Management entitled Client, Firm, Self. Today, Wellington Management has more than $1.2 trillion under management.

Raza: Since leaving Wellington, Paul has served on 17 boards of directors, including boards of public and private companies and nonprofit organizations.

Joe: Paul, welcome. It’s great to have you today with us on On Boards.

Paul: Thank you, gentlemen. It’s an honor to be here.

Joe: Let’s talk a little bit about your background, Paul. You have probably more board experience than almost any guest we’ve had, so I think it’s worth [00:02:00] talking a little bit about your time at Wellington and then some of the work you’ve done on boards subsequently.

Paul: Sure. I retired at a fairly early age, and I certainly had a lot of time on my hands, and as my wife likes to tell me, I have flunked retirement, so I wasn’t going to go the classical route and I really enjoyed working, and I really had a great affinity for board work. I love working with young people and management.

I started out dedicating 100 percent of my time to nonprofits. But then over time, I went to for profits. In general I’ve been on about four or five boards every year, split 50/50 between for profit and nonprofit.

Joe: Could you tell us the story behind your writing the definitive history of Wellington Management Company?

Paul: Yes. I withdrew in 2007 and then I got a call -there were four partners that started the firm; Thorndike, Doran, Paine and [00:03:00] Lewis which eventually merged with Wellington Management. Three of those original founding partners were alive when I withdrew, and of course, they withdrew well before me) and they said, “We want to have a meeting with you.” And I said, “About what?” And they said, “We’ll tell you when you get here.” right off the bat, I concluded I must have made some huge mistake, which they’re calling me on the carpet for. But I walked into this luncheon meeting, and they said, “We want you to write a book about the firm.”

Now, I don’t think you know this, but Wellington does not advertise, nor does it talk to the press. You’ve never seen an article by any Wellington employee or partner about the firm. That’s their policy.

There was a short period of time where they advertised on NPR, but generally speaking, they don’t have any formal press policy other than not to talk to the press or to respond to any press calls, so no one knew anything about us and what they were basically saying was, “We’re older, we have a short shelf life. Nobody really knows the [00:04:00] history of the firm, and it’s important that it gets documented while we’re still alive so we’re commissioning you to write the book.” And I said, “Well, I’ll tell you why I’m not going to write the book. First of all, I don’t have that great of a working vocabulary. Secondly, I’ve never done this before. And third, you’re my idols and if I do a bad job writing the book, I’m going to be disappointing my idols so I think I’m not going to do it.” They said, “Don’t worry, we’ll get you a ghostwriter, but you need to do it.”

I was in the second level in terms of partner classes, if you will. There were the original founders and then I was a second generation and then others followed me and they thought since I knew everybody in the first generation and the third generation behind me, I could interview everybody. They would interview with me. They’ve given the information I needed and I could get the job done.

I spent three years doing that, and when we finished the project in 2011, it’s a book that’s in the Library of Congress, but they wanted to keep it [00:05:00] private because they didn’t want to give away any trade secrets, and so it was distributed to Wellington employees, but they didn’t want it to be sold on Amazon.

Joe: Yeah, I want everyone to know, however, I have an autographed copy.

Paul: Friends and family.

Joe: One of the most striking things about, at least my understanding about Wellington is the culture that was created that really helped drive its phenomenal success. Talk a little bit about the culture, what it was and how real it was for those that worked there.

Paul: I think the culture is its most sustainable competitive advantage. It always has been, and the culture is basically exactly what the title of the book, Client, Firm, Self. We believed we existed for the benefit of our clients, and that they always came first, and then the firm, and then the individual, and when we had problems with certain individuals who wanted to put themselves in a hierarchy that wasn’t in that order, we [00:06:00] basically had to explain to them it wasn’t going to work. for them staying with the firm if they didn’t really follow that mantra.

It was wonderful to be a part of that. It was wonderful to watch how it worked and to be part of the solution for our clients, and to this day, I don’t think that’s ever changed. They’ve never wavered.

One thing that helped a lot, gentlemen, is that they had an ownership model of staying private and they had an investment model of doing their own research so they wouldn’t rely on street research and they had a business model of serving any client anywhere in the world with any product that they needed, but the ownership model had the most to do with the culture because we didn’t have to answer to the public at large, to outside investors. We didn’t have to account for profits in the short term. If, for instance, we were building an office in Japan and we knew it was going to take three years for it to turn profits, things like that.

Joe: Right.

Paul: I think the culture was really the most important [00:07:00] element of the whole firm.

Joe: Was it that the founders were so fanatically devoted to that culture and maintaining the culture? Is that what made it work? What else was there that allowed Wellington to sustain that very, very, very strong culture for so long?

Paul: That’s a great question. What we all observed is how devoted the founders were to each other, how they watched over each other, took care of each other, helped each other’s families. If there were problems, we watched when one of the partners passed away how well they looked after his spouse, things like that, and we learned by observing them.

I said in my final speech when I left the firm, I learned more about life at Wellington than I did about the investment business just by watching the character of these people and how they conducted their lives and treated other people.

Joe: Well, we’re going to talk a little bit about the primary role of a board, but I want to ask something that we didn’t talk [00:08:00] about earlier, which is how does a board help maintain the culture of the company for which it serves? What role does the board have in the culture?

Paul: The board, I believe, sets a tone at the top, and it is a tone that we do exist for the benefit of our clients or our customers. We are accountable to the shareholders. We need to take care of our employees. We need to take care of the cities and the locales that we do business in to help wherever we need to help philanthropically, and to set that tone for the rest of the company. It’s not just always business and always profits. You’re not going to believe this, but I never had a budget all the years that I was there.

Joe: A long time to not have a budget.

Paul: Yeah. And the reason was they said, “Do a good job, take care of the clients and numbers will take care of themselves. If you start to make decisions based on the numbers, you’re going to make the wrong decisions, or you’re not going to [00:09:00] make long-term decisions for the benefit of us in the long term.”

And it was great, but people don’t believe that when I say it, but it’s actually true. I reported the results, but we didn’t have targets per se. We just reported results and how well we did because the only target we had was whatever the customer needed or whatever the client needed, we had to exceed their expectations.

Joe: It’s fantastic. In your view, what are the primary roles that a board should serve?

Paul: I believe there are four fundamental primary roles, and the first is to buy into and understand the vision and strategy of the company and to make sure they have adequate resources to actually execute on that strategy.

Joe: Let me ask you something, what if you’re on a board and you think that the strategy isn’t the right strategy for the company, what then?

Paul: You tell the management team and the CEO that you disagree and why. Have them explain to you why you’re wrong. If they can’t, then you’re right.

Joe: [00:10:00] Okay. It’s not just a buy in without thought. I mean, the way it sounded, it sounds, well, you buy into the strategy, but the board is there to question strategy when a board member doesn’t agree. I mean, that’s part of the job, right?

Paul: Yes, I was on a board that I bought into the vision and the strategy and they changed it after I had been there a year and a half and I didn’t agree with the direction they were going and I did step off, and I’m not patting myself on the back, but that didn’t work out afterwards, and I think that’s a very good example of what you just questioned.

Joe: Yeah. I think that is a good example, and I would say this to your credit, a lot of board members wouldn’t have left. it’s easy to just sit on the board and do your job, so to speak, and take the compensation, but if you’re really thinking about what your fiduciary duty is, I think you’re a hundred percent right. If you really don’t agree with the strategy and you’ve worked at it and they change the strategy, I think you did the right thing and I give you a lot of credit for that. I really do.

Paul: Thank you. Unfortunately, it [00:11:00] went the wrong way.

So, that was the first point. My second point would be to assess all the business risks and work with the executive team to make sure you appreciate and they are appreciating and managing those risks, particularly reputational risk, and so that would be number two.

Number three would be get right CEO that fits the job, to make sure the CEO is adequately compensated, the CEO will be a great leader.

Then the fourth point would be to run the board process in as forthright a manner as possible or as the term others have used that I like is, be “above board.” Those are the four core principles I think of being a good board member.

Joe: Talk a little bit more about what you mean by above board, integrity?

Paul: Yes. We always said at Wellington, we never want to be on the front page of The Journal, or the New York Times with a bad press article. Every single thing you do has to [00:12:00] be the right decision at the right time for the interest of the client. You never would do anything that would in any way interfere with that, and so you think of the client first and yourself second, and when you do that, you do always make the right decisions.

Joe: Yeah. One of the things I wanted to say when you talked about risk, I couldn’t agree more that reputational risk is something that boards really do need to focus on because, especially with a company like Wellington Management, it works so hard to create the culture and to create the reputation of the company, and that often becomes one of, if not, the most valuable asset of a company.

Paul: I totally agree. The amazing thing about it, Joe, is as hard as we worked on it, as strong as it was, it’s still fragile. It’s always fragile. It can just be one incident.

Joe: It is a great observation, and it really does underscore how important the job, the responsibility of the board [00:13:00] is, to really be vigilant about the reputation, and well, I agree with you, it’s one of the most important responsibilities that a board has.

Now, I know we’ve talked before about some of the concerns you have about things that are happening in the boardroom that you think are distracting from the core responsibilities of a board. Let’s talk about that a little bit.

Paul: I think the best way to put it is that if you took those four fundamental core principles, I’ve noticed over the years, and I’ve been doing this a long time, a lot of societal issues are creeping into the boardroom. Some call them social issues, but societal issues, and I wrote down kind of in the order that I’ve seen them.

For instance, It started with the glass ceiling, then pay equity, then cybersecurity, then ESG, gender discrimination, sustainability, diversity, equity, inclusion, supply chain, et cetera, and now it’s AI.

I have two fears. I’ve noticed that [00:14:00] boards now bring on specialists. They have a cybersecurity specialist or an AI specialist, and why were we brought in as board members? Primarily because we have broad industry experience. We’ve been in critical situations, made very important decisions. We know about allocation of resources. We know about compensation of CEO. We’ve really been there and using our experience to make these critical decisions is really important.

My worry is that a specialist who doesn’t have the broad experience, when we finally get to the point of we have to make a decision about some cybersecurity attack or something, I don’t want it to be in a vacuum by one person.

I’ll give you an example. At one firm that I’m on, and I chair the operations risk committee, so I’m responsible for technology,

and I asked the firm to have a hacker company do an assessment [00:15:00] of their technology paradigm every year and included with that, I wanted the hacker to try to hack into it, then I wanted them to come back and report it to us, which they do, and it’s kind of interesting. And by the way, the company enjoys this. They actually enjoy the challenge of that. I’ve tried to do that.

Joe: Good attitude.

Paul: Yeah, the point I’m making is, we are not cybersecurity experts. We have no one on the board that was. We hired the expert to come in. They did their assessment. They gave us their report, and should we have a cybersecurity expert on the board? At this particular point, we don’t think we need one. This is not a company like Amazon or Google where I’m sure cybersecurity is a hundred times more important than our little company.

But the point was, if we ever had a cybersecurity real problem and we had this person on the board, I didn’t want that person to be making a decision that all of us sort of go along with because they’re the expert and they know more than us. That’s why I’ve created this board-of-one.[00:16:00]

Joe: That I understand. I want to go back to this list you made of items or issues that you said are distractions, and I’m just going to start with the last one, which is AI, which everyone’s talking about and obviously it is going to have a profound effect.

Would you view AI as a distraction versus a core that boards have to decide how they’re going to deal with as a board or how the company they serve has to deal with them. How is it a distraction?

Paul: I didn’t use the term distraction. I said they’ve crept into the boardroom. What I meant was, Joe, first of all, every issue that I listed is important, it’s relevant, it’s newsworthy, and people are interested in it. All I was saying was you have to devote the appropriate amount of time to those issues, and you have to devote the appropriate amount of time to the four core issues.

I worry that the combination of all these other things coming in will take away from the amount of time you need to [00:17:00] spend on the business. As a board member, a lot of times you just really have to take a step back, take a deep breath, take a look at the company, make sure that it’s consistent with its policies and its goals, that the financial statements are accurate, that there’s no fraud, the metrics they’re using to measure success, whatever you want to call it, are solid, and you tend to ask the same questions all the time. The answers change, but we’ve been asking the same questions all the time.

I’m just hoping that that process gets the amount of time it deserves, and that these other issues, and I think the media is trying to bring these issues into the boardroom, maybe they should be there more so than they are now. I hope they don’t dominate and we lose track of what’s really important.

Joe: Let me just ask this last question, I’ll turn it over to you.

At the end of the day, isn’t it just the age old responsibility that the CEO and the board [00:18:00] chair really have a very serious responsibility to make sure the board is focused on the issues that are important to the company.

These issues don’t just creep in, someone is bringing it into the board, and at the end of the day, don’t the CEO and the board chair, assuming they’re different people, but even if they aren’t, isn’t that the responsibility that they have to make sure that the time that the board spends is appropriately focused?

Paul: Exactly. What I’ve asked the CEOs on my boards is, as long as your people are learning about AI and they must be educating themselves some way either through experts or symposiums. Is there any chance that the board can tag along so we can learn too? Then the CEO and the chairman do set the agenda, and if it comes up at a board meeting, it’ll get the appropriate time, but there’s nothing wrong with us learning alongside you as long as you are learning.

You hit the nail on the head, it’s up to the CEO and the chairman to figure out how [00:19:00] to do that, how to present it, and where it belongs on the agenda.

Raza: Well, the board-of-one problem that you mentioned, is part of it also just the board composition? You do need people who have not only broad knowledge, but sometimes specific knowledge as well, and you want people to have deeper expertise in something, but diverse perspectives on other things and broad experiences. Would having a better composed board be a solution to the board-of-one problem that you posed?

Paul: Yes. As long as they have the broad experience, diversified experience, it helps to be in large organizations becasuse you tend to have more complex problems. Then having that specialty too, or in addition to, makes that person a better member. You, of all people, Raza, that as a technologist, you know how quickly technology changes. You know how something that’s very, very current now can just go away, sometimes overnight, [00:20:00] and also how much technology is now dominating every aspect of businesses, so I always worry about that. Does someone get outdated overnight because of this huge change?

Raza: I think the reverse needs to be true, which is the boards need to be constantly updating themselves because my personal skills as a technologist would be fairly soon outdated if I didn’t keep up and board members also need to be part of it. I think your suggestion of, let’s say, AI, if the management team is learning about it, the board should be learning about it and then framing it back into the core responsibility of where does it matter for our company, for our organization, and what should we do about it might be the way to go.

Paul: It’s extensive. We ask ourselves a lot of questions, and part of that, Raza, is, are we really still the right people to be on the board? Do we have the right skillsets? Because sometimes that changes and you need to change the composition of the [00:21:00] board to adjust for those changes.

Raza: Paul, maybe then talk a little bit more about that, which is board effectiveness. Are we the right people? Do we have the right skills? What are your observations on board effectiveness?

Paul: With the right people, the right skills, this is the way I view it, I really believe we need to challenge the management at the same time as being wind at their back and helping them execute their goals, but making sure they do everything right, make sure they do everything within the confines of the laws and regulations.

I tend to be on a lot of financial boards that are regulated by the OCC, so you know how many rules and regulations we have to comply with. But I noticed in my mind, we get comments from the CEO all the time. What we try to do at our meetings is always have a senior member of management or two present, so we’re staying current with what’s going on in the company.

We find the management team really likes that. They like coming in front of the board, and we [00:22:00] like it. In particular, when it deals with succession, where we know who the leaders are, and we want to know who’s coming underneath them. The feedback that we’ve been getting is that they really like us that we’re there. They realize we’re there to help them. They see we’re trying to be wind at their back. They also see we’re holding them to very high standard.

That give and take, I think, is really effective, at least the management teams are telling us that, and so we’re getting very, very good feedback. We’re not just somebody that they have to go through a road show and just get it by us, then they can go back to their desk and go to their job. We want it to be a meaningful experience where they walk away somewhat enlightened.

Raza: I think part of it also is what Joe and you talked about the example, which is, are we still relevant? Do I have the skills, expertise, engagement to still be on the board? I think if you ask management to rate the board’s effectiveness versus the board, you will [00:23:00] probably get a different answer.

Offboarding and recognizing when it’s time to not be on a board is another way of keeping and making board more effective. You need the board of the future to be an effective board.

Paul: At one of my boards, the company’s counsel is there and the board has its own counsel that is there. At one point in the meeting, every meeting on the agenda are legal developments that we need to be aware of and board developments that we need to be aware of because they sit in on so many different meetings and so we basically look outside and have someone tell us what’s going on and how that may apply to us because we have to worry that we’re going to be too insular. That is our way of addressing your point.

Joe: Do you have the lawyers there in part so that the conversations you’re having about these issues are privileged?

Paul: Yes.

Joe: Because I find that there are a number of times that I’ve been in board meetings when that is a very [00:24:00] important consideration.

Paul: Yes, and the other thing is when you’re regulated again by these government agencies, you’ve got to make sure that your minutes are perfect and that the wording is perfect, and sometimes if you’re left without their help, we might not do it right.

Joe: May I ask you a question? Why does the board have its own counsel?

Paul: Because in this particular case, the board is a trust. The trust represents the shareholders who invest in the mutual fund. The company delegated the management and the administration of the mutual fund to itself, so there has to be a third party that represents the shareholders to make sure that the company is doing a good job pricing the product fairly and complying with all the laws, so to some extent, we are opposing the management company and we have our own counsel.

Joe: That is interesting. And is it true that most boards you sit on don’t have their own counsel?

Paul: [00:25:00] Correct.

Joe: Yeah, okay. I was curious about that.

Paul: This is the board within a board.

Raza: Paul, maybe talk about the role of the board chair in making the board effective.

Paul: I have chaired a few boards, I chair one now, and what I say to the other board members is, “Before we start, I just want you to know one thing. I work for you, you don’t work for me, so I’m here serving you.” I think that helps a lot. I’m very transparent. I reach out to them all the time seeking a wider audience.

I do set the agenda with the CEO myself. I meet with the CEO once a quarter privately to make sure to see how the company’s doing, and I try to keep myself out of the meeting, we’ll say, as much as possible, other than to make sure everybody stays on track as far as time and that we cover the key points.

But I want the other board members to be as active as possible in the meeting, and myself to be more of, I wouldn’t say, a passive participant, but I don’t ever like taking over [00:26:00] or dominating a meeting.

Raza: Paul, another way of framing effective boards is to look at ineffective boards. What are some observations or things you may have seen with things that makes board ineffective?

Paul: I haven’t been on an ineffective board. I haven’t been on boards that are perfect, but I will tell you this, I always think about if a problem occurs and I have to go into a courtroom and a judge asked me something, do I really understand the subject matter that the board was dealing with?

I get scared sometimes if I don’t. I always try to get myself up to speed on that. Or I worry that the board is too far away from a particular subject that management’s working on that I feel uncomfortable that we’re not more embedded into exact understanding at all.

An ineffective board, I believe, would be one that has more of a rubber stamp and lets management continue to do what it wants to do and doesn’t probe, and particularly in the financial services industry, the [00:27:00] products that I have seen come out over the last 25 years, some of which get invented in like a day and they’re in the marketplace the next day, I often wonder if the portfolio managers even understand them that well, let alone the boards.

An ineffective board would not understand as much as it should what’s really going on and accepting too much of what management is telling them without slowing it down and asking penetrating questions.

Joe: If the board chair and the CEO together aren’t working well together to make sure that the board is being effective, what does a board member do? I mean, what is the responsibility of the board member other than possibly leaving a board? But if you’re on a board where you think it’s, let’s say, rubber stamping and not really taking its responsibility seriously, what do you do?

Paul: You have to go to your chairman of the board and tell them you just don’t think it’s working right, and here are the reasons why. The chairman is the main [00:28:00] liaison with the CEO, although most CEOs are terrific in making sure they’re in touch with all the board members or they see them and they’re very good at making sure they stay in touch with you and they’re very good at the meetings and making sure you’re aware of everything that’s going on.

But to the extent that you don’t like something that’s going on, you have to go to your chairman because at some point, you’re violating either the prudent man rule or your fiduciary responsibility, and when you feel uncomfortable about that, that’s what we were hired for. We’re fiduciaries so you’re going to have to report it and you’re going to have to do something about it. Either something has to change or you have to change in terms of moving on.

Joe: Yeah, I agree. I don’t know if most board members do that, but I absolutely agree that that is the responsibility. Paul, it’s been great speaking with you today, and it’s been a great conversation. Thanks so much for joining us.

Paul: Thanks for having me. Keep up the great [00:29:00] work. I love your podcasts.

Joe: Thanks so much. And thank you all for listening to On Boards with our special guest, Paul Braverman.

Raza: Visit our website at OnBoardsPodcast. com. That’s OnBoardsPodcast.com. We’d love to hear your comments, suggestions, and feedback. And if you’re not already a subscriber, please be sure to subscribe at Apple Podcasts, Spotify, or wherever you get your podcasts, and remember to leave us a five star review.

Joe: Please stay safe and take care of yourselves, your families, and your communities as best you can. We hope you’ll tune in for the next episode of On Boards. Thanks.