40. Anthony Goodman – The many faceted challenge of creating and maintaining an effective board

Anthony Goodman is the leader of the North American Board Effectiveness Practice for Korn Ferry, and he understands the challenges boards face meeting the challenge of becoming a high performing board – and maintaining excellence.  In this episode we discuss some of those challenges. 

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Links

Anthony Bio

Analyzing emerging trends in board evaluation practices

How boards can adapt to support ESG efforts

The ‘Climate Change’ Director

Quotes

Who is responsible for ESG?

The idea that ESG is not going to impact the entire board and every committee is a mistake. If you think about ESG as it’s supposed to be, it is about the company’s strategy and its risk management.  What you’re really asking is, “what are the material risks and opportunities of ESG.”

ESG Expertise

Question: With the increasing emphasis on ESG, does that mean board need a new set of skills and tools and, if so, what are some of the skills and tools they should be considering?

What boards need to do first is understand “what are the material risks and opportunities for our company, and when they have done that assessment, or management has done that assessment for them.”  Then the next question they need to ask is, “As we look at the issues for which we need to provide oversight, do we have the skills and experiences on the board to do that?

If there’s something glaringly missing, how do we get that skill into the board?  But maybe it’s about the whole board upskilling.  Maybe it’s about the fact that everyone on the board actually needs to understand what the material risks to the business are.

Michelle Edkins, who runs the stewardship team globally at BlackRock, has this wonderful saying: “A board made up of one trick ponies is a circus.”

Board Effectiveness

How involved is the board in the strategy how involved has the board been in helping to develop the strategy and overseeing the strategy? How involved are they in risk management and identifying and making sure that risks are being dealt with? How effective have they been in hiring and firing CEOs

The question is who can the board get feedback from? It’s often just within the board itself, but you could, for instance, ask senior managers whether the board is actually adding any value to them. Is it providing guidance? Is it providing challenge? Do they feel stretched by this board or not? 

You could ask your investors. You could ask your audit firm. You could ask your law firm. There are a number of stakeholders that are in and around the boardroom that observe how the board is doing.

Board meeting agenda

It takes a certain amount of courage to ask for an outside-in view of the board. It’s much easier to do than an inside-out view and just ask the other directors how you’re doing.

People have got a lot of choices these days. The idea that boards are the buyer, actually no, boards now have to sell themselves to candidates, particularly good candidates who are women – who are people of color, who are digital natives – because those are the people everyone want on their board, and the real question is, why should they want to come on your board?

I think we’ve all got to be grownups about this, that sometimes it’s just our time and we have to be willing to let go, but I think a lot of people’s personal identity is tied up with being a board director, and if this is your last public company board, you’re going to try and hang on to it as long as you can. Otherwise, what are you going to tell people down at the golf club that you do? You’re a board director.

I sometimes say collegiality is a mask that covers up a lot of problems underlying in the board, and one of them is the inability to let go and allow people to make a dignified exit from the board.

Big Ideas/Thoughts


Board Culture

The question that comes to my mind here is accountability: how does a board hold management accountable for building the culture. 

I think it’s very hard to draw a straight line between an effective board and an effective company, but I think when the board is ineffective, it starts to erode what the company can do, what kind of strategic opportunities it has, the quality of the people it can recruit into senior management.  A bad board, I think, can create a lot of havoc inside a company, but a good board doesn’t necessarily make for a good company.

Boards are often lagging indicators around strategic change.  They’re not always leading indicators and we often see companies where the board is quite a way adrift of where the company has evolved to.

I want to give you another C-word that boards should be thinking about and that’s courage. If we had courageous conversations between board chairs and board directors, between non-gov chairs and board directors, this [off-boarding] would be so much easier.  But collegiality often trumps courage, and I think that’s a big problem for boards. 

Diversity

Just to go back a little bit, so why is there this focus on diversity? A lot of it actually came via the investors, the investor community. Why did they want boards to become more diverse? What they’re really trying to do, I think, is to make sure that boards are cognitively diverse, but that is something that is really hard to do from outside.

You can’t assess whether a board is cognitively diverse from the outside, and by the way, there’s nobody trying to assess whether they’re cognitively diverse on the inside either. What do investors say? They’ve said, “Okay, if we knew that the people on the board who definitely come from different backgrounds and different approaches to life, then we could imagine there might also be cognitive diversity.”

Our own practice, our board practice over the last couple of years, has been running at about 55% of all the people we put on boards in the US are women or people of color, I think that’s pretty consistent across all the search firms.

A lot of first-time directors, women and people of color, are not perhaps being heard as much in the boardroom as they would have liked. I think a lot of board chairs probably think they’re doing a good job trying to get everybody’s voices to be heard, but I think that boards have to work quite hard to be inclusive and to make sure everyone feels comfortable in the boardroom.

Board Succession Planning 

They ought to be looking at the strategy of the company, thinking about where it’s heading over the next three to five years, and then looking at the skills and experiences that they have today and understanding the gaps. Let’s say 10 years ago, the company might’ve been a purely domestic company. Now it’s made a number of acquisitions globally, and there’s nobody on the board with international experience. 

Think about what next three, four, five directors are going to look like, and wouldn’t it be great if out of those five, at least two, maybe three were going to be women that a certain number would be people of color, a certain number of them would be under the age of 56. In that way, if we land on some fantastic former CEO today, happens to be a white male and doesn’t check any of those other boxes, we can still have that person on our board because we know we’ve got four more slots to fill, and we’re going to make sure that in that batch of five people that we’ve got all the skills, experiences, and backgrounds that we want as opposed to trying to load them all on one person.

Episode Transcript

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. On Boards is about boards of directors and advisors and all aspects of 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, as well as 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 takes to be an effective board member, what challenges boards are facing and how they’re assessing those challenges, and how to make your board one of the most valuable assets of your organization.

Joe: Our guest today is Anthony Goodman. [00:01:00] Anthony is a senior partner with Korn Ferry where he is the leader of the North American Board Effectiveness Practice. He advises public and private company boards, including large non-profits, mutual funds and family-influenced businesses on a range of confidential matters from board chair succession to board composition. He’s an experienced advisor to non-executive directors and C-suite executive teams in the United States and Europe on organizational and leadership strategies, the alignment of leaders and organizations for effective oversight of environmental, social, and governance opportunities and risks, that’s ESG, and improved relationship with stakeholders. 

Raza: Anthony spent more than 12 years as a partner at Tapestry Networks, an organization convening board directors, investors, and regulator for peer learning and mutual understanding. He was the [00:02:00] founder and co-chair of the Shareholder Director Exchange ,that’s SDX, which developed the first protocol for board-shareholder engagement in the United States. For five years, from 2009 to 2014, Anthony wrote the leading viewed column for Financial Times.

Joe: Anthony is a board director of Boston Scores, a non-profit providing after-school programs in public schools. He is a member of the National Association of Corporate Directors (NACD) and the International Corporate Governance Network. (ICGN). Welcome, Anthony. It’s great to have you today on On Boards. 

Anthony: Thank you, Joe. And thank you, Raza. 

Joe: As the head of Board Effectiveness in North America for Korn Ferry, the first question I have is, how does a board know if it is [00:03:00] effective? 

Anthony: I think that’s a great question, Joe, and I would answer that in a couple of different ways. First of all, I think one would potentially judge the board on the outcome, so how involved is the board in the strategy? I don’t think it’s fair to judge the board entirely on whether the strategy is successful or not, because it’s going to be developed and executed by management.

But how involved has the board been in helping to develop the strategy and overseeing the strategy? How involved are they in risk management and identifying and making sure that risks are being dealt with? How effective have they been in hiring and firing CEOs? That’s another major responsibility they would have. Have the transactions that they’ve approved value adding or value destroying, and are they regularly refreshing themselves so that they are keeping [00:04:00] pace with, if not ahead, of where the company’s strategic evolution is headed? 

I think those are some of the things you could look at to say how is the board doing on each of those things, but at the end of the day, if you want to know whether you’re effective or not, and this is true for any of us in our jobs, you have to get feedback. Now, the question is who can the board get feedback from? And often it’s just within the board itself, but you could, for instance, ask senior managers whether the board is actually adding any value to them. Is it providing guidance? Is it providing challenge? Do they feel stretched by this board or not? 

You could ask your investors. You could ask your audit firm. You could ask your law firm. There are a number of stakeholders that are in and around the boardroom that observe how the board is doing.

[00:05:00] Finally, of course, you can bring in a third party to conduct an independent evaluation and they will tell you how you’re doing. But I think there are ways boards could be much smarter about evaluating their effectiveness than they currently are. 

Joe: Do many boards go about determining their effectiveness in the ways you just suggested primarily by looking to outside or third parties, even though it may be internal, such as senior management, do many boards actually do that?

Anthony: Not that many, no. I think among the larger cap public companies, I think that’s more common than other types of boards. It takes a certain amount of courage to ask for an outside-in view of the board. It’s much easier to do than an inside-out view and just ask the other directors how you’re doing.

Oftentimes, even the way you do that is a bit antiquated. [00:06:00] If the way you’re getting that feedback is just by doing the survey, perhaps administered by your corporate secretary and you’re answering questions on a one-to-five scale and there may be a box to comment, but who wants to put in a thing in writing these days? That’s probably not a very effective way of finding out how you’re doing, but that’s what a lot of boards do. 

Joe: One of the things you said on a number of those points was how engaged or how active is the board in certain things like strategic planning, which makes sense to me. Is active and engaged enough for a board to consider itself effective? I mean, just being active in helping create a strategic plan doesn’t seem to rise to the level of, is this a good plan? What have we done to make it better? 

Anthony: Yes, exactly. What are the skills and experiences of the board members that are going to add value when you’re spending time on the strategy? There [00:07:00] are boards today still where the board meeting is a peremptory two-and-a-half to three-hour meeting four or five times a year. We thought maybe those boards all have to change, but not all of them have.

When you look at those boards, you often find that the directors themselves, there’s nobody on the board who actually really knows anything in depth about that business, and so if you’re the CEO, why would you want a longer board meeting? I mean, what value is that going to create for you?

You’ve got to know something about something, I think, in order to be able to be active and engaged. Just getting excited and asking lots of questions may or may not be useful, but asking them because you’ve seen it before or because you’ve had this experience or because you’ve sat on other boards that had the experience is going to give much more weight to what you’re doing.[00:08:00]

Joe: I guess a question, we say in our intro that board of directors can be one of the most valuable assets of any company or organization. Is there, in fact, a link between what we would consider successful companies and effective boards? 

Anthony: I think it’s a tenuous link. I think we’ve all liked to say that the very best companies that are performing really well have fabulous boards, and that’s not always the case. I’ve also worked with companies where I thought the board was absolutely fantastic. It was superbly diverse. It had wonderful skills and experiences. This was in a retail environment and it completely missed the omni-channel change. 

I think it’s very hard to draw a straight line between an effective board and an effective company, [00:09:00] but I think when the board is ineffective, that does start to erode what the company can do, what kind of strategic opportunities it has, the quality of the people it can recruit into senior management. A bad board, I think, can create a lot of havoc inside a company, but a good board doesn’t necessarily make for a good company. 

Joe: Interesting. We sort of know what’s supposed to happen if there’s a relatively effective board and they view the CEO as someone that’s not particularly effective, he or she gets fired and they find a new CEO. What about the situations where there’s a great company, a strong CEO and maybe senior management team, but the board is basically ineffective, and it kind of rides on the coattails and if they look at the stock price and things are great with the market and investors love them, but [00:10:00] it has nothing to do with the board’s performance. It’s really something about what management has done, or maybe what the culture that this particular board inherited. How does that play out? 

Anthony: Boards are often lagging indicators around strategic change. They’re not always leading indicators and we often see companies where the board is quite a way adrift of where the company has evolved to. I’ll give you a very stark example. A few years ago, I was working for an oil field services company that had made a decision that it really wanted to be in the shipbuilding business, and so this was quite a big strategic pivot, and they had started to make that pivot. They have brought people into the management team to help with that. 

But when you look to the board, everyone on the board was an oil-and-gas expert, nobody was a shipbuilding expert and the board was like the last piece of the jigsaw [00:11:00] that was changed. I think companies and boards miss a trick that if they are going to be changing the strategy, if they’re going to be doing some form of transformation in the business, actually changing the board ahead of the change, or at least at the same pace as the change, would give you a much better chance of being successful, because you’ll have people there who can ask the right questions, who can share their experience, who can provide coaching and mentorship to management, who can help inform the other board members. 

But in the absence of that, the board is actually really captive to management because there’s nobody on the board that can successfully challenge management. I think getting boards to recognize much earlier on that they need to change as well and thinking through what that change looks like and executing it, I think would be very, [00:12:00] very helpful to a lot it. 

Joe: That makes a lot of sense. When a company goes through a merger, one of the things that I think we all would agree is that it’s important to look at culture. Are these two companies compatible? Because when they aren’t, it’s highly likely there are going to be problems and it may not work at all, and I would say the Boeing McDonnell-Douglas example is probably a good one. Without necessarily commenting on that particular situation, how do you address that if you were brought in at a time when you could actually do something about a merger of cultures that didn’t look right or might present problems, what would you advise? 

Anthony: I think the question that comes to my mind here is accountability, so how is the board holding management accountable for building the culture. Now, of course, that implies that they’ve had some kind of conversation [00:13:00] about what they want the culture of the one company to be, and I think a lot of boards have only in the last few years started talking about organizational culture as a board issue. Prior to that, it was always a last management’s responsibility. 

But the board is always challenged in the area of culture in the organization because, think about it a bit, part time they come in four to six times a year, maybe a little more often in Europe to have a meeting. Oftentimes they’re meeting in the corporate headquarters or a nice hotel somewhere, and they don’t really see the company. Good companies will spend time doing site visits and try and get directors in front of employees, but it’s a bit like when the queen mother comes to go and visit a town, the whole town would get painted before she arrived and she would think that every town in Britain just look beautiful.

The same thing happens when the board comes to [00:14:00] town, so it’s very hard for boards to get a handle on culture, but they’ve got to try and they’ve got to at least have management talking about it in the boardroom, and they’ve got to understand, well, what are the metrics? How are you going to measure whether or not you’ve created the right culture? How does that feed through into how you’re going to reward management who gets promoted? 

There are a lot of levers that management can pull to impact on the culture. Are they doing that? And what kind of dashboard could be created for the board so they can have some kind of a handle on what’s going on, but we’ve seen culture problems cause issues for lots of companies; banks, oil companies, it is an issue and it isn’t just when there’s a merger. It can be where you’ve got groups of employees that are fundamentally different to each other. how do you treat those employees?

The compensation committee, I think, has increasingly taken [00:15:00] this on for a lot of boards. Many of them are being renamed, as you know, compensation, talent development, compensation and human resources as a way of getting the board to spend more time going much more deeply into what is the talent. How are we attracting, developing, rewarding, retaining the talent that we have. And of course the great resignation has just made that a much bigger issue. It’s very hard now for boards not to be talking about these issues. 

Raza: Anthony, there’s a lot of momentum now behind the ESG conversations. How have you seen boards dealing with that conversation now?

Anthony: Yeah. Look, I think the talking point is there. Boards want to talk about ESG. I think many of them are still questioning how to organize themselves to do that, and they’re starting to ask questions about what kind of expertise do [00:16:00] we need in order to have these conversations. If you take the organization side of it first, the inevitable question we’re asked is, is this a full board issue or should one of our committees deal with this, or should we have a new committee just to do ESG?

I think for each company, the answer will probably be slightly different, but the idea that ESG is not going to impact the entire board and every committee is a mistake. If you think about ESG as it’s supposed to be, it is about the company’s strategy and its risk management, because what you’re really asking is, what are the material risks and opportunities of ESG. Now, whether that’s climate change, whether that’s societal change, whatever the issues are for your company, how is it going to affect our strategy and how are we going to manage the risks? That’s a full board issue. 

At the same time. The idea that you could [00:17:00] just kind of pigeonhole this into non-gov and that somehow the audit committee doesn’t need to be involved when we hear investors saying, if the audit firm doesn’t mention climate risk as one of the critical audit matters in their report, that’s a red flag that the board is not providing proper oversight. If the comp committee is not asking about these KPIs that we’re setting around ESG for management, how are we compensating people? Do we need to change anything? 

Raza: Does that mean that the board itself needs a new set of skills and tools, and what are some of those skills and tools that they should be looking at for overseeing ESG?

Anthony: That is a great question. I think the SEC’s proposed rule on climate related, actually I think, is going to make more intense scrutiny around this in the years ahead. First of all, I think the easy answer is [00:18:00] that boards are going to say, “Oh, we now need a climate expert of some sort. We need an ESG expert on the board.”

My response to that is it didn’t help ExxonMobil defeat Engine Number 1, and interestingly, when you look at that situation from last year, ExxonMobil actually did have a climate scientist on its board. It had one there since I think 2017 and what Engine No. 1 did was put people who had more industry knowledge on the board. There’s a lesson there I think , that’s the first thing. 

I think what boards need to do, first of all, is understand what are the material risks and opportunities for our company, and when they have done that assessment, or management has done that assessment for them, then the next question they need to ask is, “As we look at these issues that we need to provide oversight of now, do we have the skills and experiences on the board to do that? 

If there’s something glaringly [00:19:00] missing, how do we get that skill into the board? But maybe it’s about the whole board upskilling. Maybe it’s about the fact that everyone on the board actually needs to understand what the material risks to the business are, or it may be about bringing in consultants or setting up an advisory board. I think there’s lots of potential answers once you’ve done your homework and you’ve understood what the issues are. 

Raza: I think what you also refer to, I think the SEC regulations/requirements will also drive as a trigger or a mechanism for boards to kind of up their ESG game, and will require disclosures and other things that the boards will need to come up to speed with.

Anthony: Interestingly, they also came out with a proposal a few months earlier around cyber risk and they asked, are we going to need to disclose the expertise of directors around [00:20:00] cyber security? 

I have colleagues at Korn Ferry who then said to me, “Oh, this is a great opportunity to put more chief information/security officers on board and yes it is, but at the same time, do those people add value to all of the work of the board, because I think the last time we had a cyber security focus, maybe five, six years ago, there were CSOs put on boards and there was some buyer’s remorse by non-gov committees that many of those people were not well-rounded enough to be able to contribute to CEO succession, broader strategic issues, other risk issues, and what they found was that if you put people on the board who say it led to digital transformation, but they were a business leader who led a digital transformation, those people often actually had a really good [00:21:00] working knowledge of technology, including cybersecurity, and they can add value across the board, whereas the one-trick expert doesn’t necessarily, you already have to have a financial expert if you’re going to have a cyber security expert and an ESG expert, and given what we just said about having human capital expert on the board.

Michelle Edkins who runs the stewardship team globally at BlackRock has this wonderful saying when she said, “A board made up of one trick ponies is a circus.” 

Joe: Well said.

Raza: Just finishing up on this, the common thread between the cyber things and even ESG is the notion of risk, and I think that’s where it kind of relates to how you tell your ESG story to investors, how can boards be more effective, and because now investors are [00:22:00] demanding and they view it as a risk to the organization. How can boards be more effective in telling their ESG story? 

Anthony: Well, the one thing I would say is, and if you listen to investors carefully, they usually use some formulation where they talk about ESG-related risks and opportunities. I do think the opportunities piece is quite important. We were doing some work for a company in the automotive industry and they provided auto parts and it emerged that actually every single one of these parts was created using businesses that were using exclusively geothermal energy, so they could be claiming that every single auto part produced by this company is produced with clean energy, and I think that would be a very attractive opportunity to the OEMs who are all trying to get us to drive cleaner and [00:23:00] greener cars. But the board didn’t know. I’m actually new. We found out by accident looking in the small print of one of their reports that hadn’t gone in front of the board and we sort of flagged this up, and now of course, it’s something that will get mentioned in the proxy when they talk about ESG. 

I think it comes down to a question of thinking about the balance of risks and opportunities here, but being clear, it is about both, and being really clear what the company is doing, like I think disclosure, the investor point of view, is really about, can you tell us what you’re actually doing?

The problem is, when you write stuff that you’re not doing, greenwashing, because the whole point of the disclosure is that it should be a forcing mechanism that just forces the company to do something because they’ve got to say something. 

Joe: In your bio, it talks about Korn Ferry working with [00:24:00] companies on ESG enablement. What does that mean? 

Anthony: ESG enablement, yeah. Look, we talk very much about how, if you decide that you’re going on an ESG journey, and I think every company is on an ESG journey, somewhere on that journey, some are further ahead than others. I doubt anyone ever arrives because we’re continuously evolving our strategies and our businesses and hopefully they’re growing.

But as you embark on that journey, ESG enablement is really about the people and culture aspects of that. Do you have the right people that you need? Do the people you have understand what their roles and responsibilities are? How are you compensating people, including at the top level, but all the way through the organization? Does the organizational culture support this ESG journey that you’re on?

It’s really a whole series of things that [00:25:00] companies need to do once they’ve identified their ESG strategies, how are we going to execute this, and the answer is always through people and if you do anything with people, it has an impact on your culture, and so how are you going to transform your organization to deliver.

Joe: Let’s talk a little bit about board composition. One of the biggest topics for a while, and rightly so, has been diversity. Talk a little bit about the momentum that’s gained and what is going on with the efforts of both public and private companies to diversify their boards. 

Anthony: Just to go back a little bit, so why is there this focus on diversity? A lot of it actually came via the investors, the investor community. Why did they want boards to become more diverse? What they’re really trying to do I think is to [00:26:00] make sure that boards are cognitively diverse, but that is something that is really hard to do from outside.

You can’t assess whether a board is cognitively diverse from the outside, and by the way, there’s nobody trying to assess whether they’re cognitively diverse on the inside either. What do investors say? They’ve said, “Okay, if we knew that the people on the board who definitely come from different backgrounds and different approaches to life, then we could imagine there might also be cognitive diversity.

If we got more women and people of color and people from different socioeconomic backgrounds and younger people on the board, we could hope that there would be diversity of thought in the boardroom. At the end of the day, those people who argue, “Well, I’m not interested in diversity around gender or people of color. I’m only interested in diversity of thought,” [00:27:00] it’s the same discussion. It is putting women on board, putting people of color on the board because you want more diversity of thought than you could get from 11 white men. 

That’s kind of the background to this. What we’ve seen is boards have made extraordinary efforts to get more women on. We know that there are very few in the large caps now. I think none in the S&P 500, all male boards. As you move down the long tail of public companies, the picture’s not quite so good when you get down to the small caps in terms of people of color, probably a similar picture. 

But there was a huge impetus after George Floyd was murdered and a lot of companies has made public commitments to do more around diversity in the company, as well as on the board.

Our own practice, our board practice over the last couple of years, has been running at about 55% of all the people we put on [00:28:00] boards in the US are women or people of color, I think that’s pretty consistent across all the search firms that that’s what it’s looked like so the new directors are coming on boards are more diversed.

They also tend not to have been on boards before, and I think one of the challenges we’re going to face over the next few years once we start meeting in person again after the pandemic is that we’re going to have, I think, a bit of an inclusion problem in the boards, because a lot of these first-time directors, women and people of color, are not perhaps being heard as much in the boardroom as they would have liked. I think a lot of board chairs probably think they’re doing a good job trying to get everybody’s voices to be heard, but I think that boards have to work quite hard to be inclusive and to make sure everyone feels comfortable in the boardroom.

Joe: [00:29:00] One of the things you said earlier was, interestingly, that boards are a lagging indicator, the last thing to change, whereas my instinct is, it should be the first thing to change. What are boards doing? What should boards be doing in order to be ahead of the curve? 

Anthony: Yeah, I think boards ought to be doing board succession planning. Now, we know that they do in their own reckoning. When you look at these polls, they feel they’re doing a fairly mediocre job of management of succession planning. They’re doing an even worse job when it comes to board succession planning.

But thinking ahead, they ought to be looking at the strategy of the company, thinking about where it’s heading over the next three to five years, and then looking at the skills and experiences that they have today and understanding the gaps. Let’s say 10 years ago, the company might’ve been a purely domestic company. Now it’s made a number of acquisitions globally, and there’s nobody on the ward with [00:30:00] international experience. Nobody has actually lived and work. 

That’s just a small example of digital transformation. The more obvious one on it now, every company is going through a digital transformation, but not every company has got a board with a lot of experience in digital transformation, because if the last time you were an operating executive was 10, 15 years ago, your experience is a lot less useful now than it was then, so taking an inventory of skills and experiences and backgrounds and matching that to the strategy and figuring out what the gaps are, and then not thinking about board searches are one-off, so what’s the next director going to look like? 

But thinking about what next three, four, five directors are going going to look like, and wouldn’t it be great if out of those five, at least two, maybe three were going to be women [00:31:00] that a certain number would be people of color, a certain number of them would be under the age of 56. In that way, if we land on some fantastic former CEO today, happens to be a white male and doesn’t check any of those other boxes, we can still have that person on our board because we know we’ve got four more slots to fill, and we’re going to make sure that in that batch of five people that we’ve got all the skills, experiences, and backgrounds that we want as opposed to trying to load them all on one person.

Because when that happens, you get what we call the sort of purple unicorn factor, which is you asked your search firm or your poor old non-gov chair to do it on their own to go out and find somebody who cannot possibly meet all of those criteria and you can spend a lot of time and meet a lot of people and still not find anybody for [00:32:00] your board and you want to kind of end that paralysis and be able to make swift decisions. 

People have got a lot of choices these days, the idea that boards were the buyer, actually no, boards now have to sell themselves to candidates, particularly good candidates who are women, who are people of color, who are digital natives, because those are the people everyone want on their board, and the real question is, why should they want to come on your board? But a lot of boards have not got to the point yet where they’ve realized it’s not a gift that we’re giving you, come and be on our board, it’s the candidates who are assessing two or three offers at the same time, trying to draw out what’s best for them.

Raza: Anthony, it sounds like that for newer board slots that are opening and getting filled, there is a lot of momentum in the positive direction of having diverse candidates being placed. But we also know that [00:33:00] new slots actually come up rare. I think we heard from one of the last guests that they figured that actually it’s statistically more likely to be hit by a lightning than to be placed on a Fortune 500 board. How can there be a capacity increase? I mean, it also relates to term limits and the culture around that. Boards like each other. How can there be some capacity increase to make room for more skills, more diversity and more modern skills to be as part of the board?

Anthony: Raza, I think you’re probably more likely to be hit by a lightning than asked to leave a board once you’re on it. If we go back to the process that we were talking about, this board succession planning approach, I think part of that actually has to be an honest assessment of who’s on our board now, and somebody who was adding tremendous [00:34:00] value a decade ago may not be the right person for our board today.

I think we’ve all got to be grownups about this, that sometime it’s just our time and we have to be willing to let go, but I think a lot of people’s personal identity is tied up with being a board director, and if this is your last public company board, you’re going to try and hang on to it as long as you can. Otherwise, what are you going to tell people down at the golf club that you do? You’re a board director. 

I think it’s hard for people to let go and it’s very hard for boards to tell people to go. They’ve spent 10, 12, 15 years in this person’s company. It’s probably a man, so they know this person’s wife. They’ve played golf together. I sometimes say collegiality is a mask that covers up a lot of problems underlying in the board, and one of them is the inability to let go and allow people to make a dignified exit [00:35:00] from the board. 

I think dignity is important here. I think there are ways to do it gently. I think there are ways to do it using evidence, having a third party come in and do that assessment for you. It makes it easier because then they can be the bad cop and you can be the good cop. But at the end of the day, we’ve got to be a lot better at asking people to leave and retirement age as a blunt tool, investors don’t like it particularly. 

I was literally talking to a director today and their board retirement age is 72, and I said to him, “If Warren Buffett said, ‘I’m wanting to invest in your company and come and sit on your board,’ you’d change that retirement age tomorrow and get rid of it, wouldn’t you?” Of course, the answer is yes so age has nothing to do with it. I think tenure in many ways is more important.

One of the things I find fascinating, I mean, I have a British accent, and in the UK, in nine years you’re no longer [00:36:00] seen as independent. I’m not trying to make that case, but look at American non-profit boards, almost all the big ones have term limits. You can do three-year terms and you can have three or four three-year terms, and then it’s time to leave the board. But we don’t adopt that idea in public companies, and I sometimes think we should give it more consideration that we do.

In Canada, they’re starting to look at this, and they’re looking at 10 years. If you’ve been on the board 10 years, A, are you losing your independence? And B, are the skills and experiences that brought you to the board still things that we need, and are you as up-to-date as you could be? In all of this, let me just say this to tie a bow on it, I wouldn’t do retirement ages. I wouldn’t do term limits if boards really took [00:37:00] changing directors seriously doing serious board evaluations, including individual director assessment and getting really good at knocking on people’s doors or tapping them on the shoulder when it’s time to go, you wouldn’t need these other things. 

Raza: Yeah.

Joe: Yeah, it makes sense. I would say that your argument about age limit and Warren Buffett works the other way with term limits. Warren Buffett is on your board, you have term limits of 12 years, and now you have to go tell Warren Buffett to leave. You’re right, age is a blunt instrument. Term limits might be slightly better, but the reality is that the only thing that’s really going to work is to have a better board culture around future planning. Like every other strategic plan, here’s what we plan to do in the next three to five years and let everyone in on it and let everyone have a voice in on it, and so no one feels like they’re being singled out. We’re all in [00:38:00] this to make the company better and you can help us do that by helping us plan what our board of the future is going to look like.

Raza: Joe, it all starts with when they’re being recruited onto the board with those expectations, like onboarding is such a crucial element of that, because that’s where that, “Hey, one time on the board, I’m never going to leave things.” It comes from, nobody told him, “Hey, you may have to leave.” But yeah, it’s a great, great topic to consider that as time passes, are we going to see more capacity on US boards coming up so that we can freshen up our collective boards and the state of boards?

Anthony: But also let’s talk about that expectations thing, because I was once having a meeting with a stewardship team of a large investor and they raised that very point. They said, “Look, you’re a search firm. Presumably, you tell the candidates for the board that they are only going to be on the board for[00:39:00] 10 years, whatever the number is,.” and we said, “No, that’s not our job. That’s really to signal that.” But, the fact is, I don’t know any candidate that’s ever had that conversation with a board chair or a non-gov chair that said to them, “Hey, sometime around the 8- to 10-year mark, we might tap you on the shoulder and say, it’s time, and you should expect that it’s going to happen.

It would be so much healthier if we could set that expectation, and think about this, boards are trying to put sort of younger, more digitally savvy people on. You’ve got a board director that are aged let’s say it’s a 52-year-old board director so about 10 years younger than the average age of being appointed to a board, and your retirement age is 72. Are you really telling that director you expect them they’re going to be [00:40:00] on the board for 20 years? It’s absurd, and when you say it like that, it sounds absurd. But have you told that director, “Our retirement age is 72, but somewhere around the 10-year mark, we’re going to come and have a chat and we may keep you on. We may ask you to leave.” 

It would be a lot healthier if we were willing to do that, and by the way, look, we talked about collegiality. I want to give you another C-word that boards should be thinking about and that’s courage. If we had courageous conversations between board chairs and board directors, between non-gov chairs and board directors, this would be so much easier, but collegiality often trumps courage, and I think that’s a big problem for boards. 

Joe: That’s a great way to end it. Collegiality trumps courage. Anthony. It’s been great speaking with you. What a terrific conversation. Thanks for joining us today. 

Anthony: Thank you, [00:41:00] Joe. Thank you, Raza. 

Joe: And thank you all for listening to On Boards with our special guest Anthony Goodman.

Raza: We have a request for our listeners. Please take a moment to rate and review On Boards on the Apple P odcast app if you enjoyed listening to it. It really helps others discover our podcasts. Also, you can visit our website at OnBoardsPodcast.com. That’s OnBoardsPodcast.com. We’d love to hear your comments, suggestions, and feedback.

Joe: Please stay safe, take care of yourselves, your families, and your communities as best you can, and Raza, you and your family, take care as well.

Raza: You too, Joe.

Joe: Thanks. Take care.


39. Gabe Kleinman – The most valuable companies of our time will be the ones solving humanity’s biggest problems

In a very short time – six, seven years – we’ve gone from impact investing being referred to as “invest for less” to “companies responsibly harnessing technology to solve big problems will outperform.” In this episode we discuss how ESG has helped to drive that shift and the impact it is having on investing and board governance.

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

Links

Gabe Bio: https://obvious.com/team/gabe-kleinman

Quotes

Ev Williams on why he founded Obvious Ventures: “I want to fund the companies that I wish existed in the world.”

Obvious exists to back purpose-driven founders reimagining trillion dollar sectors. We are a multi-specialty firm investing in the fundamental building blocks of life and society: food, transportation, housing, healthcare, and more, investing in companies that are completely reimagining each of those sectors for the better.

For the first number of years at Obvious Ventures, we did not talk about impact. We actually banned the “I” word because the industry of “impact investing,” as it was originally constructed, was not a returns-focused industry. It was an industry wishing to realize some returns alongside some sort of social or environmental impact. There was a general belief that one would have to sacrifice profits in order to get that impact return, so to speak.

We founded Obvious Ventures on the simple belief that the most valuable companies of our time will be the ones solving humanity’s biggest problems.”
For earlier-stage venture, board observers are common, and I think that’s due to the nature of the stage of the company and what they need to do in order to survive, because for early-stage venture-backed companies the fatality rate is high – they want as much good advice and help as they can get.

A colleague of mine has a saying, “Startups don’t die of starvation. They die of indigestion.” And so helping them figure out what to focus on and how to get there really helps, and from a CEO standpoint, the board is an extension of your team.

Board meeting agenda
So many boards get bogged down in the actual board room with these graphs and data and charts and everyone’s squinting and it’s like going through a boring presentation for 80% of the meeting. We recommend that CEOs really anchor their meetings in OKRs, (known as Objectives and Key Results), walking through a literal scorecard of how we are doing. Red, not going so well, yellow, we’re doing okay, and green, things are going really well.

If you’re spending 80% of your board meeting with presentations, you’re wasting your time. The board meeting is not the time to educate the board. That is the board’s homework. They should come to the meeting, having done their homework and be prepared to do exactly what you just said, address the issues that the CEO and/or whatever, the management team is really grappling with to get the most value out of the people that are in the room.

Boring presentations at a meeting can be a telltale sign. Most early-stage startup and venture-backed boards are hands-on problem-solving boards. The nature of the meeting tells you a lot of what’s going on with early-stage boards.

Objectives and Key Results, and it’s a framework popularized by John Doerr, and before him, Andy Grove at Intel, can be an effective way of running organizations from small to large, and especially an effective dashboarding mechanism for board meetings.

Big Ideas/Thoughts

What is a B Corp
What it means to become a certified B Corp is you have to score above a certain threshold on an assessment that an organization called B Lab has created which assesses what are functionally environmental, social, and governance practices of the company. I think it’s a great tool for any company of any size to take just as a reflective tool to understand your operation and how you’re doing.

Refreshing your board
A company is a different company at a Series B stage or series C stage with $50 million in annualized revenue, then when it had a $100,000 ARR and it was just getting started with three board members. So often it makes sense that a CEO may need a different set of directors with a different kind of experience at a different stage, while still maintaining some continuity and understanding of the roots and the original purpose of the organization.

Impact Investing vs Investing in purpose-driven companies
We believe that the biggest challenges that our world is facing, oftentimes highlighted by activists and social entrepreneurs were, in fact, big market opportunities and that companies solving those problems would realize the greatest returns

If you look at both consumer sentiment as well as companies that are trying to attract the best employees, the best employees want to work at companies that are having some sort of an impact, and the easiest way for us to measure that impact is through revenue generated and services rendered. It’s that simple.

For example, if you look at Proterra, every time they sell an electric bus, they’re taking a diesel bus off the road. Every time Diamond Foundry sells an engagement ring or creates a semiconductor wafer chip that is lab grown, it’s hopefully taking a diamond mine, which is carbon-intensive with horrible labor practices, out of business.

It’s everywhere now, and everybody is waking up to the reality of these problems that we have to solve. It’s important to note that we need the public sector. There’s no question about that. Without a healthy public sector, none of these can be solved, and same with social activists who often highlight these areas for us, but we need the private sector to be a driver of innovation and delivering those solutions through the market. We are believers in capitalism. We think we need to change the definition and the practices of capitalism, but that’s kind of happening on its own. Everyone is waking up to these new realities and the role of the private sector in helping solve them.

Beyond Meat as a great example of the shift. There were plenty of plant-based options before Beyond Meat, Morningstar Burgers and Quorn, and they were all in the novelty food section of the supermarket. The epic shift that Beyond Meat pioneered was you don’t have to be a vegetarian to love a plant-based product. We are not creating something that is for vegetarians only …we are competing with Angus, and we are going to take them on. One of the big defining moves that Ethan Brown pioneered at Beyond Meat was getting Beyond Meat placed in the meat case alongside Angus options so that everyday people could choose these things. What it really boiled down to was creating a super product that competed with the “original,” and you see this playing out across a host of industries, not just in plant-based protein. Tesla makes the safest, fastest car – which also happens to be the best for the reducing carbon. Nest makes the most beautiful, money-saving thermostat ¬– which also happens to be best for efficient energy use. And so on.

Episode Transcript

Joe: [00:00:00] Hello, and welcome to On Boards, a deep dive at what drives business success. Hi, I’m Joe Ayoub, and here with Raza Shaikh. On Boards is about boards of directors and advisors and all aspects of 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, as well as 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 takes to be an effective board member, what challenges boards are facing and how they’re assessing those challenges, and how to make your board one of the most valuable assets of your organization.
Joe: Our guest today is Gabe Kleinman. Gabe is head of Portfolio Services and Marketing at Obvious Ventures, a venture capital fund that invests in purpose-driven companies, [00:01:00] re-imagining trillion-dollar sectors. He was previously at Medium where he led people operations, product marketing, and partnerships.
Raza: Prior to Medium, Gabe co-led the design for learning practice at IDEO, helping organizations in private, public and social sectors tackle large-scale challenges in education. Gabe begun his career at Creative Artists Agency (CAA) working across CAA marketing, the CAA Foundation and strategic agency initiatives for over a decade.
Joe: Gabe recently co-founded and serves on the board of US Megafire Response, an organization dedicated to ending the megafire crisis in the United States. He also serves on the advisory board of Marketplace from American Public Media.
Welcome, Gabe, it’s great to have you with [00:02:00] us today on On Boards.
Gabe: Thanks for hosting.
Joe: Let’s start at the beginning. What path led you to working with Obvious Ventures?
Gabe: Well, this is really not a linear path. It’s much more of a zigzagging, squiggly line.
I began my career as a paralegal at a big Wall Street firm, and that led me to the decision not to pursue law school and a career as a lawyer.
Joe: Bravo.
Gabe: Thank you very much. No offense. My father was an Assistant Attorney General and my grandfather was a judge, so I hold no grudge against the legal industry.
Joe: Well, Gabe, let me tell you, my father was also an Assistant Attorney General and I was a practicing lawyer for over 30 years. I take no offense. I give you great credit because where you are now seems like a really great place to be.
Gabe: All right, thank you.
After I left, I ended up leaving New York, moving to Los [00:03:00] Angeles and worked for Creative Artists Agency, which was at the time the largest talent agency in Hollywood, and I worked in the marketing division working with big corporate clients, helping them build big entertainment-based and media-driven marketing programs; music tours, integrations into television shows and things like that. Pretty quickly I wanted to move into the foundation, helping those companies, but also big talents and athletes, help them figure out how to spend their time, money, and influence to make the world a better place, so I had some corporate experience, but also a good deal of work with talent on the nonprofit side.
Then eventually I moved into a role that was much more of an operating role with the talent development program at CAA, the agent training program, which I would highly suggest your listeners research. It used to be a bit of a glorified [00:04:00] hazing program. There’s a book called the Mailroom, which is a fascinating look at how talent agents and movie executives rose the ranks within Hollywood.
I was there for a while, 10 years, spent a couple of years building a sports marketing business out of London, and then moved over to IDEO when my wife and I moved back from Europe and the jump at the time was led by my desire to have a larger impact in the world. IDEO really is the temple of design. It was the firm that designed the first Apple mouse, amongst many other devices and systems that we use every day, and the company at the time was moving into much bigger design challenges, applying design to businesses, to scaling education programs and more so it was really inspiring and we got to work with some amazing clients.
In that process I met Ev and Sarah Williams, and Ev Williams who was the co-founder of Twitter [00:05:00] and they tasked IDEO with trying to improve San Francisco Unified School District’s school food program and taking a design-led approach from the food that was served to the experience, to the backend financial and operational model to make it more solvent, and in that process, I also learned about Medium and what was being built at Medium, which was Ev’s follow-up act to Twitter.
I was always a writer and loved writing, and it was just a brilliant platform to help people share their ideas, ideas of greater import on the internet, and so I went to work for Ev just as the company was coming out of closed beta, and I was there for two and a half years at a number of operational roles; people ops, and you mentioned it at the beginning, Raza, as is typical in any startup on an executive team, you oftentimes bounce between many, many roles. That was also my first experience with venture [00:06:00] investors and my first experience in a venture-backed boardroom.
It really opened my eyes to the ways that companies work and really how difficult it is to build a business from scratch, and so after two and a half years and two children, was a little bit fried, and in that process while I was at Medium, I got to meet James Joaquin and Vishal Vasishth who were Ev’s co-founders in Obvious Ventures.
Ev was continuing to be CEO of Medium, but he co-founded this venture firm at the same time, and the more I learned about the Vishal and James and their worldview and what they wanted to do with this venture capital firm, a different type of venture investing in a different kind of company, ones that were solving big problems, one that looked at their purpose as a competitive advantage, that’s when I got excited about Obvious Ventures and decided to jump in.[00:07:00]
Joe: You shared a quote from Ev Williams about what attracted you to Obvious, and the quote was, “I want to build the companies that I wish existed in the world.” That sounds like a pretty lofty goal. What made you think they could do that?
Gabe: That’s an excellent question. Part of it had to do with their professional track records. Vishal, as an example, Vishal had worked at Patagonia for 10 years. He left as chief strategy officer. Their revenue went through the roof during that period, and they were using business as a powerful tool to really improve the world, and that was just with clothing and apparel and outdoor gear, and so this philosophy applied to huge sectors of the economy and companies looking to transform those sectors for the better, I thought there was extraordinary power in that, and their their early investments we’re [00:08:00] proving that out.
What if instead of mining diamonds, we grew them in a lab, in a plasma reactor, and they were carbon free, not just carbon neutral. What if we were funding electric vehicle startups that were completely transforming mass transit and heavy duty vehicles to electrify them all so that we didn’t have to rely gas-powered vehicles that were emitting extraordinary amounts of carbon. Like all these “what if” questions apply to these major industries that just got me on the edge of my seat.
Joe: Let’s talk a little bit about Obvious and its fund, just an overview, which fund, where are you, how much under management and a little bit more about the categories in which…
Gabe: I think it’s helpful to anchor this part with what our purpose is. Obvious exists to back purpose-driven founders [00:09:00] re-imagining trillion dollar sectors. It’s pretty straightforward. We are early stage investors. We lead the first priced round and often take a board seat or a board observer seat in that process. We have four funds under management, over a billion dollars of AUM and over a hundred companies funded and, as you know, many venture capital firms are either highly specialized or they are generalists, and we sit in between. We are a multi-specialty firm and we’re investing in basically the fundamental building blocks of life and society, so food, transportation, housing, healthcare, and then we are looking at investing in companies that are completely re-imagining each of those sectors for the better. How do we electrify every single combustion engine on the planet? How do we make our food system plant forward? How do we back [00:10:00] and build a healthcare system that is driven more by values and outcomes than by fee for service?
Joe: It sounds fantastic.
One other thing about Obvious Ventures beside everything you’ve already said, which makes it very different from almost any venture firm that I’m aware of, is that it’s also a B Corp. I think most people will know what that means, but tell us a little bit about what it means and why Obvious Ventures decided to be a B Corp.
Gabe: The short story on why, and then I’ll tell you what it means, is that the short story on why we became a B Corp is that one of our limited partners asked that we require all of our companies to take the assessment required to becoming a B Corp, not to become B Corps themselves, but just to take that assessment.
As the gentleman in charge of portfolio services, my job is to help our companies and not pile on more work for them, and so I said, “Okay, hold on, let’s pump the brakes. I want us to [00:11:00] take this ourselves to understand what’s the work that goes into it and to determine its value.”
I took the B impact assessment, and Jack Rothacher, who’s our CFO, he came on board and we did a lot of it together. It was really an exercise in empathy, more than anything, which is why we started it. But as we completed it, we realized that our score was high enough to qualify to become a B Corp certified and we decided to just flip the switch and make it happen.
What it means is, it means to become a certified B Corp, you have to score above a certain threshold on this assessment that this organization called B Lab has created assessing what are functionally environmental, social, and governance practices of the company.
I think it’s a great tool for any company of any size to take just as a reflective tool to understand your operation and how you’re doing. But as far as B Corps is go in venture, there aren’t that many. We were the first or one of the [00:12:00] first. There’s another venture firm called Better Ventures in Oakland that they are also a B Corp, but not so many.
Joe: Yeah,
Raza: Venture Capital has the word “capital” in it and they’re not usually associated with ESG, although I think as Joe and many of our guests have pointed out, ESG is now part of the fabric. If you’re not looking at it, working through stakeholder capitalism, you’re probably behind.
Gabe: I think that is definitely true for growth equity and it is moving upstream pretty quickly toward earlier-stage venture.
Joe: But beyond venture and PE-backed companies the entire world of business, whether you’re a private or public company, is not checking the box. It is now, as Raza I think very appropriately said, part of the fabric of what companies need to think about, because it is increasingly viewed as a risk.
If you’re not looking at it, [00:13:00] you’re taking risks with people’s money that maybe makes you less attractive in ways that we’re so focused on before, but we will get to that. I’m going to let Raza take you on a little discussion about governance at Obvious Ventures first though.
Raza: Gabe, you did mention that as Obvious Venture invests in companies, you guys take board seats and board observer seats. Talk a little bit about that. Do you do that for every investment as a condition of investment, or it depends and then maybe in some ways I’ve heard that for venture capital firms, the number of boards collectively that partners can be on is kind of the rate-limiting factor of how many companies the venture fund can invest in.
Gabe: Yeah. When we do lead the first priced round, more often than not, we will take a board seat or a board observer seat, and that often changes throughout the life cycle of a company as it matures and grows and raises additional capital. It’s [00:14:00] always in concert and discussion with the founder and the board about what makes most sense for the company. Oftentimes as the companies do scale, we will roll off our official seat into an observer seat, or just roll off entirely. We’ll maintain information rights, obviously, and we’ll be there for the founder always, but we are critical at the earliest stages from a board perspective.
When it comes to limiting factor, yeah, you nailed it. There are some venture firms that hire partners just as board partners. Their only job is to sit on boards to help expand the capacity of the firm. For us, we don’t have that. Our managing directors and one or two of our venture partners are deeply involved in as many boards as they can handle and not more than that.
Raza: What is that number, like a range, for, per partner or per venture partner? Are they on four to seven boards at a time or [00:15:00] more or less?
Gabe: I think it’s more like five to eight, not to split hairs, but once you get up towards eight or nine, it becomes a little bit less untenable.
Our managing directors and our investment team, they love meeting with new companies and love to be inspired by that, but also that’s the venture capital business.
Raza: Yeah, it is that business where on the one hand you want to find a new investment and it takes a lot of time. And on the other hand, as we know every single one of those is kind of a full-time job of its own and really venture capitalists add that value by being board members.
Gabe, you also mentioned the concept of board observer. Now, I want to point out that maybe in public companies, it’s not as popular, and maybe in certain other private boards, not as common. But what would you say have you observed in terms of venture-backed and PE-backed boards? Is the practice of having board observer fairly common?
Gabe: For [00:16:00] earlier-stage venture, board observers are very common, and I think that’s simply due to the nature of the stage of the company and what they need to do in order to survive, because early-stage venture-backed companies, as you likely know, the fatality rate is very high and so they want as much advice and help as they can get.
As an investor, you want to provide as much as you can give, and so from a governance standpoint for a Series C or A-stage company, it doesn’t make sense necessarily to have more than three board members on the official board, but you want more than three people in the room talking about the most strategic matters for the company, and so that’s why it makes sense to have board observers involved for earlier-stage venture-backed.
Raza: Just to point out to our [00:17:00] listeners, the board observer does not have the vote of a board member. And at least in the startup boards, we say that the board observer earns the right to speak over time. For example, board meetings are not scheduled beholden to the board observer’s schedule, just as an example, but I think you aptly put it that you’re getting all this free labor with experienced folks that know about your industry, your area, your customers, and can help you, the entrepreneur, with strategy, so board observers are actually a really great resource in the board for startups to have.
Joe: Well, one of the things you said, Gabe, when we talked last week, was that the right to vote is not as important as this stage as business and operational strategy, and that’s where board observers can still be very impactful. As companies mature, that changes obviously, but I think it’s really a great observation that the actual voting is not so critical. [00:18:00] It’s really getting the best input you can from the people that know your company.
Gabe: Yes, don’t get me wrong, voting matters, especially for critical or contentious matters that do require the vote. However, on the whole, you’re going to want the right people around the table to help with exactly what you just outlined, how do we build the business and scale it, how do we find the best people, how do we choose what to do, what not to do.
A colleague of mine has a saying, “Startups don’t die of starvation. They die of indigestion.” And so helping them figure out what to focus on and how to get there really helps, and I will say from a CEO standpoint, the board is an extension of your team. They’re just a very special team and how you manage that team and how you manage that time in that room matters critically.
So many boards get bogged down in the actual board room [00:19:00] with these graphs and data and charts and everyone’s squinting and it’s like going through a boring presentation for 80% of the meeting and instead we recommend that CEOs really anchor their meetings in an OKR, in Objectives and Key Results, with like a literal scorecard of how are we doing. Red, not going so well, yellow, we’re doing okay, and green, things are going really well. To the extent that you can as a CEO, and I’m assuming there are some CEOs listening, you want to give all the data and the reading to your board members in advance and give them notice and hold them accountable too. You’re managing them, and so if your board comes unprepared to a meeting, then you can say, “I’m sorry, we can’t talk about this. You needed to read that. I want to talk about the three most pressing issues that are facing our company and I want to [00:20:00] use this group around the table to give me ideas and direction for how I move forward.”
Raza: Gabe, very well put. We’ve seen that for early-stage boards. Boring presentations is a very telltale sign. Most early stage in startup and venture-backed boards are hands-on problem-solving boards, as I call them. The meeting tells you a lot of what’s going on with that company.
Joe: But before you go on, I want to say, Gabe, what you just said is not just applicable to venture-backed and PE-backed boards. What you said is applicable to all boards.
When I work with companies and their company boards, I tell them exactly what you just said. If you’re spending 80% of your meeting with presentations, you’re wasting your time. The board meeting is not the time to educate the board. That is the board’s homework. They should come to the meeting, having done their homework and be prepared to do exactly what you just said, [00:21:00] address the issues that the CEO and/or whatever, the management team is really grappling with to get the most value out of the people that are in the room. You couldn’t have said it better. Thank you. That’s great.
Raza: And for reference to OKR, Gabe, that you mentioned for our listeners, that’s Objectives and Key Results, and it’s a framework popularized by John Doerr, and before him, Andy Grove at Intel, and it’s a very, very effective way of running organizations from small to large and a very effective dashboarding mechanism for board meetings.
Gabe, I want to move on to a little bit on the evolution of how the board grows. You mentioned initially it might start from a three-man board. What is the typical composition of that board, and then how does that grow over time as more investment comes in? And we can talk about kind of how off-boarding happens in venture- and PE-backed boards.
Gabe: The typical three-person board is not going to [00:22:00] involve independent directors. It’s going to be the CEO and then likely two investments. There are definitely variations on a theme with that, but that’s a typical construct, and obviously, a mix of common and preferred. As it grows, I will admit, I’m not an expert at inflection points or when to grow a board and what those look like, but I do know that with a number of our companies and especially our CEOs, a number of them when we do give up a board seat, they do request that we stay on as an observer because they like that continuity and also, if they value the input from the investor, they’ll want to keep him around.
Raza: Yeah. We’ve seen it go from three to most typically five, and the five has the very typical composition of what we call two-two-and-one board, two preferred, two common and one independent selected by both or nominated and agreed by [00:23:00] both, preferred and common, and then that may evolve to seven, but oftentimes I think that’s where new investor coming in want to replace the preferred board seats and, as you were mentioning, either they become a board observer or get rolled off the board. And Joe, often we mention that offboarding is hard, one of the hardest thing that most boards are, but I think in the venture and early stage world, it’s actually fairly common, fairly accepted, and it happens fairly regularly.
Gabe: It makes sense, the company is a different company at a Series B stage or series C stage with 50 million in annualized revenue, then when it had a 100,000 ARR and it was just getting started with three board members, so it makes sense that you want a different set of directors with a different kind of experience at [00:24:00] a different stage, well, still maintaining some continuity and understanding of the roots and the original purpose of the organization if you can.
Joe: I would say that also applies to boards that are not venture and PE backed because companies change all the time. Someone sitting on the board for 10 years, well, 10 years ago that company needed certain skills and experience and attributes. It probably needs something else now. The difference is that in the venture and PE world, people are very focused on those needs and once it gets outside of that, it becomes more difficult, but I think it’s the same issue. Companies are changing all the time and need to look at their boards and change the boards to reflect the initiatives and the needs of the company.
Raza: Gabe, another thing in that evolution off boards for venture-backed companies that is worth kind of talking a little bit about is, even though all board members are [00:25:00] fiduciary to the company and shareholders, yet some board members are representing Series A investors and other board members are representing Series B investors, and it turns out that the Series B investors fund is that you’re in a pretend and really needs to close, and there is an acquisition opportunity for the company, and now the Series A investor has very different incentives than the Series B investors. Have you seen that play out in boardroom drama or ways where there is tension between various stakeholder, and of course, common has a different view where the founder is either do want to sell at that exit opportunity and how does Obvious Venture and your board members kind of deal with those situations?
Gabe: Yes, we have seen that. I think any venture investor would see that type of activity happen at some point, and this happened recently, which we talked [00:26:00] about a little bit last week, but ultimately we really want to be aligned with the founder, and if the founder is still in the CEO seat and we want to ensure that we are doing what is our fiduciary responsibility, yes, with respect to investors and if that’s able to align with really what the founder wants to do, then we’re going to back the founder.
There was a company of ours that recently exited, and we thought there was extraordinary growth ahead as an independent company, like incredible growth ahead. The founder really wanted to sell because he wanted the outcome, but also as he articulated it, he felt like he would be able to move his company and its mission forward even better by working underneath and with the acquiring company, to be able to leverage their assets and their resources [00:27:00] in addition to the team that they had built, and so we supported the founder. That’s how we roll.
Raza: I think starting from maybe even Peter Thiel’s Founders Fund and others before him, we know that these companies are led, built and really made successful by the founders. And if they’re not in it at any point, you can’t really force it any other way. They got to build that.
Gabe: Yeah, because that’s ultimately a fiduciary consideration. We see tremendous growth ahead. No, you cannot sell, we’ll vote against it, and then all of a sudden you have a CEO who’s not so happy and maybe even disincentivizes some of the other team members, so you got to make sure to take the long view on all of this.
Joe: Gabe, you referred to Obvious Ventures as investor in purpose-driven businesses. A lot of people know the term “impact investing,” and I noticed you did not describe it that way. Share [00:28:00] with us if you will, what the difference is or what the connotations of impact investing at least used to be.
Gabe: Yes. For the first number of years at Obvious, we did not talk about impact. We actually banned the “I” word as we refer to it. Because the industry of impact investing, as it was originally constructed, was not a returns-focused industry. It was an industry, and many of the early players would talk about, wishing to realize some returns alongside some sort of social or environmental impact. There was this general belief that you would have to sacrifice profits in order to get that impact return, so to speak.
Over the years we believe that has changed. For Obvious, we never set out to become an impact investing firm. We believe when the firm was founded in [00:29:00] 2014 that the purpose of a company and the impact that it would drive were a competitive advantage. We believe that the biggest challenges that our world was facing, oftentimes that were highlighted by activists and social entrepreneurs were, in fact, the biggest market opportunities available and that company solving those problems would realize the greatest returns.
If you look at both consumer sentiment as well as companies that are trying to attract the best employees, best employees want to work at companies that are having some sort of an impact, and the easiest way for us to measure that impact is through revenue generated and services rendered. Like that’s it.
If you look at Proterra Electric Bus Company, every time they sell an electric bus, they’re taking a diesel bus off the road. Every time Diamond Foundry sells an engagement ring or creates a semiconductor wafer chip that [00:30:00] is lab grown, it’s hopefully taking a diamond mine, which is a filthy and horrible labor business, out of business.
You see these one-to-one corollaries between the positive impact driven by a business and its revenue in ways that I think previously it was people kind of tiptoed around, but now it’s exciting to see more and more people and investors waking up to this reality.
Joe: There’s a quote on your website that says, “We founded at Obvious Ventures on a simple belief that the most valuable companies of our time will be the one solving humanity’s biggest problems.”
Great quote. Kind of does summarize it. What I’d ask is, what drove the change over six, seven years from “invest for less” which is how some people have described impact investing, to we can make money and save the world. How did that happen?[00:31:00]
Gabe: Well, I wish I could say it was from people becoming more enlightened, but I think it’s really from a lot of clear and present dangers that used to feel far off that we would read about in newspapers and in magazines that people began feeling at a visceral level. If you look at our social unrest and you look at real environmental catastrophe being driven by human-caused climate change, we’re all now feeling this at a visceral level in ways that we hadn’t previously. If you look just at the past six to eight years, I mean, especially look at something like this mega fire crisis, I’m not going to go off on the organization that I created, but the largest fires in the history of the nation have all happened in the past eight years.
A mega fire is defined as a fire that’s over a hundred thousand acres. You’re now seeing the effects of this play out in New York and [00:32:00] Boston. I was in the Berkshires in Western Massachusetts last summer and I was smelling fire smoke that was coming from Washington State.
It’s everywhere now, and everybody is waking up to the reality of these problems that we have to solve and that we can do so with a combination of, yes, definitely, we need the public sector. There’s no question about that. Without a healthy public sector, none of these can be solved, and same with social activists who often highlight these areas for us, but we need the private sector to be a driver of innovation and delivering those solutions through the market. We are believers in capitalism. We think we need to change the definition and the practices of capitalism, but that’s kind of happening on its own. Everyone is waking up to these new realities and the role of the private sector in helping solve them.
Joe: Why do you think it is true that these companies that are changing the world [00:33:00] that are addressing humanity’s biggest problems, now many people believe can be the most profitable companies? What changed to introduce the fact that they could be the most profitable and therefore attract investors? Because none of this works without the money you’re raising.
Gabe: Well, I would look at something like Beyond Meat as a great example of this. There were plenty of plant-based options before Beyond Meat, Morningstar Burgers and Corn, and they were all in the novelty food aisle, the novelty food section of the supermarket the epic shifts that Beyond Meat pioneered was you don’t have to be a vegetarian to love a plant-based product and we are not creating something that is for vegetarians only and going to be in the novelty food section, we are competing with Angus [00:34:00] and we are going to take them on, and one of the big defining moves that Ethan Brown pioneered at Beyond Meat was getting Beyond Meat placed in the meat case alongside Angus options so that everyday people could choose these things. What it really boiled down to was creating a super product that competed with the “original,” and you see this playing out across a host of industries, not just in something like plant-based protein, but. Elon Musk never says with his product, “You’re saving the world by driving a Tesla.” No, nowhere in Tesla’s go-to-market strategy was anything other than “we’re going to create the best car. It’s the most beautiful, it’s the fastest, and it’s the safest.”
That’s what it is. These products are now competing on par with their dated dirty originals, [00:35:00] and they’re winning. I mean, look at the market cap of Beyond Meat compared to kind of like big food companies that have optimized for shelf stability and an ingredient stack that you need a PhD to understand what’s in it.
It’s the same thing with Tesla compared to some of the older automotive manufacturers, and many of them are now waking up and you’ve seen this shift to the point where in the Super Bowl, every ad from an automaker was from an electric vehicle with the exception of, I think it was Nissan and Toyota, and all people were talking about after the Super Bowl was, “Whoa, Nissan and Toyota way out of step. Why are they gas-powered cars?”
Joe: Great observation. It’s so true. Gabe, that was a perfect example and it really does highlight how, as you said, you can be a capitalist and still want to save the world, and that is a [00:36:00] powerful combination.
It’s been great speaking with you today. Really, thanks so much for joining us.
Gabe: Thanks for hosting. It was really a pleasure.
Joe: And thank you all for listening to On Boards with our special guest Gabe Kleinman.
Raza: We have a request for our listeners. Please take a moment to rate and review On Boards on Apple Podcast app. If you enjoyed listening to it. It really helps others discover our podcast. Also, you can visit our website at onboardspodcast.com. That’s onboardspodcast.com. And we’d love to hear your comments, suggestion, and feedback.
Joe: Please stay safe and take care of yourselves, your families and your communities as best you can. Raza, you take care too.
Raza: You too, Joe.
Joe: Thanks.

38. Mark Pfister – Build an effective board and success will follow

In this episode, Mark A. Pfister, the “Board Architect,” talks about how to build a board, what that means and the powerful impact it has on any company or organization.

Thanks for listening!

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

Links

Board education & certification: https://www.pfisterstrategy.com/exceptionalboarddirector

Book on Board Architecture: https://www.pfisterstrategy.com/books

Quotes

The architecture component of a board forces the thought process that you are looking and planning earlier. Whether you’re creating a new board, or you’re looking to rebuild an existing board, put some discipline behind this, look at the design aspects of it, understand there is a successful formula and model for boards that work efficiently and effectively; hence, the terminology of “board architecture” over “board structure.” 

Three areas of focus in board architecture

  1. Sphere of influence.  

This relates to the vertical components of a properly built board. Core leadership competency, operations experience, and skillset competencies. 

  • Planes of Congruence.  

This looks at the character of the Board, essentially the horizontal components. These can include balance of personality types, mix of industry backgrounds, diversity, age ranges, and many other components. 

  • Coverage and Balance. 

This has to do with creating a depth of knowledge and somewhat of an    overlap of knowledge on the board. It allows for at least one other person, if not more, to have that ability to question whether it’s at a governance level, whether it’s at a technical level, just to understand and bring that conversation to additional questions and elevate the outcome, which is what that board is there to do .

“There’s this interesting trend where placement and search organizations are being engaged to a certain degree, but the nominating committee has really taken an end-to-end process back into their purview and they’re managing that process from end to end.”

Testing of board members

I use two tests, one is called the GPPI or Gordon Personal Profile Inventory, and that particular test allows me to assess what I correlate to the emotional intelligence and the mindfulness intelligence. It’s not just about IQ anymore.

Another one that I use is a Watson-Glaser test that allows as a comparison back to if someone’s claiming to be an expert or a certain level of leadership, you can compare that back, and all of these tests are comparing back against big data so it’s not that it’s right or wrong answers. It’s about are other people at that level successful and how is this person comparing with that?

“I believe that 90-plus percent of most issues within any board of directors of any entity type relates back to its lack of architecture in the way the board is built, so that makes it even more important for an aspiring director to understand how they avoid engagements or even appointments where they’re just simply not going to be happy, or their risk goes up.”

“I am of the mindset that we are not just representing shareholders anymore that are only focused on the financial outcome of the organization. To me, and this is another observable, a board that is focused not just on the shareholder aspect, but also on the stakeholders, which are many – that’s employees, that’s vendors, that’s consumers of the product and services – that viewpoint has to be an equal weighted consideration in the boardroom.”

“Whatever failures happen in an organization. I don’t look at the CEO. I look at the board first and foremost.” The CEO is a direct representative at the operational level of the organization representing the board, period.

“Every director should keep in the back of their mind ‘values equal culture equals organizational risk level’ – all of it can be related back to that.”

Big Ideas/Thoughts

QuestionWhat is the interrelationship between strategy and governance?

Board directors cannot properly govern without a deep understanding of not just a theory of strategy, but what the strategy is of the organization.

The diagram that I recommend, and I use in our board training is very simple. On one side sits the word goals, on the other side sits the word tasks, and in between that is a double-edged arrow or double-pointing arrow, that’s strategy. 

Strategy is connecting the goals to the tasks of the organization – – it’s the how. When you hear “strategy” you should think “how?.”

We should be saying to ourselves as a director, “We need to fully understand the goals of this organization, and once they’re set for a certain time period (the what and the why), the rest of our existence in the boardroom as it relates to governance is truly overseeing the strategy.  It’s the governance of the strategy, which is the how.

You cannot govern something if you don’t understand the strategy, they are inextricably linked and they’re absolutely related, and this is a big miss for many senior level leaders today is that they don’t understand where governance sits as it relates to strategy.

Strategy today is an integrated pattern of decision-making, which in a leadership mindset, if you think about an integrated pattern of decision-making, it forces you to ask questions.

Question: In a situation where the CEO and their senior team are responsible for developing the strategy, what is, in your view, the best way for the board to be involved to a point where they’re not doing the job of the senior management, but are fully involved in understanding the strategy and are able to ask the questions they need to ask of the management?

I am actually probably a little more hands-on in my belief of the board’s involvement with the strategy, and I would even say with the goals of the organization, I view those two areas as a very close working relationship between the CEO and the board.

I’m not saying that the CEO should not step away and work with their team on coming up with possibly a proposed strategy, but I am also a fan before the CEO does that, that the board has some sort of very high strategic planning session and goal-setting session with the CEO.

I am an absolute fan of every single board having a strategic planning committee, and I would even like to see the naming of that change so it’s not misconstrued and call it more so a strategy committee, because strategic planning is assuming that the board is doing the planning, so I think that should change.

Risk Committee.  Any clients that I work with in the board architecture realm, I’m laser focused on not just the strategic committee, but also the risk committee, and I think there’s this misunderstanding or misnomer out there that, “Well, that’s the responsibility of the audit committee.” My comment typically on that is that I’m not disputing by any means risk as it relates to finance, but the number of risks that are being dealt with in every organization today that require a home, especially at the board level, I don’t think any company can get away with that right now…..you have to separate out not just financial risks, but overall company and organization risks.

Raza: I think as we’ve talked with our guests, including David Koenig, the audit committee is kind of focusing on what has happened, at the least it needs a separate time, separate mindset, a separate  hat on to say, what is the future possibilities of risks, both positive and negative, in the sense that, are we taking enough risks, and hence, having a separate risk committee is likely the best way to drive that.

Mark: Well, I would love to see more of a formal approach as it relates to education and certification or risk areas for a board. David Koenig has done that with the DCRO.

Transcript

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. On Boards is about boards of directors and advisors and all aspects of governance. Twice a month, this is a place to learn about one of the most critically-important aspects of any company or organization: its board of directors or advisors, as well as 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 takes to be an effective board member, what challenges boards are facing, how they’re assessing those challenges, and how to make your board one of the most valuable assets of your organization.
Joe: Our guest today is Mark Pfister. Mark is CEO and Chief Board Consultant [00:01:00] of MA Pfister Strategy Group, an executive advisory firm that serves as a strategic advisory council for executives and boards in the public, private and non-profit sectors. He prides himself on being a coach and mentor to senior executors and directors. In board director circles, Mark has earned the nickname, the “Board Architect.”
Raza: Mark is the creator of the Board as a Service (BaaS) engagement model, an industry he’s credited with inventing. He is a highly sought-after speaker and conducts international speaking tours, lectures and seminars focused on effective leadership, strategy, board architecture, becoming an exceptional board director candidate, professional project and program management and entrepreneurship.
Joe: Mark is a proficient board director and CEO with experience across multiple industry verticals. His experience as a [00:02:00] board consultant, having guided and coached hundreds of boards, board committees, and board members offers a unique and informed viewpoint to the companies he serves.
Welcome, Mark. Thanks so much for joining us today on On Boards.
Mark: I’m glad to be here, Joseph and Raza. Thank you so much.
Joe: Let’s start at the beginning, early in your career you recognized the need for board governance, leadership and structure, and what you told us when we talked last week was you saw the same challenges over and over, a lack of what you call board architecture.
What do you mean by the term board architecture?
Mark: I appreciate the question, Joseph. To me, we hear all the time about board structure and I started to think years ago about that and I said to myself, “Even though we talk about board structure, it’s quite a reactive terminology.”
It actually is used more so towards looking at an existing board and how is that board structured, [00:03:00] depending on its people, its board members, how the committees are of course structured. I pushed for many years to change this mindset and flip it a 180 degrees out and say, “Well, why don’t we look at it as an architect would for a building? They’re not just going to go out and start building something nor will they get the permits for it.”
Well, the architecture component of a board forces the thought process that you are looking and planning earlier, or if you’re creating a new board, or if you’re looking to rebuild an existing board, put some discipline behind this, look at the design aspects of it, understand there is a successful formula and model for boards that work efficiently and effectively; hence, the terminology of board architecture over board structure as far as I am concerned.
Joe: And the term “board composition” is that subsumed into board architecture?
Mark: Absolutely, so we’ll probably talk a little more today also about what does it mean when we say board architecture, and I’ll talk a little bit about the three areas or the three layers that we look at when we’re properly designing a board.
Joe: Let’s talk about that. What are the three layers?
Mark: [00:04:00] Sure. First and foremost, it’s what we call our sphere of influence, and this relates to the vertical components of a properly built board. It’s the leadership aspects of measurement, the skill sets. I like to look at this also from the comparison back to the knowledge and the experience of operations and all of this is relating back to what is the expertise of this particular executive or this expert that we’re looking to have join our board.
Now, this seems pretty obvious, most boards do this. They say, “Skill sets, leadership aspects, let’s see what you’ve accomplished.” The problem is that most boards stop at that point. They say, “Okay, this person has great experience. I love their title. They have the right approach. They have the right skill sets for us.”
The problem with that is that they’re only touching on one of many evaluation points as we view it in the board architecture realm, they’re missing number two, which is what I like to call planes of congruence. These are the horizontal characteristics of a board and truly add what I view as the character of the board, and I mean character in the way that you have different [00:05:00] approaches, different personalities, different experiences, not necessarily that you want a board with characters like Seinfeld characters
Joe: Although, that would be interesting.
Mark: Yeah. But this has to do again with the horizontal component, so a couple of good examples of this, diversity is a big one right now so diversity of perspective, leading to diversity of thought, and we can definitely design that very well into our boards. Even before that became a buzzword just a few years ago, that’s always been an interest to me because I know that past experience weighs into current decision making.
Another aspect would say, “Let’s look at this board from end to end and also above and beyond the skill sets we talked about in step one, the sphere of influence. For the planes of congruence, let’s look at the horizontal of balance of personality types, so any board that I sit in front of, even before I know that I’m doing it, I’m trying to classify that board with four different personality types; the analyst, the diplomat, the sentinel, which is the protector or the explorer, and what’s interesting. is that once you start doing this and I [00:06:00] recommend that you and your listeners start to do this, if you’re in front of a board, start to figure out which people fit into one of those categories.
What you’ll find is that many boards are missing one or more of the balance of those personality types, and there is always a dominant personality type. Most people will say, “I make up all of those.” I mean, I get that, but everybody hast to be dominant, and by keeping that balance of those four very simple evaluation points, as it relates to the horizontal characteristics of a board, it drives the conversations among decision makers to a much deeper level. It’s quite amazing how a different perspective through a personality can really balance the decisioning and the outcome.
Joe: Can you give us the skinny on what each of those personality types represent?
Mark: Sure. Sure. The Analyst, as you can likely imagine, is the one that needs or requires all the data. I mean, everybody I’m going to describe is in a positive way right now, because I view the value of that everybody brings. The Analyst is the one that will say something such as, “I can’t make this decision until I see the data. What backs [00:07:00] up the decision we’re talking about? Why are we talking about this because maybe we didn’t receive the information upfront?” That’s the Analyst mindset.
The Diplomat is the person that is typically making sure everybody on the board is heard. They’re given their soap box for a period of time. They realize that by everybody being involved, it won’t just deliver a better outcome but it also makes the team feel included as a board so everybody has their chance to state their piece.
The Sentinel is the protector. This is the person that knows the bylaws and the articles of incorporation inside and out. Many times they have a legal background, but they’re typically the person that is truly trying to keep the board to its stated purpose and within the guardrails of the guidelines. Usually this person is related in some way to the governance committee or the nom/gov committee.
The Explorer, we know this type, this is the innovator. It’s the person that’s always looking forward. They could probably write a lot in a moment’s notice the vision of the organization, which is what they want to be or [00:08:00] enable in the future, but they don’t spend much time on the mission, which is what they want to do well now.
You can see each one by itself may not give the full picture of the full focus of what the board needs for the overall guidance of the organization, but when that balance is created on a board, it’s honestly unstoppable. They’re all looking from different viewpoints. They’re giving very unique answers or input or questions to areas that really drive that board to a profound conclusion.
Joe: Do you think the most effective board chairs are, I guess I’ll call them, diplomat. Well, I was going to say diplomat-focused persona because there’s a little bit of everything and everyone probably.
Mark: Yeah, it’s a great question and for your listeners, if they could see me, I’m smiling from ear to ear right now, because I have been studying that for many years and I’m trying to come up with the fact of, is it the diplomat that makes the best chairperson? I can tell you, I don’t know that I’m quite convinced yet, and my recent research on this is focusing me on what the current [00:09:00] stage of the business is as it relates back to the chairperson.
I will admit if I don’t know something, I don’t know as of yet, but I will say for an established organization that’s sort of in its process or steady state process, we see a lot of large-stage public companies, it typically is the diplomat, but I don’t necessarily give that same answer if it’s a mid-stage, high-growth public company or pre-IPO company. I would tell you that sometimes it’s a difference of mindset or maybe even the Analyst works out quite well in that chair seat.
Joe: Do you advise that nom/gov committees or whoever is doing the board architecture do testing on them or can you kind of identify the personality types just by observing them during an interview?
Mark: Yeah, it can be a mix, and let me first say that there’s some very interesting trending around the work of the nominating committee coming back into the nominating committee. What I mean by that is that there’s this interesting trend where [00:10:00] placement and search organizations, they’re still being engaged to a certain degree, but the nominating committee has really taken an end-to-end process back into their purview and they’re managing that process from end to end.
I like that because, Joe, to answer your question, it allows them to be more involved and understand the process of not just a skill set evaluation, that sphere of influence, but adding in that second area, which is that planes of congruence, which typically is the personality types.
Now, I like to have two angles on this one. What is the most simple thing you can come up with so in a conversation or just by observing, you can come to a conclusion. Hence, the reason I say that those four personality types of Analysts, Diplomat, Sentinel, Explorer, even if you don’t take it further from there with testing, whatever it may be, you can still kind of get a feel for that just by observing.
Now, there are ways to drill that a little bit further and we all know the Myers-Briggs and those types of tests. I actually don’t use those. I use two tests, one is called the GPPI or Gordon Personal Profile, and that particular [00:11:00] test allows me to assess what I correlate to the emotional intelligence and the mindfulness intelligence. It’s not just about IQ anymore.
As Reed Hastings of Netflix stated nobody wants to work with the brilliant jerk. We don’t want to work with a brilliant jerk. That’s this idea that just because you’re smart IQ-wise doesn’t mean you’re going to be good for the company. There are different ways to evaluate that more deeply.
Another one that I use is a Watson-Glaser test that allows as a comparison back to if someone’s claiming to be an expert or a certain level of leadership, you can compare that back, and all of these tests are comparing back against big data so it’s not that it’s right or wrong answers. It’s about are other people at that level successful and how is this person comparing with that?
Raza: Spear of influence, planes of congruence, what is the third tier in the board architecture tiers?
Mark: I’m glad you brought me back to that so I can close that topic out, so the third one is called coverage and balance, and this has to do with creating a depth of knowledge and somewhat of an overlap of knowledge on the board.
The first thing to say, [00:12:00] and this goes really back, even for a board candidate, to package themselves. It’s not just the one-trick pony, but to have some depth in how they look at themselves and how they portray themselves to a potential board nominating committee. The coverage and balance is basically stating we don’t want to just have one person that’s an SME on our board in a specific area, we want to make sure we have some depth and coverage as it relates to maybe one other person that has some sort of deep knowledge in this space.
A good example of this, Raza, is that, and I’ll use two examples of expertise areas right now that are sort of become these siloed areas on boards, one of them is by far the cybersecurity area. The boards that believe they’re progressive and they’re getting in the expertise and they have somebody looking out for the organization as it relates to cybersecurity and its relationship with technology, they’ll go up and give their presentation and everybody around the remaining board table, their mouths are open and what are they going to do? They can’t nod yes, they can’t not no, so they simply come to an [00:13:00] agreement. It sounds good, but they can’t challenge it, and we all know that boards are there to ask questions.
The coverage and balance approach for this allows for at least one other person, if not more, to have that ability to question whether it’s at a governance level, whether it’s at a technical level, just to understand and bring that conversation to additional questions, and again, elevate the outcome, which is what that board is there to do .
Human capital is another area right now that’s somewhat of a struggle in a boardroom where the mindset has graduated from the viewpoint of a cost center of human resources to now the investment area of human capital, but when it comes to others knowing about this, or even the nine areas of materiality for the SEC in the US for transparency, you’re finding these siloed areas of knowledge, and nobody can question that right now. They don’t quite understand all the details of it. That’s the third area, Raza, it’s that coverage and balance creating a depth of that board.
Raza: does provide for layers of architecture that co-mingle and work together well.
Mark, one of the [00:14:00] thing that Joe and I have often talked with our guests is one of the key parts of the job of a board is to help with strategy and we often see that boards don’t spend enough time in doing that. In your view, what is the interrelationship between strategy and governance?
Mark: Yeah, and this is a great question. It’s something I ask in all of the board interviews that I do, and it needs to start with a deeper understanding of board directors, of knowing that they can not properly govern without a deep understanding of not just a theory of strategy, but also what the strategy is of the organization.
Raza, let me answer your question, but I want to add a few components in prior before I get to that. The first one here is that a board or any director, any senior level leader is thinking very simply about what exactly is strategy, where does it sit in the grand scheme of things? The easiest way and the diagram that I recommend and I use in our board training is very simple. [00:15:00] On one side sits the word goals, on the other side sits the word tasks, and in between that is a double-edged arrow or double-pointing arrow, that’s strategy.
That is the easiest way to think about this. Strategy is connecting the goals to the tasks of the organization, so it’s the how. Essentially, when you hear strategy, you should think how. The goals should be viewed as the what and the why. If we compare this now, that very simple overview of strategy as far as its relationship to goals, if we do the overlay now of governance, we should be saying to ourself as a director, “We need to fully understand the goals of this organization, and once they’re set for a certain time period, the what and the why, the rest of our existence in the boardroom as it relates to governance is truly overseeing the strategy. It’s the governance of the strategy, which is the how.
It’s not to say we don’t go back and revisit the goals, but we understand that we are governing the strategy at that point. The interrelationship of this, and I sometimes get the answer back when I ask that question of the [00:16:00] interrelationship between governance and strategy, sometimes the absolute wrong answer is that there is no interrelationship and that’s totally wrong.
I mean, for me, those interviews last about 10 minutes and they’re over. The way to look at this is that, again, you cannot govern something if you don’t understand the strategy, they are inextricably linked and they’re absolutely related, and this is a big miss for many senior level leaders today is that they don’t understand where governance sits as it relates to strategy.
Raza: Yeah. What else are you governing?
Mark: I typically ask that as well. If I ask a question in the boardroom of a client of mine that I’m working with, I’ll ask the question first off, what is your definition of strategy because I believe that has changed in recent times. We’ve moved away from these hard, tangible things that are deliverables like project plans or strategic planning outputs, and I’ve used strategy today more as an integrated pattern of decision-making, which in a leadership mindset, if you think about an integrated pattern of decision-making, it forces you to ask questions.
That’s the mindset of how a [00:17:00] senior leader should think about strategy. They’re trying to ask questions that get them to the how, and then the secondary step of that is to say, “How does this relate back to the goals of the organization?” If there’s a mismatch on any of those, you know that the governance is off.
Joe: In a situation where the CEO and their senior team are responsible for developing the strategy, what is, in your view, the best way for the board to be involved to a point where they’re not doing the job of the senior management, but they will be fully involved in understanding it and being able to being in a position to ask the questions they need to ask of the management, to get to the right strategy?
Mark: Yeah. I am actually probably a little more hands-on in my belief of the board’s involvement with the strategy, and I would even say with the goals of the organization, I view those two areas as a very close working relationship between the CEO and the board.
Now to be even a little more descriptive in this, to answer your [00:18:00] question, Joseph. I’m not saying that the CEO should not step away and work with their team on coming up with possibly a proposed strategy, but I am also a fan before the CEO does that, that the board has some sort of very high strategic planning session and goal-setting session with the CEO.
I’ll just go back to our course again, in this, we actually provide templates that actually walk through that initial high-level discussion on the goal-setting, the timeframe around that, and then what we call focus areas of the support of what those goals and the strategy essentially would be focused on.
It’s not a solutioning. Its simply stating where would we want to focus our efforts and what high-level words with no descriptive areas of those words, where would we want to drive and support this organization to reach these goals?
Now, that to me, is when the CEO would likely best step away with a team and come back, but the board should be intimately involved with this, and I am an absolute fan of every single board having a strategic planning committee, and [00:19:00] I would even like to see the naming of that change so it’s not misconstrued and call it more so a strategy committee, because strategic planning is assuming that the board is doing the planning, so I think that should change.
Raza: Mark, is there another committee that you think is very important for boards to have as a dedicated committee?
Mark: Yeah. I’m glad you bring that up too. Now, any clients that I work with in the board architecture realm I’m going to laser focus on not just the strategic committee, but also the risk committee, and I think, especially in the public space, there’s this either misunderstanding or misnomer out there that, “Well, that’s the responsibility of the audit committee.” My comments typically back on that is that I’m not disputing by any means as a risk as it relates to finance, but the number of risks that are being dealt with in every organization today that require a home, especially at the board level, I don’t think any company can get away with that right now.
There are many examples of this of companies struggling that don’t have risk committees. To me it requires that direct focus and you have to separate out not just financial risks, [00:20:00] but overall company and organization risks.
Raza: I think as we’ve talked with our guests, including David Koenig, the audit committee is kind of focusing on what has happened, at the least it needs a separate time, separate mindset, a separate hat on to say, what is the future possibilities of risks, both positive and negative, in the sense that, are we taking enough risks, and hence, having a separate risk committee is likely the best way to drive that.
Mark: Absolutely. The positive aspect of taking on risk is a must for organizations, absolutely.
Joe: What should the risk committee look like? Who sits on the risk committee?
Mark: Well, I mean, to me, and Raza mentioned a moment ago about David Koenig who has that DCRO and the risk certification, I truly believe that is a discipline and it needs to have that focus. First and foremost, I would love to see more of a formal approach as it relates to education and certification or risk areas for a board.
To me, [00:21:00] that team, at least the chair of the committee, if not more members, have not just deep expertise and experience, but also what I like to call their proof, and that’s the education and the certification areas that support that. That is a very specific area of importance and we’ve entered a time where, what I like to call, governance simultaneity has hit every single board.
There are so many interrelated and consistent areas of volume as it relates to risk to an organization that we have to start looking at these with their own lens and in their own focus area and that can’t just be an afterthought for an audit committee after they’re done with their finance duties, it has to be a primary function of boards today.
Raza: I agree with you a hundred percent. As a qualified risk director graduate from the program, I think boards ought to have those skills and expertise especially on the risk committee.
Mark, I also want to bring the conversation to your book published in 2018, called “Across The Board.” Tell us about the book, who’s your audience and [00:22:00] how they can best make use of that book.
Mark: Sure. Sure. Well, that book is very closely based on the topics we mentioned at the start of today, on the topic of board architecture, so it’s going in a little more deeply and saying, “This isn’t just how you do this or how you evaluate it, but why is it important and what are some examples of boards that do this correctly, and what are some examples of boards that don’t do this correctly?”
I like to think the way the book was written is from two lenses. One of them from an already existing board and you as a board member on that board, but I think one of the more important or equally important areas is to think about this from a board candidate or an aspiring director’s viewpoint to say, “Well, how do I take this? How do I get to the understanding and the evaluation before I say yes to an offered board seat that I’m going to be successful on this board? The board is operating correctly. They’re focused in the right areas. I’m not going to have to test out my indemnification or my D&O policy if I join this board.”
That architecture component, and you’ve probably [00:23:00] heard me say this in some of my previous speaking engagements, is that I believe that 90-plus percent of most issues within any board of directors of any entity type relates back to its lack of architecture in the way the board is built, so that makes it even more important for an aspiring director to understand how do they avoid engagements or even appointments where they’re just simply not going to be happy or their risk goes up.
Raza: Yeah. Am I part of a well-architected board?
Mark: That’s correct. That’s correct. Or will I be, right?
Raza: Will I be part of the well-architected board? I see a lot of concepts coming from the software Architecture World. I’m sure in your tiers you have concepts around cohesion and coupling.
Mark: Absolutely. I guess you could say also, if you took one route, you could say it was an agile approach to it, or you could look at the waterfall approach if you want it to in another development angle. There are multiple ways to look at this. I’m just mostly concerned that somebody who is in the early stages of board directorship is not tainted [00:24:00] by a failing board or a board that’s not working correctly because basically the future boards they join, that has been their training ground. We don’t want that to propagate itself across other industries or other boards.
Joe: What is a stellar board look like?
Mark: Well, it’s a good question. One is that they are architected properly. The other one, and I like to think of these as what I call “observables” of directors. It’s not rocket science to figure out if a board is highly functional or not. If you were an observer, walked into a boardroom to observe that board for two hours, you would look at a couple of different things or two different areas.
One would be again, that they are interacting, they’re communicating properly. They’re practicing what’s called respectful dissent, which basically means that even if you know you’re going to get out-voted on something, you’re allowed to still make your case. Even when you’re out-voted, you don’t mope around. You don’t tell the CEO that that was not your vote. The minute those doors close, everybody is in alignment because that’s what the overall board or a majority of the board stated. That’s the communication [00:25:00] aspect and understanding again of that respectful dissent area.
Another big one for me, and I’m going to make the correlation here, is a learning board or a board that is very much bought into the ongoing aspect of learning. What’s interesting about that is, the correlation that can be made here is that the boards that are all of the mindset of ongoing learning and integrating lunch-and-learns, or even two hours of their two-day board meeting to have someone come in and speak, they understand they don’t know everything, and typically the correlation of this is that people that know that they have to learn, they ask more questions and they have less ego, which allows again for more of this interaction and camaraderie to be built on a board.
Raza: Maybe one way of putting what is a high-performing board, can it be related to the company’s performance? Meaning do you imply from higher performance of a company that the board must be high-performing or vice versa, or the high-performing board may not have as much to do with a high-performing [00:26:00] company, but then we would like to believe that a high-performing board would lead to a high-performing company.
Mark: Yeah, I get the question. I am of the mindset that we are not just representing shareholders anymore that are only focused on the financial outcome of the organization. To me, and this is another observable is, a board that is focused, not just on the shareholder aspect, but also on the stakeholders, which are many, that’s employees, that’s vendors, that’s consumers of the product and services, that viewpoint has to be an equal weighted consideration in the boardroom.
By the way, this also comes back directly to the values and the culture of an organization. There is a direct correlation to a board that is solely focused on the shareholder considerations. Typically those boards have less focus on the values and the culture of the organization as compared to a board that is equally focused on stakeholders, they typically have an increased focus on values and culture, which again, we know directly lowers risk [00:27:00] in an organization when the values and the culture are at the level that it is.
Joe: Well, what you’ve just said I think aptly describes the Boeing board.
Mark: I think so. There’s a lot of dynamic in that particular example, but I know it’s been a top of mind and there’s been a lot of information that’s come out from that so we could probably talk about the Theranos board in there as well, or previous Theranos board. The Boeing incident is quite interesting as you’re alluding to, Joseph, in that I always still point back and say, “Whatever failures happen in an organization. I don’t look at the CEO. I look at the board first and foremost.” The CEO is a direct representative at the operational level of the organization representing the board, period.
But on top of that, the Boeing scenario, Joseph, to your point, is another prime example of how it’s very tough to meld and match together varying cultures and values of two different organizations. I’m still dumbfounded by anybody that’s involved in the M&A realm right now [00:28:00] that is not focusing on that. They may get the deal done, but there’s nothing that’s going to be continuing or the longevity of the company is at risk when that values and culture area is not focused on. Boeing is a prime example of that after their merger with McDonnell Douglas.
Joe: Yeah, I think your comment about the merger of cultures is critical when evaluating any kind of acquisition or merger. I think your comment about the importance of values in an organization is something that’s far more the topic of discussion now than it used to be, and I think it’s moving in the right direction, but we have a long way to go before companies truly have embraced the notion that the values that they talk about and that they embody on how they operate are critical to their success.
Mark: Absolutely. And I hate to call it a formula because it’s, by no means, an Albert Einstein equals MC squared, but if every director kept in the back of their mind values equals [00:29:00] culture equals organization risk level, period, all of it can be related back to that. If you are of the mindset where the communication is a value of the organization, but it’s not being lived, so it’s not part of the culture, the risks are simply not going to be elevated or escalated up the chain of command in those organizations. That is a direct risk to not only the organization, but directly to the board and the personal reputation of that board as well.
Joe: Let me just shift for a minute. If you’re evaluating a board candidate, what is it that you look for and determining whether they have board level prowess? How do they do that? What do you look for in their materials? What would you look for in an interview?
Mark: Yeah, there’s a few areas, and to summarize I focus on three pieces of this. One is I want to make sure that the individual or the candidate is coming across not as what I would view as a board hobbyist, but someone who’s disciplined in the board space. I’m not talking about experience or expertise when I say that, I’m [00:30:00] even talking about aspiring directors that have spent the time to understand how to package themselves properly.
A good example of this is the following, and I see this all the time with the nominating committee processes that I build out and then I work on the vetting process in the interview process. The submissions, nowhere in their head, or does it say non-executive director, it’ll say CEO, SVP whatever expertise they have, and my first point in that is that they’re not packaging themselves properly, because are they applying for the CEO role? Are they applying for the board role? It doesn’t say non-executive director.
All of that is pointing back to what we view and what we teach as part of our program, what we call your major and your three minors. The first thing that should hit me in the face the minute I open up your board documents should be, who is this person, and what are they about before I read anything? The major is basically saying, “These are the few areas that I’m an absolute expert in. I have the titles to back it up. I have the expertise to back it up.”
That’s typically there to a certain degree, but again, adding that non-executive [00:31:00] director if that’s indeed the position you’re going for. What most people miss, and again, it’s something that we focus heavily on in the packaging realm is what we call your three minors. Tell me the three board committees that you bring value to if we’re going to appoint you to this board.
Prime example of this, my three minors; strategy, governance, technology and cybersecurity. Those are my three. The technology and cybersecurity is in one so that’s why I’m saying three. But in that case, I’m not viewed as a one-trick pony of only being able to come in and serve in the finance committee or the audit committee area.
This comes back to a properly architected board. If you remember the coverage and balance item, I’m not just only going to serve on the strategic planning committee, but I can also add value to the nom/gov committee and also there’s a technology and cybersecurity committee I can add value on those.
The packaging component is extremely important. Don’t try to be all things to all people, but tell me your major and tell me three committees you bring value to or varying value on with at least one of them being an expert area.
Joe: That’s a great way to [00:32:00] look at it, absolutely. Mark, it’s been great speaking with you. Thanks for joining us today.
Mark: Thank you both. It’s been a pleasure.
Joe: And thank you all for listening to On Boards with our special guest, Mark Pfister.
Raza: We have a request for our listeners. Please take a moment to rate and review On Boards Podcast on the Apple Podcast app if you’ve enjoyed listening to it. It really helps other discover our podcasts. Also, you can visit our website at onboardspodcast.com. That’s onboardspodcast.com. We’d love to hear your comment, suggestions and feedback.
Joe: Please stay safe and take care of yourselves, your families, and your communities as best you can. And Raza, you take care too.
Raza: You too, Joe.
Joe: Thanks.

37. Todd Sears on Out Leadership and its Impact on LGBTQ+ Equality

Todd Sears is the founder and CEO of Out Leadership, the first company in history whose sole product is LGBTQ+ equality. Todd has spent over 20 years working at the intersection of finance and equality. He began his career as an investment banker before joining Merrill Lynch as a financial advisor. There, he brought almost $2 billion of new assets to the firm from LGBTQ+ couples and nonprofit organizations. In this episode we talk about Out Leadership, its role as a B Corp, merging business opportunity with diversity and the impact of Out Leadership on LGBTQ+ Equality.

Thanks for listening!

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Links

Todd Sears Bio

Out Leadership Website

Visibility Counts – Corporate Guidelines for LGBT + Self-ID

Visibility Counts – The LGBTQ+ Board Leadership Opportunity

OutQOURUM 2022

Quotes

Founding of Out Leadership

“I ultimately ran diversity strategy for Merrill Lynch and then I was head of diversity of Credit Suisse, and then in 2010 I actually was laid off and was sitting on my sofa with the severance check and multiple martinis.

As I found out, all good ideas come from a martini or two. I thought back to the opportunity that I had at Merrill Lynch to, by virtue of creating a business initiative in a very old-school command and control Irish Catholic investment bank like Merrill to support LGBTQ+ equality from a business perspective, and I thought, “Well, could I do the same thing, but with more companies, not just one?”

So, I looked at Davos World Economic Forum and I thought, “If I could I create that conversation in the LGBTQ+ community?” Because 12 years ago, you did not see businesses speaking up on equality. CEOs were not using their platform and their voice and I wanted to create that, so I used my severance check, started our first summit in March 2011 hosted by the CEO of Deutsche Bank and we had bank of America, Barclays, Citi, Deutsche Goldman Sachs and Morgan Stanley and then grew from there.”

Work with Equilar with OutQOURUM

“A key piece of the conversation is having the opportunity for LGBTQ leaders to self-identify, and Out Leadership almost five years ago wrote the first research on self-ID globally in partnership with Ropes & Gray. We found that companies asked their LGBTQ employees to self-identify in 38 countries globally, but at the same point at the board level, it is still completely absent.

David has used that data, the research, and actually the policies that we’ve written to try to identify more LGBTQ board members in the Equilar database, so that we can start to expand that pool of diversity.”

LGBTQ and the definition of Diversity

“I’m interested right now in particular, AB 979, the California law requiring board diversity. We were a part of, from the drafting perspective, believe it or not, when it was first introduced, the definition of diversity did not include Asian or LGBTQ, and so Ascent Pinnacle and Out Leadership and Quorum worked to have both of those diverse categories added.

But interestingly now, AB 979 is under attack. The State of California is being sued and our leadership is one of the expert witnesses that is testifying to try to protect a law increasing diversity, which is just baffling to me. Every piece of research shown that that shows LGBT and broader diversity bring innovation, de-risk all of the reasons you want diversity on the board, so to be anti-business and sue against the law that seeks to create that, just blows my mind.”

“The United States Congress had three different bills focused on diversity in 2021. Not one of them, when it was introduced into the committee, included LGBTQ and we had to advocate and we were able to get LGBTQ added to all three of them, including a board diversity one and ultimately I testified to Maxine Waters’ House Financial Services Committee in November about all of these exclusions and why it matters for LGBTQ people to be included at all these levels of diversity.”

On B Corp and Out Leadership

“Why that matters in my opinion is if I was going to sit with CEOs, and we’ve worked with over 800 now over the last 12 years, if I was going to sit with a CEO and say that LGBT equality is a business issue, I need to be a business too. It’s very different to have the nonprofit warm fuzzies, as we said earlier, conversation. If I’m a business, I pay taxes just like they do. I have to grow just like they do. We reinvest our profits. That’s, to me, an important story.”

“the most important piece of the B Corp rating is what are you actually doing, and that’s something I think it’s really important  and I think it’s why so many more companies are looking at the B Corp status. There are a number of companies that are looking to convert to B Corp not just the Ben & Jerry’s and Patagonia are B Corp, but there are significant numbers of corporations that are considering it now.”

Out Leadership, Tools and Research

“One of the tools that Out Leadership built almost six years ago was our corporate guidelines for board diversity, and we include in the back of that, an actual matrix that is inclusive of all the elements of diversity that we recommend, both acquired and inherent diversity, skills, background, national origin, all of the pieces, and I encourage private companies to think about that and to use that as they’re thinking about diversification of their boards.”

“Our Quorum initiative last year launched our first ever Quorum Summit. Out Leadership has summits annually in New York, London, Hong Kong Paris and Sydney, but with our talent issues, we built a summit as well and last year’s summit, we launched the first ever LGBTQ board research called Visibility Counts. This year on March 22nd, we’ll be launching the second annual Visibility Counts piece of research.

There are a couple of key pieces that the most important last year and I think this year is that we did map last year of the Fortune 500 on their board diversity policies. That was the first time that it had ever been done in history, by the way, and not just LGBTQ, we mapped across race, gender, ethnicity, orientation, veteran status, disability status, et cetera.

This year’s report, we are mapping the Fortune 1000 and the entire NASDAQ so all 5,300 listed companies on the NASDAQ. Now, I will point out that the NASDAQ doesn’t even have that data themselves. We went to them first and asked if they had it and they don’t. We did it for them and the Fortune 1000 as well.

I can give you a quick little preview. Only about 2.4% of NASDAQ companies include LGBTQ and the definition of diversity and only about 15% even include gender, so they’ve got an awful lot of work to do, which I think is why Dina wanted to make this an effort and they’ve put it over time. It’s not just a point in time. They have, I think, a four-year lead in, but they’ve got a long way to go, which I think is going to be surprising when we release the full report.”

Transcript:

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. On Boards is about boards of directors and advisors and all aspects of 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, as well as 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 takes to be an effective board member, what challenges boards are facing and how they’re assessing those challenges and how to make your board one of the most valuable assets of your organization.
Joe: Our guest today is Todd Sears. Todd is the founder and CEO of Out Leadership, the first [00:01:00] company in history whose sole product is LGBTQ+ equality. Out Leadership connects leaders across the world’s most influential industries to foster business growth, cultivate talent, and drive equality forward and currently counts 96 of the world’s most powerful companies in the world as its members.
Raza: Todd has spent over 20 years working at the intersection of finance and equality. He began his career as an investment banker before joining Merrill Lynch as an advisor. There he created the first team of financial advisors on Wall Street focused on LGBTQ+ community and brought almost $2 billion of new assets to the firm from LGBTQ+ couples and nonprofit organizations.
Joe: Todd serves on various nonprofit boards, including the Williams Institute of UCLA, The Palette [00:02:00] Fund, the Global Equality Fund of the US Department of State, Lambda Legal Defense and Education Fund and the North Carolina Community Foundation. Welcome, Todd. It’s great to have you today as our guest on On Boards.
Todd: Thanks for having me. It’s great to be here.
Raza: Todd, let’s start by introducing your organization, Out Leadership, if you could.
Todd: Sure. Well, as you mentioned in the intro, I started my career in investment banking, private banking. I ultimately ran diversity strategy for Merrill Lynch and then I was head of diversity of Credit Suisse, and then in 2010 I actually was laid off and was sitting on my sofa with the severance check and multiple martinis.
As I found out, all good ideas come from a martini or two. I thought back to the opportunity that I had at Merrill Lynch to, by virtue of creating a business initiative in a very old-school command and control Irish Catholic investment bank like Merrill to support LGBTQ+ equality from a [00:03:00] business perspective, and I thought, “Well, could I do the same thing, but with more companies, not just one?”
So, I looked at Davos World Economic Forum and I thought, “If I could I create that conversation in the LGBTQ+ community?” Because 12 years ago, you did not see businesses speaking up on equality. CEOs were not using their platform and their voice and I wanted to create that, so I used my severance check, started our first summit in March 2011 hosted by the CEO of Deutsche Bank and we had bank of America, Barclays, Citi, Deutsche Goldman Sachs and Morgan Stanley and then grew from there.
Raza: But going back to your Merrill Lynch work, it wasn’t just the warm and fuzzy part, you really tied it to a business opportunity to make it successful, so talk a little bit about that.
Todd: Sure. Well, for those in the audience who understand how private banking works, they give you a phone, a desk, a computer and they say at that time, “Bring in a million dollars a month of new assets, and if after eight months you didn’t have $8 [00:04:00] million under management you’re fired.”
Joe: Whoa.
Todd: It was a little bit of a high-pressure situation, and I think the fail rate at that time was 91%, so it was definitely a bit of a challenge, and at that time from a gay and lesbian couple perspective, there were over 1,049 rights, the gay and lesbian couples did not receive at the federal level because marriage equality was not a reality in the United States.
About 90% or 85% of those rights were financially based; titling, assets, estate, taxation, and so I basically said, “Well, why isn’t anyone speaking to this community?” Because at that time not a single Wall Street bank had ever marketed to or serve the gay community, and so I put together a business plan for how I could build a team to do just that and I thought it really connected the dots between civil rights and opportunity from business perspectives.
I positioned it that way, and the first 12 months we brought in a $100 million so it worked, but what was important to me was that I tracked it, as you mentioned, it was not a warm, fuzzy to me personally, it mattered.[00:05:00]
I did not go to them from a warm, fuzzy perspective. I went to them to say, “This is a bottom line business opportunity”. I’ve often said over the years that companies and businesses will only do and should only do truthfully what is in their bottom line, sustainable best interest on an ongoing basis.
If it’s just a warm, fuzzy or a nice to do, then those go away when markets go down and budgets get cut, so I have always tried to tie my efforts and the work that I do from an equality perspective to that bottom line, and that’s why I think it’s been very successful.
Raza: Todd, well said, and it also sounds like because of those experiences, what you’re doing at Out Leadership is kind of like the latest iteration that you’ve been doing for quite a while. Tell us about other things that you’ve done at that intersection of finance and equality.
Todd: Well, just even pre-Out Leadership, so the Merrill Lynch piece four years in, Merrill who had never sponsored a gay organization prior to us starting this initiative had won awards, was spending millions of dollars to support equality, and we had done all [00:06:00] kinds of strategies with organizations like Lambda Legal to do domestic partner planning all over the country.
We launched the first charitable gift annuity programs in the gay community which helped the gay and lesbian couples have a charitable engagement through their estate and ultimately that I think was probably the next iteration truthfully from just the individual financial planning, and then from a Credit Suisse perspective, I actually expanded not just from an LGBTQ perspective, but from across the diverse spectrum, so I expanded their diversity efforts to include veterans and launched what was the first veteran’s network on Wall Street, which is now called VOWS and has over 400,000 members now.
That opportunity and that idea was not popular at the time. I got a lot of pushback as I have on lots of different topics around diversity for 20 years. There are lots of opportunities to continue to grow the conversation.
Joe: We recently had David Chun as you know, the CEO and founder of Equilar on our show, a fantastic guest and fantastic database, and I know that you work [00:07:00] with David in terms of how your databases are somehow coordinated, not exactly merged. Can you really talk about that?
Todd: Sure. As Out Leadership grew, so I started what was called Out on the Street originally just focused on Wall Street then Out in Law, and then we merged everything under the sort of Out Leadership umbrella so that’s the sort of the business framework.
With the talent framework of our organization, we have three initiatives. One is called OutNEXT, which is for emerging LGBTQ talent. It’s the first and only program of its kind in the world and we have about 6,000 young leaders who have gone through those development programs globally. We have one called OutWOMEN, which similarly connects and convenes and develops LGBTQ women. And the last one, which ties to your question, is called OutQUORUM, and that is the first ever LGBTQ corporate board initiative that I launched almost eight years ago, and there are lots of things we can talk about from a Quorum perspective. We do a lot of advocacy. We convene, we develop these talents of leaders. There’s a huge policy piece of it.
[00:08:00] We’ve worked with Equilar and David on several different fronts. One, you mentioned the database. Equilar has a tremendous board database and a truly, I think, first-class, world-class board search tool that they have developed that companies and leaders can use to access their talent. But what David’s also done is use that database to ideally surface more diversity in the director pools that companies are trying to pull from which despite the talk about board diversity that so many companies are espousing, the actions are woefully lacking, and so it takes organizations like David’s and mine and the Diverse Directors Coalition, which includes black corporate directors, women corporate directors, Latino corporate directors, et cetera, to continue to sort of pull and push these levers.
We’ve worked with David, not just on the folks in the database, but also around self-identification because for LGBTQ people to actually count, we have to be asked, and so from a board perspective, when I started Quorum as one example, there were only two [00:09:00] companies in the entire Fortune 500 that include LGBTQ and the definition of board diversity, only two, and by our very unscientific count, because disclosure is not a thing, there were only 27 Out board members in the entire Fortune 500, which is about 1.2%.
Joe: Wow.
Todd: So, you’re talking about really big challenges in terms of disclosure, reporting and having people have the opportunity to self-identify, and so David has been very helpful with us.
A key piece of the conversation is having the opportunity for LGBTQ leaders to self-identify, and Out Leadership almost five years ago wrote the first research on self-ID globally in partnership with Ropes & Gray. We found that companies asked their LGBTQ employees to self-identify in 38 countries globally, but at the same point at the board level, it is still completely absent.
David has used that data, the research, and actually the policies that we’ve written to try to identify more [00:10:00] LGBTQ board members in the Equilar database, so that we can start to expand that pool of diversity.
Joe: First, I’m so glad you pointed out that one of the things about this amazing database that Equilar has is that people can go in and manage their own profiles, and I think the work you’re doing and the work others have done to put in the ethnic, sexual identification, the other aspects that you can’t do unless someone goes in and does it has changed how people use that kind of database completely.
The initiative at NASDAQ to diversify boards that are listed is made really feasible because of a database like Equilar which partners with NASDAQ on this. So, let’s do this, let’s talk a little bit more about Quorum, which is one that you’ve talked about in terms of your board initiative. Tell us about that.
Todd: As I mentioned, it is the first LGBTQ, actually is still the only LGBTQ board initiative in the world. It is a global [00:11:00] program. We started in the United States. We’ve expanded it into Europe as well as into Australia, and that the framework is quite simple. There are three key pillars. The first is from a policy perspective. We want companies to include LGBTQ leaders in their definitions of board diversity. To that end, our Quorum research that we launched last year, that I’m sure you can link to in some way, maps for the first time ever the board diversity policies of the entire Fortune 500.
Of course, what we found was, as I mentioned earlier, there were only two seven years ago. Now there are 27, significant opportunity for increase in that number. It’s pretty pathetic in my opinion and if people say that LGBTQ people matter but do not have them at the most important area of a company, as you mentioned in your intro, is I think a huge missed opportunity, so we work with companies on those policies.
But we are also trying to create demand in the marketplace so we were able to convince New York City, New York State, [00:12:00] CalPERS, and CalSTRS as well as a few other pension funds, including Yale and others, to add LGBTQ to the definition of diversity they require for their investment mandates, and the idea that these mandates are LGBTQ inclusive creates that demand in the marketplace. If we can now then finally focus on the supply, we have about 1,600 leaders in our Quorum database who have gone through our board readiness fit training with KPMG and Goldman Sachs as well as with Egon Zehnder, and I’m hopeful that now that we finally are getting the policy pieces, the demand is increasing, we can finally start to see some LGBTQ board placements.
We have had a couple of good wins in the last year. Beth Brooke was placed on the New York Times board by Egon Zehnder, which was a pretty nice sort of full circle piece as she has served on Out Leadership’s board, but we also worked with the NASDAQ. They actually use our data in their SEC filing. We work with them on the filing itself. Think our data was quoted seven times in their filing and LGBTQ is part of the [00:13:00] definition of board diversity that NASDAQ now requires.
There are a lot of sort of advocacy pieces. I’m interested right now in particular, AB 979, the California law requiring board diversity. We were a part of, from the drafting perspective, believe it or not, when it was first introduced, the definition of diversity did not include Asian or LGBTQ, and so Ascent Pinnacle and Out Leadership and Quorum worked to have both of those diverse categories added.
But interestingly now, AB 979 is under attack. The State of California is being sued and our leadership is one of the expert witnesses that is testifying to try to protect a law increasing diversity, which is just baffling to me. Every piece of research shown that that shows LGBT and broader diversity bring innovation, de-risk all of the reasons you want diversity on the board, so to be anti-business and sue against the law that seeks to create that, just blows my mind.
Joe: Yeah, a couple of things, first of all, I think that the initiative [00:14:00] to include LGBTQ in the definition of diversity is phenomenal because that’s kind of where the rubber hits the road, so to speak. And I have to say, we did talk about this before the fact that the bill in California didn’t include LGBTQ or Asian is mind-boggling it.
I have to say, it reminds me, we are in 2022. To not include those two groups in a California initiative does seem surprising. The lawsuit not so surprising given who we are and where we are, but maybe that presents an opportunity for you and Out Leadership to really even provide more advocacy. Is that the case at all?
Todd: Well, I hope so. As I mentioned, we’ve been asked to be an expert witness in the testimony for the justice department so we are absolutely doing that. We actually, from an advocacy perspective, it wasn’t [00:15:00] just California that didn’t include LGBTQ folks. The United States Congress had three different bills focused on diversity in 2021. Not one of them, when it was introduced into the committee, included LGBTQ and we had to advocate and we were able to get LGBTQ added to all three of them, including a board diversity one and ultimately I testified to Maxine Waters’ House Financial Services Committee in November about all of these exclusions and why it matters for LGBTQ people to be included at all these levels of diversity.
There is significant opportunity for us to continue to push, and it’s not just in the US, by the way. The FCA, which is the regulatory body for the United Kingdom, had a board diversity consultation paper that they issued in August. Guess what wasn’t included?
Joe: Yeah.
Todd: LGBTQ. Australia, we are pushing and working in partnership with the Australian Institute of Corporate Directors, which is actually the largest corporate director initiative in the world, and they have been working with us for almost four years now to have [00:16:00] LGBTQ added into the ASX and some of the different initiatives there.
It is a global conversation but I will say that the challenges are significant, especially not just in the board level, but when you think about the States, there were 131 anti-LGBTQ bills right now in the United States. Florida yesterday just passed the Don’t Say Gay bill. I mean, we’ve got an awful lot of hatred. Texas is making parents of trans kids considered child abusers, and there’s an awful lot that’s happening in the background around all of these things. It’s not just the policy but, there’s an awful lot of anti-LGBT animosity that continues to grow and push back on these important efforts.
Raza: David, on the positive side though, I think the strategy of tying diversity to business opportunity is great and very effective. I know about a venture group called Gaingels, and I know you are also not only familiar with them, but you’ve been a part of helping start that organization. Tell us a [00:17:00] little bit about Gaingels.
Todd: Sure. Just to clarify, I didn’t help start them, but I was one of the folks that David asked for advice as he was starting. From a diversity bottom line business perspective, as you mentioned, there had been innumerable case studies and initiatives that have clearly directly tied diversity success to bottom line impact, stock prices, you name it, and so the Gaingels initiative when David started it was actually focused on investing in LGBTQ-owned businesses or LGBTQ founders.
As it has evolved, he has expanded that mission, and I think in a very deft way actually, he really reframed it to investment platforms being diversified by LGBTQ investors.
What he does with the Gaingels’ network is it works with some of the biggest PE and venture funds in the world and has the opportunity to add an element of diversity investment into their capital and so it’s a much broader strategy than just focusing on LGBTQ-owned [00:18:00] businesses.
I think what’s so smart about it is that it mainlines, it makes these major multi-billion dollar investments and these PE companies and the venture funds have this element of diversity and he ties, by the way, that investment to those companies being LGBTQ friendly, having the right policies, having a diversity strategy, having diversity on their boards as a condition of that investment,
Raza: Do folks have to be a part of the LGBTQ+ community to be able to invest with Gaingels?
Todd: They do not, there are an awful lot of allies who do as well. It’s very much a mission-aligned investment opportunity, in my opinion. It’s for LGBTQ people and people who think that diversity and inclusion matters.
Raza: I learned that so far they’ve actually deployed upwards of $500 million of capital into companies so I think this again is a great example where if you tie diversity with opportunity [00:19:00] it can work tremendous magic.
Todd: I agree. I applaud them for their efforts. They are a member of out leadership as an organization, which is wonderful, and we’ve also been working with some of their CEOs as well that they have invested in to try to bring that sort of full circle so that we can actually help the leaders who now have this investment capital with doing good and doing well at the same time for their companies and their shareholders.
Raza: That is a perfect coalition that you built.
Todd: Thank you.
Joe: My understanding is that Out Leadership is a B Corp. I think a lot of our listeners probably know what it means, but it would be helpful if you could kind of tell us since you actually are a B Corp and we can talk a little bit about that.
Todd: Sure. So, a B Corp is quite simply for-profit for impact so it means that Out Leadership reinvest our profits into our mission. We are not a non-profit C3 organization and that is by design. Twelve years ago, when I started Out Leadership, we were actually the first LGBTQ B Corp and we are still the only LGBT global B Corp.[00:20:00]
Why that matters in my opinion is if I was going to sit with CEOs, and we’ve worked with over 800 now over the last 12 years, if I was going to sit with a CEO and say that LGBT equality is a business issue, I need to be a business too. It’s very different to have the nonprofit warm fuzzies, as we said earlier, conversation. If I’m a business, I pay taxes just like they do. I have to grow just like they do. We reinvest our profits. That’s, to me, an important story.
I would also add that since our founding, Out Leadership donates 20% of our net profits that we don’t reinvest to LGBTQ nonprofits as well.
We are a B Corp. We reinvest our profits in our mission, and then we spend significant tens of thousands of dollars donating to LGBT nonprofits that we think are doing amazing work.
Joe: You put your money where your mouth is, so to speak. The other thing about the B Corp is that it’s a pretty list of things that you have to comply with in order to maintain your B Corp status. Can you just talk a little bit about that because I think that’s a very important aspect.
Todd: I agree and [00:21:00] I’m glad you brought it up. It’s a pretty in-depth, as you mentioned, process. It’s every two years, but every year there’s an interstitial survey you’d have to fill out, but it takes my team about six weeks to go through all of the questions. We have to provide supporting information, documentation. We have to prove all of our policies, not just the policies, we have to prove impact, which is something I am very proud of because we’ve actually been ranked in the top 10% of B Corps every year since our founding because of the impact that we make.
And I differentiate that between nonprofits. There’s Charity Navigator out there for nonprofits, but that’s much more focused on how they spend their money, not about what they actually achieve, and the most important piece of the B Corp rating is what are you actually doing, and that’s something I think it’s really important and I think it’s why so many more companies are looking at the B Corp status. There are a number of companies that are looking to convert to B Corp not just the Ben & Jerry’s and Patagonia are B Corp, but there are significant numbers of corporations that are considering it now.
Joe: Yeah, I’m not sure everyone realizes that [00:22:00] Ben & Jerry’s and Patagonia are B Corp so I’m glad you mentioned that, and I think impact aspect of being a B Corp, I’m so glad you mentioned it because that actually is just different from nonprofit, and I just think that it’s a great thing for people to understand. It’s not always that clear. And my understanding is that they check and if you don’t meet the criteria, you can be delisted.
Todd: That is correct, yes. That you have to score a minimum score across the different pillars that they rank you on or you can be kicked out of the program. It’s a real thing.
Joe: Let’s get back to getting board members on private and public company boards. How are you able to measure the impact that Out Leadership is having on that aspect of what you’re doing?
Todd: Well, I’d say a few things. One, the fact that we’re at least part of the conversation now, and by we, I mean, LGBTQ people, but also the broader board diversity conversation. Ten years ago, you did not have this [00:23:00] conversation, first and foremost, You did not have groups like the 30% club in the United Kingdom focusing on women on boards and their goal, by the way, was having 30% of FTSE 100 board seats be held by women and they achieved that in seven years, which was tremendous.
But I will point out a key reason they were able to do that is term limits. In the United States we don’t have them so the turnover in the Fortune 500 is significantly small. I think my colleague, Matt Fust, who co-leads our Quorum effort for us, has a quote that I think is true, “You are more likely to get struck by lightning than get placed on a Fortune 500 board.” The turnover is so significantly low.
For us ever to actually start to have some of these board diversity conversations tying it to reality, some of the structural changes that boards have to think about are really, really important. There’s the structural piece and I can talk about other pieces as well, but I’d start with that.
Joe: Yeah, but there are a lot of opportunities outside the Fortune 500. There are more private companies, for profit companies, and [00:24:00] there are public, you know that, and that is a great opportunity for anyone that wants to be on a board and wants to be a part of the board ecosystem. How is that progressing? Because there are so many private companies that are paying attention to their boards that are starting real boards, fiduciary boards for the first time so that would seem to offer an opportunity as well.
Todd: It absolutely does. I believe there are 250,000 companies between a hundred million and a billion in revenue in the United States right now so it’s significantly more than the Fortune 500 as you point out. But I think there are several key pieces. I think one is resources. Smaller companies don’t always have the resources to hire a search firm, and we should talk about the search firm industry in this conversation as well, and also don’t always have, in my opinion, the most expensive board search matrix and the skill matrix.
One of the tools that Out Leadership built almost six years ago was our corporate guidelines for board diversity, and we include in the back of that, an actual matrix that is inclusive of all the elements of diversity that we recommend, both acquired and inherent [00:25:00] diversity, skills, background, national origin, all of the pieces, and I encourage private companies to think about that and to use that as they’re thinking about diversification of their boards.
It’s not just you have some of the finance background, but do you have generational difference? Do you have all the different industry expertise that you need, et cetera, et cetera, all of that is diversity. It’s not just race, gender, and orientation, but if you don’t have an actual matrix to start from the best practice, I think that’s the first thing these companies have to start to think about.
Joe: Yeah, that’s a great tool. It’s a really excellent way to help people kind of focus on it and understand what true diversity actually means.
Todd: I think we built that in consultation and in partnership with so many of the successful companies. For a smaller company, it’s a great way to say, “Great, that’s the best practice I don’t have to reinvent the wheel. Let’s literally just see a doctor and implement that:, which is our goal. We want to be practical.
Joe: Exactly. You mentioned the executive search industry, which obviously is going to be an important aspect of driving diversity. Let’s talk about who you’ve talked to and who [00:26:00] you’ve worked with and how they partnered with you or worked with you.
Todd: Well, it’s been an evolution. When I started the Quorum initiative eight years ago, I think my second year I made it a point to get a meeting with every head of every search firm, and then I did, and to affirm at that time, the response was, “Well, that’s nice. Until our clients ask for it, we’re just not interested.”
As a market capitalist guy, I get that. I understand you’ve got to go where the market is, but I was not just frustrated, I was just surprised. I thought, “Gosh, wouldn’t somebody want to be innovative? Wouldn’t somebody see that this is ultimately going to happen and wouldn’t somebody want to be first?”
Ultimately I found that someone, Jill Ader, who was the chairwoman of Egon Zehnder, two and a half years ago we connected. She’s a new chairwoman. She’s the first global woman chairwoman of a search firm in history, and she’s just brilliant and she looks at things quite differently, and she said, “Well, gosh, of course, we should focus on all diversity matters and how do we help?”
We have built a great partnership with Egon Zehnder over the last two and a half years. They’ve been a sponsor of our [00:27:00] Quorum effort. They have their Egon Zehnder board diversity index that they have built and then actually they’ve used our data so it’s the first index in history from a board search perspective to include LGBTQ people in their tracker.
I think it’s really shifted the industry. I think I would be shocked if 12 months from now, if we didn’t have another chat, if we didn’t have every search firm partner on board and helping us. I will also say that I take those things as a bit of a challenge. I did follow back up with each of them to say, ” Lloyd Blankfein, the CEO of Goldman Sachs was my first board member seven years ago,’ and I just sat down with him. I said, “Does this matter to you? Guess what it does?” Noel Quinn, the global CEO of HSBC is on our board and Peter Grauer, the chairman of Bloomberg and all of these 800 leaders, they all say this matters. When you say your clients aren’t asking for it, you’re not asking the right people or you’re not listening, they are asking for it, and so the ability of the network that we have built at least make that case. I think it has also shifted that dialogue.
Joe: That is terrific.
Raza: Todd, you do a lot for LGBTQ+ diversity, [00:28:00] but you go beyond that. Talk a little bit about general diversity and how you’re helping even beyond LGBTQ.
Todd: Well, I would say, I look at LGBTQ leaders as the canary in the coal mine of a corporate culture, and what that means is we, as a community, are invisible, we are invisible until we come out to you and become visible, and so if you start with that premise and that idea, what you do for an invisible minority impacts all the visible minorities.
We actually have research that shows if a straight white male says that he is an LGBTQ ally, the overall engagement of women and people of color in his organization goes up because what you’re doing for people you can’t see and who, by the way, despite all of the anti-black violence, et cetera, gay people are still literally illegal. We don’t have full civil equality in the United States and can be imprisoned or killed in 67 countries around the world. It’s a pretty personal [00:29:00] challenge that LGBTQ. people have just to show up at work and be who they are.
All of that connects from a diversity perspective so what you do for women from a gender perspective can impact the trans and gender non-binary people in your organization, but vice versa as well, so if you are supportive of gender nonconforming people, that helps you rethink gender norms in an organization, which ultimately helps women.
All of these things are just interconnected and I think where companies, I think, make a mistake is that they try to bifurcate it or only focus on one piece or say, “You know what, we’re just going to focus on gender because women are half of the population.” Well, sure, that’s great, but you can’t walk and sit down at the same time. You actually can’t do these things simultaneously, and I’ve tried to always, everything from an Out Leadership perspective, do is always focus on intersectionality because you can’t really extricate any one group from the other.
Raza: I think on top of that, you could be black and gay, you could be a woman and gay, so the [00:30:00] LGBTQ dimension crosses all other dimensions in a vertical manner as well so that’s an important reason. That’s a distinct dimension of diversity.
Todd: I agree, and again, that sort of underscores the need to have all of these things connected because LGBT people do if you’re absolutely everywhere. There was a Gallup poll that was released three weeks ago that said that 21% of Gen Z identify as LGBTQ.
Joe: Wow,
Raza: That’s tremendous. Todd, Out Leadership is coming up with a comprehensive survey of policies of diversity that companies have. Could you give us a preview of that? What are you doing and what data are you seeing?
Todd: Sure. Our Quorum initiative last year launched our first ever Quorum Summit. Out Leadership has summits annually in New York, London, Hong Kong Paris and Sydney, but with our talent issues, we built a summit as well and last year’s summit, we launched the first ever LGBTQ board research called Visibility Counts. This year [00:31:00] on March 22nd, we’ll be launching the second annual Visibility Counts piece of research.
There are a couple of key pieces that the most important last year and I think this year is that we did map last year of the Fortune 500 on their board diversity policies. That was the first time that it had ever been done in history, by the way, and not just LGBTQ, we mapped across race, gender, ethnicity, orientation, veteran status, disability status, et cetera.
This year’s report, we are mapping the Fortune 1000 and the entire NASDAQ so all 5,300 listed companies on the NASDAQ. Now, I will point out that the NASDAQ doesn’t even have that data themselves. We went to them first and asked if they had it and they don’t. We did it for them and the Fortune 1000 as well.
I can give you a quick little preview. Only about 2.4% of NASDAQ companies include LGBTQ and the definition of diversity and only about 15% even include gender, so they’ve got an awful lot of work to do, which I think is why Dina wanted to make this an effort and they’ve put it over [00:32:00] time. It’s not just a point in time. They have, I think, a four-year lead in, but they’ve got a long way to go, which I think is going to be surprising when we release the full report.
Raza: Todd, this is so great because it’s not that you can just find these data lying around, you had to go into each SEC filing to actually get through what their actual policy says. I think this is a tremendous amount of work where we’ll be happy to link it up and give it to our listeners as well.
Todd: Please do. Yes, we literally went through every SEC filing and every policy statement by hand because there’s no other way to do
Joe: Todd, it’s been great speaking with you today. Thank you so much for joining us.
Todd: Thank you for having me. I appreciate the opportunity and I hope that organizations find OutLeadership.com and join our efforts.
Joe: Excellent. And thank you all for listening to On Boards with our special guests, Todd Sears.
Raza: We have a request for our listeners. Please take a moment to rate and review On Boards Podcast on Apple Podcast app.[00:33:00] If you’ve enjoyed listening to it, it really helps others discover our podcasts. Also, you can visit our website at onboardspodcast.com. That’s onboardspodcast.com. We’d love to hear your comments, suggestions, and feedback.
Joe: Please stay safe. Take care of yourselves, your families, and your communities as best you can. And Raza, you take care too.
Raza: You too, Joe.
Joe: Thanks.

36. David Chun – The power of data in driving board composition, diversity and corporate governance

David Chun is the founder and CEO of Equilar, one of the most trusted names in the corporate governance community. He has been recognized as one of the most 100 influential players in corporate governance by the National Association of Corporate Directors (NACD).  In this episode we discuss David’s journey to founding Equilar and how bringing together all the incredible data helps drive better board composition and better corporate governance.

Thanks for listening!

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Links

David Chun Bio

Equilar website

Equilar Diversity Network

As Corporate Boards Pursue Diversity, Director Training Programs Spring Up

Quotes

Founding of Equilar

worked in investment banking for DLJ (Donaldson, Lufkin & Jenrette), and that was really the transformative experience for me to really learn about data, what’s out there. I spent a lot of time going through SEC filings and recognized that, “Hey, there’s an opportunity to potentially build the business around this data.

In ’97, my wife and I moved out to California to help open up the DLJ Menlo Park office right in the heart of Silicon Valley, and when you’re out here, especially in the late nineties, everybody wanted to start a company and so I said, “Hey, it’s not going to get any easier for me. Let’s go ahead and let’s give it a shot.”

It looks a lot easier from the outside, but kind of once you get in you’ll realize, “Wow, it is hard.” That’s the reason 90-plus percent of businesses never make it beyond a couple of years.

I just happened to be at the right place at the right time with the executive compensation data that is essentially the foundation of our business.

Raza

David, Joe and I have often talked on this podcast that the old excuse of “we can’t find enough qualified” candidates is no longer really available, and I think what you’re doing is the last mile step in bringing that to fruition!

David

It’s big data opportunity where there are, like I said, 1.2 million candidates. Having a lot of data is not the answer. The key is getting to the right data as quickly as possible, and so literally when somebody says, “I can’t find candidates,” I say, “Hey, do you have 10 seconds?”

You can get binders of information about women, but if you’re not able to figure it out how you may be potentially connected to that individual, those binders and those lists are not that valuable because what  people are looking for is not only to show me candidates, but is there some level of connectivity to them?

Rate of increase in women directors of public companies

The rate of change is pretty much at parity now, so its one-to-one so as new board seats are being refilled,  roughly a 50/50 balance, and we should reach parity by around 2030.

Big Ideas/Thoughts

We mine the compensation that’s disclosed in annual proxy filings. We also have our proprietary survey where we collect data compensation, that data that companies provide as part of a broader survey, and we’ve got close to a thousand companies that use our data for various benchmarking purposes.

You’ll see us often cited in The New York Times, the Wall Street Journal, CNBC and others, where they’re looking for pay statistics

We have over just across 1.2 million profiles in our dataset of anyone who’s been an executive or board member of a public company, private company non-profits and others, and so we are excited about how that’s become, also a  way to better serve our clients. As we all know work diversity is a very hot topic right now on the agenda of every board, public, private, nonprofit, and others.

Within our BoardEdge product, we built up the Equilar Diversity Network where we partnered with over 50 different organizations to help match the demand and the supply for diverse talent,

We also allow people to claim their profiles, so people have gone in, they’ve enriched and particularly added important metrics like their ethnicity or their sexual orientation and disability, veteran status, because what we want in a company, we want to make it much easier for our corporate clients and search firms and others who use our database to find these candidates.

Partnership with NASDAQ

That’s when we found out that this was happening, and what we feel really great about is that since NASDAQ was using our products and they had this big vision of what the big broader ESG vision and my guess, and I don’t know this for sure, but behind the scenes over at NASDAQ, when they were putting this together saying, “Hey, if we’re going to go out this and ask NASDAQ-listed companies to set a new standard, how do we help them?” And I think that’s honestly maybe where Joan said, “Hey, we’ve been using Equilar. It’s a great database. Let’s work out some type of partnership with them.”

So, yeah, we’re honored to be part of that, to be working with them with all of their listed companies, and NASDAQ being technology is very focused on ESG. It blends in well with both what we’re doing. They’re able to offer to their companies, “Here’s a resource. If you don’t have the requisite diversity or you want more diversity, here’s a place you can go to get it.”

We talked about earlier was one of the things that really strikes me is that one of the great strengths is that you can enhance the database of virtually any other company, so they don’t see you as a competitor to them. executive search, private equity well, of course they have their own database    any relationship-based business where relationships play a critical part of one’s offering.

we have our network center, and so that’s where our clients are maintaining their pipeline of candidates. So ,every quarter, when a nom/gov committee meets, they can export that and they can be assured that everything has been updated

Without question, the tragic events that have happened, let me show you the dates. It was summer 2020 with George Floyd and the whole Black Lives Matter movement, and that was a wake-up call for corporate America and just recognizing, “Hey, have we done enough? What are the things that we could do differently?” the rate of change has probably doubled so that’s a pretty substantial increase over a year.

A lot of boards really took that to heart and there’s been a big push to bring. African-American and Black individuals into the boardroom, so that’s tremendous progress there. I also would add to that, about four or five years ago, we launched the gender diversity index, and so we’re looking at the rate of women on boards. When we looked at this, when we first calculated, I think it was like fall of ’16, beginning of ’17, I don’t know if I’m getting the dates right, roughly 25% of the Russell 3000, so over 750 companies did not have any women on their board

Wow.

And it wasn’t that long ago.

They shared it with me, I said, “This can’t be right. We can’t publish this. I’ve got to see the data,” and so they shared the file with me, and I started going through them. I didn’t go through all 750, but I went through about 20 to 30 of them, and I’m like, “Oh, my God, this is right. This is really the state of play.

this stunning statistic that over a million men joined the labor force last month that are taking a job or looking for one compared to only 39,000 women. What explains it then? How does that fit into the diversity push in general?

Yeah. To be able to fill those board seats, you’re going to need to have a pipeline of women executives that are going to be quote unquote “board ready.” And if you’re not having as many women coming back into the workforce, that pipeline is just going to get thinner and thinner.

Episode Transcript:

Joe: [00:00:00]

Hello and welcome to On Boards, a deep dive at what drives business success. Hi, I’m Joe Ayoub and I’m here with my co-host. Raza Shaikh. On Boards is about boards of advisors and directors and all aspects of 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, as well as 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 takes to be an effective board member, what challenges boards are facing and how they’re assessing those challenges, and how to make your board one of the most valuable assets of your organization.

Joe: Our guest today is David Chun. David is the founder and CEO of Equilar, one of the [00:01:00]most trusted names in the corporate governance community. He has been recognized as one of the most 100 influential players in corporate governance by the National Association of Corporate Directors (NACD).

He was recognized with the Disruptor Award by the 2020 Women on Boards and was named one of the outstanding 50 Asian-Americans in business. David speaks regularly on corporate governance and board diversity matters, including events hosted by the Conference Board, Deloitte, Ernst & Young, KPMG, NACD, NASDAQ, the New York Stock Exchange, the Society for Corporate Governance, and Stanford’s Directors’ College.

David serves on the boards of the Commonwealth Club of California, PGA REACH, the Silicon Valley Leadership Group, and is a trustee of Committee of Economic Development (CED). [00:02:00]He is on Catalyst Women On Board Advisory Council, and also serves on a number of other initiatives and boards. He’s also a founding member of the Council of Korean-Americans (CKA), and former board member of the Wharton Center for Entrepreneurship and Asia-Pacific Fund Community Foundation of San Francisco.

Welcome, David. Thank you so much for joining us today on On Boards.

David: Great, thank you, Joe and Raza, I appreciate the opportunity to be here.

Raza: David, can you tell us a little bit about your background before you founded Equilar?

David: Well, I was born in Korea, grew up in Northern New Jersey. Our ticket out of Korea was my dad being able to get a scholarship to study at the Fairleigh Dickinson University in Rutherford. I grew up in New Jersey. I did my undergrad at the University of Virginia and was fortunate that after business school, right after undergrad, to work in consulting at Bain in Boston.

Then worked at a [00:03:00] software company before going back to business school at Wharton and then went back to Wall Street. I worked in investment banking for DLJ (Donaldson, Lufkin & Jenrette), and that was really the transformative experience for me to really learn about data, what’s out there. I spend a lot of time going through SEC filings and recognize that, “Hey, there’s an opportunity to potentially build the business around this data.

In ’97, my wife and I moved out to California to help open up the DLJ Menlo Park office right in the heart of Silicon Valley, and when you’re out here, especially in the late nineties, everybody wanted to start a company and so I said, “Hey, it’s not going to get any easier for me. Let’s go ahead and let’s give it a shot.”

It looks a lot easier from the outside, but kind of once you get in you’ll realize, “Wow, it is hard.” That’s the reason 90-plus percent of businesses never make it beyond a couple of years.

But we were fortunate enough that we happened to be in the right place at the right time. I stumbled in this corporate governance arena in 2000-2001, literally, as Enron [00:04:00] and Andersen and some of those corporate governance issues that came to the surface, I just happened to be at the right place at the right time with the executive compensation data that is essentially the foundation of our business.

Raza: And that’s when you founded Equilar, David. Maybe talk about what Equilar is today, your product and your customers.

David: Yeah, absolutely. The core part of our business is around compensation data. We mine the compensation that’s disclosed in annual proxy filings. We also go through a case or reports. We also have our proprietary survey where we collect data compensation, that data that companies provide as part of a broader survey, and we’ve got close to a thousand companies that use our data for various benchmarking purposes.

You’ll see us often cited in The New York Times, the Wall Street Journal, CNBC and others, where they’re looking for pay statistics, and while collecting the compensation data, we’ve been building people database in the background, and so that’s allowed us to launch our next product, [00:05:00]which is called BoardEdge, and companies are using that to be able to source board candidates.

We have over just across 1.2 million profiles in our dataset of anyone who’s been an executive or board member of a public company, private company non-profits and others, and so we are excited about how that’s become, also a way to better serve our clients. As we all know work diversity is a very hot topic right now on the agenda of every board, public, private, nonprofit, and others.

Within our BoardEdge product, we built up the Equilar Diversity Network where we partnered with over 50 different organizations to help match the demand and the supply for diverse talent, and so we’re pretty excited and proud of what we’ve been able to accomplish in that area.

Raza: David, that sounds tremendous. It sounds like it’s an aggregation of a lot of data, not only available publicly, but also proprietary data sets. Are you bringing that data in and then [00:06:00]enriching it with more information to provide it in a more useful manner?

David: Yeah, absolutely. What we do is we’re aggregating information that’s publicly available, whether it’s an SEC filing, corporate websites, various public sources. We also allow people to claim their profiles, so people have gone in, they’ve enriched and particularly added important metrics like their ethnicity or their sexual orientation and disability, veteran status, because what we want in a company, we want to make it much easier for our corporate clients and search firms and others who use our database to find these candidates.

We’ve made it very easy. We don’t charge candidates to come in and claim their profile. We encourage people to add it because when that company says, “Hey, we’re looking for a woman who is Asian, black, or Hispanic,” we want to show as many qualified candidates as possible and not struggling and have to find them.

Raza: David, Joe and I have often talked on this podcast that the old excuse of “we can’t find [00:07:00] enough qualified” candidates is no longer really available, and I think what you’re doing is the last mile step in bringing that to fruition. What do you consider when you say the last mile problem that Equilar helps solve?

David: Yeah. It’s a digital solution. It’s technology. It’s big data opportunity where there are, like I said, 1.2 million candidates. Having a lot of, data is not the answer. The key is getting to the right data as quickly as possible, and so literally when somebody says, “I can’t find candidates,” I say, “Hey, do you have 10 seconds?”

We show them our search page, click a couple of buttons and then like, “Oh my God, there are so many people.” And then what I love was when people are like, “Oh, there’s so-and-so, I forgot about so-and-so. I forgot about this person. I forgot about that.” But it’s not only that, but then the other piece that Raza talked about solving that last mile, as you know, there are lists of people out there everywhere, you know, borrowing[00:08:00] Governor, or I guess now Senator Romney binders of women. You can get binders of women in front of you, but if you’re not able to figure it out how you may be potentially connected to that individual, to be honest with you, those binders and those lists are not that valuable because what people are looking for is not only to show me candidates, but is there some level of connectivity to them?

That’s what we’re solving it is that not only do we have 1.2 million profiles, but we have over a hundred million connection relationship pairs, so that those, let’s say, 50 women that come up and match the search, we can show a path from a company’s board where they may have a point of connectivity to that individual, and I think that’s a critical piece that we’ve solved.

Raza: You would say way better than LinkedIn.

David: Yeah. I wish we could say that. LinkedIn is a tremendous database, but as you know, LinkedIn is it’s opt-in so frankly a lot of the candidates that people would like to potentially recruit aren’t frankly on LinkedIn or aren’t that active, and let’s face it, what’s happened with [00:09:00] LinkedIn is that I don’t know how many connections I have right now, but how many of those connections I really know well? I’ll meet people and I’ll say to them, “Hey, I noticed that we have so-and-so on the job, and I get this glazed look like, “Who?”

There’s quite a bit of noise in LinkedIn, and what we do is we’re not going to try to show them a lot of relationship pairs. We want to show really high quality ones of like you are on the board of this company with this individual between these dates and to be able to provide that context.

Raza: I think that’s such a tremendous value because you’re absolutely right that although LinkedIn is really large, the relationships are not necessarily reflective of true relationships.

Joe: I want to just confirm something though. All the data that you have in your database is publicly available. You said proprietary before.

David: Let me clarify. Thanks, Joe. On the compensation side, we do a proprietary survey because what’s in the SEC filings, companies are required to disclose the five highest paid executive officers. It’s often [00:10:00] referred to as the NEO, the named executive officers. Our clients actually came to us and said, “Hey, what you have collected on the public side. It’s great, but I need more data.”

A good example would be, so the way the SEC rules work, of the five, the CEO and CFO are required to be disclosed. The next three are all over the map. It could be your general counsel one year. It could be your head of sales one year. It could be your CMO . It could be your head of HR.

If you’re only using the SEC data for those, let’s say, you want to benchmark your GC, you’re going to naturally skew high because it’s only going to be the highest paid GCs that gets disclosed. What has happened is we now have the GC data for pretty much everybody, for within large and mid cap audience and so you get a much more accurate view if you’re trying to benchmark what the GC should get paid. That’s the proprietary data where we’re collecting compensation data that’s not publicly available.

The other piece I should clarify though on the Board Edge [00:11:00] recruiting side, there is some proprietary data that we do collect where individuals come in and they claim their profile so they’ll add information, for example, like the ethnicity and sexual orientation, because we’re not guessing that stuff, so we’re letting people, ” Hey, if you want to add that, that’s yours.”

Then what’s shared when somebody uses that, w e provide the source of every data element, where it comes from. Did it come from, you know, and you can click to the SEC file that shows where it came from. If the user provided it, we’ll say source the user’s name.

Joe: None of it is private in the sense that whatever is not actually public has been shared with you by the person that has the information. That’s really important for people to understand.

David: Yeah, exactly. We don’t let people go in. It’s not a Wikipedia. We don’t have people adding stuff to somebody else’s profile. It’s really, “Okay, your profile, you own it, and you decide what you want to add to it.”

Joe: So, let’s talk about the partnership with NASDAQ, because I found that fascinating. Talk about how that came about, when it came about and what drove it.

David: Yeah, okay. NASDAQ has been a tremendous partner for a [00:12:00] number of years and we co-host the Board Leadership Farm at the Market site. Fingers crossed, we’ll be able to be there again on April 5th and so we’ll have that one coming up.

But they also use our products, and so Joan Conley, their corporate secretary, big fan of our database, she had used it for her own board searches for NASDAQ’s own board. In the summer of 2020, NASDAQ contacted us and they said, “Hey, we want to partner with you and Roger at BoardEdge.” we had no idea what was going on at the time, and we’re like, “Sure, why not? People know NASDAQ, and yeah, let’s do something there.”

Then, as we all know, at December of 2020, the NASDAQ made their announcement and saying, “Hey, going forward, NASDAQ-listed companies will now going to be required to disclose the make up of their board and will need to include a woman and a person from one of the underrepresented groups, an ethnic group or LGBTQ, and if the board does not have the two diverse candidates, well, they would need to explain why they don’t have the two diverse candidates.”

That’s when we found out that this was happening, and what we feel really great about is that since NASDAQ was using our [00:13:00] products and they had this big vision of what the big broader ESG vision and my guess, and I don’t know this for sure, but behind the scenes over at NASDAQ, when they were putting this together saying, “Hey, if we’re going to go out this and ask NASDAQ-listed companies to set a new standard, how do we help them?” And I think that’s honestly maybe where Joan said, “Hey, we’ve been using Equilar. It’s a great database. Let’s work out some type of partnership with them.”

So, yeah, we’re honored to be part of that, to be working with them with all their lists of companies, and NASDAQ being technology is very focused on ESG. It blends in well with both what we’re doing.

Joe: They’re able to offer to their companies, “Here’s a resource. If you don’t have the requisite diversity or you want more diversity, here’s a place you can go to get it.”

David: And beyond, you need help on your board search process. It’s not limited to just that, and full disclosure, we do give trials, so we give three-month trials to all NASDAQ-listed companies who want to try for it, and it’s up to them if they want to continue to have access, but as part of this is that [00:14:00] NASDAQ-listed company has access to this database for a relatively short period of time to be able to get enough data out, to be able to build a pipeline of candidates.

But the product is more than just sourcing candidates because there are competitive intelligence that we are able to track that they get alerts around changes across their peer group, like board members that have been added or have a step-down executive transition. There’s quite a bit more than just sourcing candidates as part of the overall solution.

Joe: Real-time updates on people’s status.

David: Personal changes. Yeah, exactly. And frankly, some of the changes that we track, we never make a press release. If somebody is a chief marketing officer was taken off a website, it’s like, “Oh, what happened there?” But that is a part of the intelligence that we’re tracking.

Joe: Yeah. We talked about earlier was one of the things that really strikes me is that one of the great strengths is that you can enhance the database of virtually any other company so they don’t see you as a competitor to them. Example, [00:15:00] that some people might think about executive search, well, of course they have their own database, but some of them actually come to you and enhance their database.

David: Yeah, absolutely. It goes beyond executive search. It’s private equity space. If you think about any relationship-based business where relationships play a critical part of one’s success. Because what we’re breaking is not only backgrounds and profiles of individuals, but also their network that we’ve captured of overlapping work histories where they’ve been on boards together, where they’ve been executives together. We’ve had this over the last 20 years.

That ability to enrich and enhance, it’s actually pretty horizontal play which we’re pretty excited about and you’ll see over the course of the year, some exciting partnerships we’ll be announcing.

Joe: Yeah. And one of the things you had mentioned about board recruiting is I think people that do it know it’s not a one-and-done deal. You go get a candidate and now you’re done, now you don’t need the resources. What you’re basically offering [00:16:00] is the opportunity to maintain a fresh list of candidates at all times, so that if you’re doing the right governance stuff and you’re looking at your board every year or your nom/gov committee is you can always be refreshing your board by looking at a very, very robust database to access who might be a good fit for your company.

David: Yeah, Joe, you nailed it on the head because within our platform, we have something, we call our network center, and so that’s where our clients are maintaining their pipeline of candidates. So ,every quarter, when that nom/gov committee meets, they can export that and they can be assured that everything has been updated, so that if since the last board meeting, if somebody either joined a new board, stepped off a board, they don’t have to recreate that profile and we’re maintaining it, and anyone who’s in that pipeline of candidates, they’re getting alerts like, “Hey, this candidate who said he or she wasn’t available, now, all of a sudden is,” like, “Hey, I just noticed that you just stepped out of, you know. Let’s catch up.”

Joe: Incredibly powerful resource.

Raza: David. Equilar [00:17:00] also has a partnership with NACD. Could you talk a bit about that as well?

David: Yeah. So that just got announced. I believe that was December, but NACD has a certification program. They have related initiative called Accelerate, and so we’re excited. I think everyone listening to this podcast is probably familiar with NACD, and so just like NASDAQ, it’s a great brand to be associated with.

We’re helping that rising to the next level of candidates and just exposing them and making sure that our clients are able to search and identify them.

Joe: One of the things you said in talking about what you’ve built is that relationships opened the doors for your family and for you, and it’s kind of how the world works and I kind of love the way you’re thinking about that. Along those lines, the way we met you was through a woman who was a guest of ours not long ago by the name of Lisa Shallett and I know that you were instrumental in helping her launch what has become Extraordinary Women on [00:18:00] Boards.

David: Yeah, absolutely. Lisa and I were introduced probably five or six years ago through a mutual friend and Lisa has become a great champion, supporter and dear friend of us.

But yeah, I think about my journey, as I mentioned, we came from Korea in 1968 and now sitting on a podcast with you guys to talk about boards, and how did I get here? So much of it is just along the way, just people like Lisa and others that I’ve met who’ve been very kind and generous with their time to make introductions to other people because we all know a warm introduction is so much more effective. Like if I came to you guys and said, “Hey, I want to be on your podcast,” you’d be like, “Who is this guy, like why would we do that?

Joe: That’s not true.

David: Right. By hearing it from somebody who’s credible, a former Goldman Sachs partner who sits on multiple boards say, “Hey, this is a great person to be associated with.” And so, yeah, I just think for me personally, it’s been people like Lisa who’ve opened doors along the way. That’s really where I am passionate about our economy [00:19:00] is to help people identify how they can find people, friends within their network who can open up more doors for them to help accelerate their career progression so that’s what I’m very excited about because so much of it is, especially in the Zoom world, we’re starting to be able to do breakfast, dinners and lunches and stuff like that, but being able to find people within your network.

Raza: David, I can also testify here as a guy coming as an immigrant here and doing a podcast. That’s also because how I met Joe and we decided to do this podcast.

Joe: Yeah, exactly. That’s a great example.

So let’s talk about some trends. We have a few things that you had mentioned and a couple that we’ve picked up. When we talked last week and we said, “What’s the number one trend that you’re seeing the most powerful or impactful trend? I think you mentioned the rate of acceleration of black directors joining boards, which really struck me so talk about what you’ve seen, what the numbers look like, why it’s at the top of the list for you.

David: Yeah. Without [00:20:00] question, the tragic events that have happened, let me show you the dates. I think it was summer 2020 with George Floyd and the whole Black Lives Matter movement, and that was a wake-up call for corporate America and just recognizing, “Hey, have we done enough? What are the things that we could do differently?”

A lot of boards really took that to heart and there’s been a big push to bring. African-American black individuals into the boardroom, so that’s a tremendous progress there. I also would add to that, about four or five years ago, we launched the gender diversity index, and so we’re looking at the right of women on boards. When we looked at this, when we first calculated, I think it was like fall of ’16, beginning of ’17, I don’t know if I’m getting the dates right, roughly 25% of the Russell 3000, so over 750 companies did not have any women on their board

Joe: Wow.

David: And it wasn’t that long ago.

Joe: I would just kind of say that’s not that long ago.

David: That’s not that long ago. And to be honest, our analyst ran the numbers and they shared it with me, I said, “This can’t be right. We can’t publish this. I got to [00:21:00] see the data,” and so they shared the file with me and I started going through them. I didn’t go through all 750, but I went through about 20 to 30 of them, and I’m like, “Oh, my God, this is right. This is really the state of play.”

Not only that, but also the other issue was the rate of refreshment, meaning new board seats, what was the rate of male versus female? It was four to one, male to female. Some simple math, we weren’t going to reach gender parity until 2050, so that was something that’s just like A, the numbers were pretty rough, it wasn’t going to change that quickly.

Now the rate of change is pretty much at parity, so one-to-one so as new board seats are being refilled, it’s roughly a 50/50 balance, and we should reach parity by 2030, somewhere give or take.

Joe: Is that public company, private company, or both?

David: That’s public company and a broader that’s looking at the Russell 3000. By publishing the gender diversity index, you manage what you measure. Sunshine is the [00:22:00] best antiseptic, whatever you want to call it, but it definitely has gotten a lot of attention and we’re excited about how we’ve been able to run these numbers every quarter and be able to keep this in front.

Joe: I just want to go back to the rate of acceleration of black directors. I thought when we talked last week, you had pretty stunning number. Did you remember what it is?

David: Yeah, since we last connected, it was Fortune 500 boards or Equilar 500, whichever are 500 largest companies. It was 9% a year ago. We’re now up to 11% so the rate of change has probably doubled so that’s a pretty substantial increase over a year to go from 9 to 11. So yeah, there’s definitely quite a bit of activity

Raza: David, I just saw this stunning statistic that over a million men joined the labor force last month that are taking a job or looking for one compared to only 39,000 women. What explains it then? How does that fit into the diversity push in general?

David: Yeah. To be able to fill those board seats, you’re going to need to have a [00:23:00] pipeline of women executives that are going to be quote unquote “board ready.” And if you’re not having as many women coming back into the workforce ,that pipeline is just going to get thinner and thinner.

Why is it that more women are not able to get back into the workforce? Obviously, we’re not through COVID and you hear about Chicago school shutting down, people getting sick and whatnot, and the reality is a lot of that, the support and care often falls on the mother, the wife, and it’s unfortunate that that’s now translating into who’s able to go out and work. Hopefully, we’ll be able to find ways to get those numbers back up to parity.

Raza: David, Equilar did a comprehensive pay study with New York Times on the state of CEO competition. Give us the highlights, what did you guys find?

David: Yeah. The reality of CEO pay is that it rarely goes down, and that’s just the reality. The last time we did see a downturn was in the financial crisis of ’08-’09. What’s [00:24:00] especially happened in the last year or so in this war for talent. It’s not just the rank and file, it’s also the C-suite.

What you candidly have out here, I’m out here in Silicon Valley, and you’ve got the FAANG companies, and whether that’s Facebook/Meta, Google/Alphabet and others, there’s such a war for talent and you’re seeing that also in CEO pay packages, and there is, which we’ll often hear from, the Elon Musk package, and you’ve seen other executives look at that and say, “Hey, I’m the next Elon Musk.”

That’s happened, and there are companies that, as you go through the SEC filings, you’ll see that there’ll be a ladder of option grants that vest depending on stock price performance and other operating metrics, but like you said, that war for talent goes beyond just the rank and file.

Joe: But it also shows that the gap between what CEOs are getting for compensation and pretty much everyone else really widened during the pandemic. Why so much in such a short period of time?[00:25:00]

David: Yeah. That’s a great question, Joe. Honestly, I don’t think it’s the rate of change. I’d have to go back and look at the numbers. It may seem that the disparity has gotten bigger. Well, a lot of it, there’s annual compensation and then there’s wealth.

The wealth side, that disparities is certainly larger without question, and that is because of the outperformance of the stock market, and what drove that? It’s the fiscal monetary stimulus, 0% interest rates, trillions of dollars of money going into the economy. You definitely saw equity values just go up tremendously.

On the compensation side, I think that’s really more the annual comp side where the boards want to retain these key executives and they’ve put together these larger equity packages to retain them. Like I said, there’s that concept of the “Elon Musk package,” which has certainly been debated in boardrooms, especially here in Silicon Valley.

Joe: Hey, tell the folks that are listening, what is the Elon Musk package?

David: Yeah, Elon Musk, god, I don’t know how many years ago. I think it was about five years ago. The board wanted to [00:26:00] retain Elon Musk and they put together a package, he said, “Okay, I’d like to get a package of equity grants,” and basically, a ladder of grants depending on where the stock price is, and I believe there’s some operating performance metrics, but the grants don’t vest unless the stock hits their thresholds and trades over that threshold for generally 20 days. And at the time, and I have to go back and look at the numbers here, but I believe the face value of the package was like $2 billion at the time. But as we all know he’s worth a couple of hundred billion now today because those values were the option grants that were discounted back, but now that those options or several of the traunches are in the money, his wealth has obviously increased quite substantially.

Joe: It’s a good package.

David: Yeah. It was a very controversial package. And the reality is the investors approved it. It was put to a vote and the flip side of it is, if that stock price gets to where it is a thousand bucks [00:27:00]a share, I’m going to be happy. I can’t remember what it was but as an investor…

Raza: I think it was before the 420 price.

David: Yeah, before the 420. I think it was somewhere in like a double digit stock price when this was put together. The thing about that comp is that you could have a hundred people in a room and you have 110 opinions about this. Again, at the end of the day, there are a number of shareholders, frankly, who are very happy and they’re like, “Hey, Elon deserves every penny of it.” But I’m not saying that I’m in that camp. I’m just saying here are the various opinions around.

Joe: Does it go down to the whole C-suite? I thought you may have said that earlier, or is it primarily focused on the chief executive?

David: Our compensation to our C-suite is what we track.

Joe: David, it’s been absolutely fascinating speaking with you. Thanks so much for joining us today.

David: Thank you, Joe. Thank you. Raza. I really appreciate the opportunity and looking forward to doing more with you guys.

Joe: Thank you all for listening to On Boards with our special guest, David Chung.

Raza: We have. a request for our listeners. Please take a moment to rate and review On Boards on Apple Podcast app if you [00:28:00] enjoyed listening. It really helps others discover our podcast. Also you can visit our website at onboardspodcast.com. That’s onboardspodcast.com. We’d love to hear your comments, suggestions, and feedback.

Joe: Please stay safe. Take care of your families, yourselves and your communities, and Raza, you take care, too.

Raza: You, too, Joe.

Joe: Thanks.

35. Great board governance is invaluable – it opens the door for what is possible for a business

Roberta has been a CEO, a founder-entrepreneur, and a corporate executive as well as a highly experienced board member who has served in executive and board leadership positions on a variety of private, public and non-profit boards.  In this episode, we talk about the vital importance of board governance – and how valuable it can be to any company or organization.

Thanks for listening!

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

Links

Roberta Sydney Board Bio

National Association of Corporate Directors

Private Directors Association

American College of Corporate Directors

Women Corporate Directors

Extraordinary Women on Boards

Quotes

Most important issues facing boards today

The first and second issue facing boards today revolves around human capital. I would say top of mind is still employees and employee safety.  Who are we hiring? How are we making sure that they can get their work done productively, safely? How do we onboard new people in this remote environment? How do we develop people? That’s number one, and I would say is number two is employee retention.

Then third is around culture and strategy because, culture will eat strategy for breakfast.  And so, boards need to ask–how do you create, enhance, grow the culture that you want and how can you be sure that that is the lived culture when people aren’t together as much as they used to be.

Big Ideas/Thoughts

The pandemic has exposed many warts on strategy. What kind of preparedness did we have in place to handle a crisis? Was there sufficient succession planning? Where have we created risk by not acting?

The pandemic to a great extent has also exposed the warts on the governance practices of many private company boards. For example, boards have needed to ask–who do we have on our board now that can help guide us in ways that are going to make a difference? The first step is often updating or developing a skills matrix, to evaluate board composition annually and answer the question–what skills do we need on our Board for the next three to five years?

Good governance is good governance and there are best practices even though they still must be tailored to company stage,  company size, and industry complexity.  If you lack basic governance structures and procedures, it’s very difficult to be effective.

On the boards on which I am privileged to serve, we develop what we call a decision matrix. It’s helps define the “swim lanes.” What are the decisions management makes? What are the decision that need to come to the board? What are the decisions that owners should make? Getting clear on these swim lane issues has been very, very helpful in setting the ground rules for how we can all engage together and move this business from where it is today to something even better

Board education is particularly important. There’s no substitute for directors, especially those that might be less familiar with board practice, to learn and be open to learning about what a good board agenda or a what a good committee agenda looks like. What kind of risk management should the board be doing? What would be an enterprise risk framework look like for a business like ours?

Almost anything becomes possible if you open your mind to say: “we’re going to make better decisions and get better results because of the governance that we’re putting in place here.”

Stakeholder Capitalism

The mission of the organization matters now more than ever. Employees want to do something that matters, and they want to be somewhere where they’re solving problems or delivering a service that that is helping meaningfully. Every company today is trying to figure out a way to make sure that it has a mission that resonates with both its employee base and its customer base. 

Long-term financial viability relates to ESG – environmental, social, and governance – and big institutional investors are giving that message to the companies in which they might invest – that message is an important catalyst in driving this agenda forward.

When consumers boycott Uber because of business practices or when consumers say I don’t want to own the stock of Exxon – these are signals, strong, strong signals that companies need to heed and re-engineer how they’re conducting business.

Transcript

Joe: [00:00:00] Hello, and welcome to On Boards: a deep dive at what drives 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 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, as well as 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 takes to be an effective board member, what challenges boards are facing and how they’re assessing those challenges and how to make your board one of the most valuable assets of your organization.

Joe: Our guest today is Roberta Sydney. Roberta has been a CEO, a founder-entrepreneur, and a corporate executive. She is also a highly [00:01:00] experienced board member who has served in executive and board leadership positions, including as Chair of both Compensation and Nom-Gov Committees. Her board experience includes regulated financial services and real estate firms ranging from large traditional organizations to young entrepreneurial companies.

Raza: She currently serves on the board of several companies, including Kiavi, as well as on the board of Tiedemann Advisors, a wealth advisory firm with $22 billion in assets under management. As an entrepreneur, Roberta founded a real estate firm in 1999 and developed and managed 9 million square feet before a successful exit.

Joe: Roberta has also brought her industry and digital expertise to private VC backed real estate technology startups, which have created solutions to lower operating expenses, drive energy efficiency, and improve tenant [00:02:00] retention using predictive data analytics to leverage machine learning as well as to increase sustainability using solar power, advertising kiosks.

Welcome, Roberta. Thank you so much for joining us today on On Boards.

Roberta: Well, it’s great to be here, Joe, Raza, thank you so much for having me.

Raza: Let’s actually start talking about what are the important issues that are facing boards that you are seeing? Maybe what are the top few?

Roberta: So thanks for asking. I would say that right now, especially since we’re still in the COVID era, which is how I’m describing it, I would say top of mind is still employees and employee safety. When I say that it’s really the whole aspect of human capital. Who are we hiring? How are we making sure that they can get their work done productively, safely? How do we onboard new people in this remote environment? How do we develop people? And that’s [00:03:00] probably number one and two. The employee retention, I would say is sort of number two.

Then the third is really around culture and probably strategy because, culture will eat strategy for breakfast, especially in the world and, and even this this call that we’re doing today, all three of us are in different locations. And so that’s what’s going on around the corporate America today, is people are not together. And so how do you create enhance, grow the culture that you want and how can you be sure that that is the lived culture when people aren’t together as much as they used to be. So I would say those are the things that the boards I’m on and many of my colleagues are talking about that are top of mind today.

Raza: Speaking of remoteness does that apply to onboarding new board members as well? And what have you seen in these challenging times of how boards have coped with that?

Roberta: Well, I’ll give you a good example with Kiavi. I’ve been on board now [00:04:00] for closing on a year. I had all of my interviews, every one of my one-to-one with management and with board members on phone or zoom or some other virtual platform. We’ve had every single one of our committee meetings and board meetings in a virtual way. I have still to this day, yet to meet a single person with whom I’ve been working, whether they’re colleagues on the board, or the management team. I was chairing the nom/gov committee, I’m now the lead independent director, but we also brought on four new directors. We’re a late stage private company, at some point we’d like to be a public company and so we brought on four new directors. That entire process I also ran completely virtually. We’re now at the very tail end of the onboarding, which again is all virtual for these new directors. So it [00:05:00] is possible, very challenging though. Yes.

Joe: Yeah, I think it’s great that we’ve learned to operate under these conditions, but we’ve learned a lot from it as you pointed out, but it’s also true. I think that we’re missing something and I’m just wondering how you experienced that and what are we going to do about that? How much longer can we go on virtually. I’m on one board that has literally not met in person for two years now, two years in March and I was just talking to someone about that and we’re getting business done, but we’re definitely missing something.

Roberta: Right. No, I agree with you, Joe, completely. I think that the interstitial bonding and the walking to the dinner or standing and getting a coffee and the in-between moments that happen, whether it’s at the committee meetings or at the board meetings, those aren’t happening, the board dinners aren’t happening.

It’s harder. It is just harder for people to build the bonds, [00:06:00] build the trust. I can tell you that on one of my boards, we held a call. I’ll call it a social hour where we literally just spent time together talking about and answering questions like “how tall are you?” because in this world you have no idea how tall anyone is. What are the kinds of things you like to do for fun? Things that don’t relate to the company and productivity, but do relate to people being people and laughing together, which I do think is a really important thing. When we just get on and get going, you don’t have the, that kind of time. So I can’t tell you how long this is going to go on, but I do think it will end, it needs to end. Most of the boards that I’m, that I’m involved with are, are talking about a blend of virtual and in-person.

Joe: I think that’s going to make a lot of sense.

Raza: Roberta going back to the people side of things in these current talent wars, I think diversity and [00:07:00] inclusion also plays a very important role. How have boards has been looking at it or bringing it to the forefront that you’ve seen?

Roberta: Well, I’ll tell you that it is an important matter. I think the first is measuring because if you are measuring, you can actually see where you are and see where you need to improve. I’m one of the boards. We not only measure, you know, count noses, but we also look at where people are in terms of pay level, grade level, development, advancement, retention, so that we may be bringing in a great number of women or a great number of people of color.

But if they’re all leaving within. 12-18 months, well then there there’s an issue that needs to be addressed. The other thing that we do is surveys, employee surveys, which I think are even more important in the current environment. We ask questions like, I feel like I belong here, or I feel that my ideas [00:08:00] are welcomed.

That’s something that you can look at, not just by the entire company, but also by level, which tells you an awful lot. I think that’s the first step and then I would say the second step is really being intentional about aligning the incentives with this particular metric, because if people aren’t focused on it in terms of what they’re supposed to be doing, it’s just like any other metric?

Yes. We want top line growth and yes, we want profitability, but we also want a world in which our vendors, our employees, our contractors are diverse, we only get that if we actually pay people to think about that and do something about it.

Raza: Yeah. One comment that you had made earlier was that the pandemic has exposed all the warts on strategy. Could you comment a little more on that?

Roberta: Sure. I would say that one of my boards, we we were [00:09:00] not terribly diversified in terms of revenue stream. In fact, this is a real estate company. The lion’s share of the revenue was coming from the hospitality sector. Well, it doesn’t take a rocket scientist to know that the hospitality sector is a volatile sector. We were discussing this. We had been discussing this and I’ll say late 2019, we had made some decisions about moving away from that reliance. Well then of course, the pandemic hit and it became too late to execute the plans we’ve been talking about in 2019, but it exposed all of the issues, sort of like if we had a yellow flag on the field before it was a red flag on the field.

Then the other piece was what kind of preparedness did we have for crisis? I mean, this is the other wart I would say that many of my companies really got clear on: was there sufficient succession planning? If somebody, God forbid got very sick and was unable to function or couldn’t come back for some [00:10:00] reason, or God forbid died, which again, we didn’t have that, but these were questions that the board was asking. Who’s ready now who could step in. What is our plan? On another board we had a board meeting planned and then the CEO got COVID. We couldn’t hold the board meeting in person. All of these things I think are part of, again, the warts and the rocks that you’ve been get exposed when you’re not prepared,

Raza: Yeah.

Joe: Yeah, that’s a great point. I think we talked about also the fact that the pandemic to a great extent has also exposed the warts on the governance practices of many private company boards, for many reasons, one of which is that private companies are required to actually have boards, but not really a, it’s really more of a legal requirement than a governance requirement. How do you think this has perhaps helped private companies understand how important boards can be, especially when there are [00:11:00] challenging times.

Roberta: Well, I think one of the things that I’ve seen on some private company boards is cronyism or complacency in terms of refreshment. You bring people on at a certain point in time. They’re exactly the right people for the reasons at that time and then those reasons have gone away, but the people are still there.

 I think one of the warts that was certainly exposed is who do we have on our board now that can really help guide us in practices that are going to make a difference as we could use a very very overused word “pivot” to the new normal. I think it’s an opportunity for every board and for every CEO and every nom and gov committee to be thinking about. Do we have a board that is fit for purpose. The first step in that is actually having a skills matrix, which many private companies, unfortunately, don’t. Most of the ones that I’m involved with do, and we evaluate on an annual basis, what [00:12:00] do we need for the next, pick a number, three to five years. What do we have, who should be rolling off or might be rolling off and they’re therefore not. Do we want, Roberta 2.0, but rather what are the skill levels that we need if, if Roberta is going to be rolling off and I think that’s a much, much better practice it requires effort, but I think it’s effort that yields tremendous results.

Joe: Ah, boy, I think that is such an important point. It is one of the most important aspects of governance in private or public companies. But in private companies, because if a board is not critically looking at itself on a regular basis and as you said, has a matrix that it’s looking at so it understands what the board needs to drive the plan toward the future, then it is really missing out. And I noticed when you described your board credentials, the first thing you lead with when we talked the other day was “governance [00:13:00] expertise”. I think a lot of people do not fully appreciate how important having that on the board, whether it’s on the board members or at least in the board chair or lead director, it is creating that governance culture and an understanding of what that means, I think is just so important.

Roberta: I agree with you, Joe. I think in private companies, Well, I’ll just say this, that good governance is good governance. Whether it’s a nonprofit company, a private company, that’s family owned or controlled, or it’s venture backed or PE backed, or it’s a public company of any size. Good governance is good governance and there are best practices while they still have to be tailored to the stage of company, the size of company, the complexity of the industry. If you don’t have the basics it’s very difficult to be effective as a very difficult,

Joe: So I think it puts a lot of responsibility on the board chair [00:14:00] to look after the structure and processes and, and board culture. What are the ways that a good effective board chair might help his or her board really, understand best practices?

Roberta: Great question.

I am also the board chair of a private company in Colorado HCI Civil. It’s a civil construction company. We do everything horizontal: bridges, roads pipes under the ground clearing land for developments. And this is a company that has brought on its very first board, there was never a board before and one of the early things that the company has done and that I’ve done as, as board chair is make sure that we have committee chairs, make sure that we have an owners group so that the owners are speaking with one voice because it is a group it’s not just a single owner.

It’s made sure that we have, we’ve called it a decision matrix. It’s sort of the swim lane. What are the things management decides? [00:15:00] What are the things that need to come to the board for decision? What are the things that need to come to owners for decision getting clear on those has been very, very helpful to setting the ground rules for how we can all engage together and move this business from where it is today to something even even better. The company’s been around for 50 years, so they’ve done it very very well. And it’s now part of a transition to move to more professional governance. That would be the starting point.

I also think board education is particularly important. There’s no substitute for directors, especially those that might be less familiar with board practices to actually take a class, read a book, you know, learn and be open to learning about what a good board agenda looks like. What a good committee agenda. Look, what kind of risk management should boards be doing? What would be, what would an enterprise risk framework look [00:16:00] like for a firm like ours?

I think all of these become possible if you open up your mind to say we think there’s value here and we’re going to make better decisions and get better results because of the governance that we’re putting in place here.

Joe: Well, that is extremely well said. I’ve loved the idea of creating this document or chart showing lanes and trying to help the board board members understand where are we, where has management, where do we work together? That that is a great concept in terms of education. Of course. You’re right. Where are the places that you’ve, participated or, or been involved where you think there’s some strong education opportunities?

Roberta: Well, I would say that, the National Association of Corporate Directors, have been a longtime member. They are the 800 pound gorilla. When it comes to board governance in the United States, there are some terrific programs.

There’s the Private Directors Association that also has some very good [00:17:00] programs and materials the American College of Corporate Directors, I think does a very good job as well in the board education, the most important. And then there’s one other that I would say has been very valuable for me. It wouldn’t be for either the two of you, but it’s Women Corporate Directors and that’s a group of, again, as it sounds, women who all are my peers and we get together and do learning and sharing. What I particularly like is, yes, it’s, it’s great to, to go to a large group event, but it’s really wonderful and zoom and this virtual world that we’re in today h as opened up some types of learning that weren’t possible before.

So, give you an example. I’ve gone to events through, you know, probably what recent one was with the women, corporate directors WCD, and it was on compensation and human capital commitments. And so there was a scenario played out on screen with someone who play acting to be the CEO, someone else acting to be the, of the competence and human [00:18:00] capital committee. And then there was a comp consultant. And so they acted out the scene of what they were doing and then we went into breakouts of, you know, four or five people and talked about what we would do. And then we came back together.

Very effective learning. If you’re talking to other people who are sitting in those same chairs, they are the chairs and committee members in companies today, dealing with how, how do we handle this thorny issue? And especially with the COVID situation, how do we incent people appropriately, has been a big topic as you can well imagine.

Joe: What a great way to do it, an interactive approach? I think that’s terrific. I seem to remember that you’re also a member of Extraordinary Women on Boards. Is that right?

Roberta: I am. So another great organization that also does programming. I’m trying not to mention all the women organizations, because I’m sure some of the listeners today are not all women. And so there may be great programs, but they’re not [00:19:00] available to at least half the population.

Joe: That’s okay we want those organizations to really thrive because it’s so important now that there’s some momentum to really keep it going.

When you were talking with rasa early, you talked about the importance of human capital and that kind of, led me to think about, you know, the whole stakeholder capitalism as it’s become to be known. As you and I have discussed is a part of almost every company conversation now. Talk a little bit aboutwhy that is and what that actually means in the context of, of the boards that you’ve been sitting on.

Roberta: I think the first thing that I would say about that is the mission of the organization matters more than ever. People and especially millennials, but people in general want to do something that matters and they want to be somewhere where they’re solving big problems or delivering a service that that really is helping. That’s the first thing. I think every company today is figuring out a [00:20:00]way to make sure that it has a mission that resonates with its employee base and its customer base both.

Then if that’s not a hundred percent possible, they’re finding ways to incorporate issue in it. So yes, there are companies that are, B corps and it’s sort of , embedded in every aspect of what they do. And then there are other companies that, that have other ways of doing that.

The second part of that, what I would say, Joe, is that increasingly employees care about the customers that are being served. We saw the Wayfair walkout when when mattresses were being delivered to these refugee camps on the border. We’ve seen Silicon Valley walkouts when different of the tech companies were serving our military. I think these are the things that come about. We think about also SBA in Texas, or you think about where we’re doing business with with one another and what’s going on there in terms of [00:21:00] some of the I unfortunately have to say the political environment, all of that matters. Even when Black Lives Matter came out, you know, is your CEO saying something about it? Is that okay? Is it, is it relevant or is it. I don’t know, I can’t call it greenwashing or blackwashing I don’t know what to call it. It’s just, it’s empty. It’s empty platitudes. I think that’s, that’s almost worse than saying nothing

“We stand with you.” does it doesn’t really matter unless it’s doing something about it. And that’s what employees and customers want to know. Not just that you sympathize or empathize, but what is it that you’re actually doing?

Joe: I think you’re right. I think people are casting a far more critical eye on what the company is saying. And as you said, is it, is it window dressing or is it, is the real substance here? One of the thoughts that we’ve talked about in a couple of these podcasts is that part of the reason that the momentum is [00:22:00] increasing on this is because big time capitalists have embraced it as ‘this is what real capitalism is.” And I think when we talked last time, I had just read Larry Fink’s letter to investors and I had a couple of quotes here. “We focus on sustainability, not because we’re environmentalists, but because we’re capitalists and fiduciaries to our clients.”

Now I happen to think it’s great to be an environmentalist. But from my point of view, if the notion that long-term viability is connected with ESG, environmental, social, and governance, and the big , institutional investors are giving that message to the companies in which they might invest, that is a really important step in driving this forward.

you agree with that?

Roberta: I do.

I think when, when consumers boycott Uber because of business [00:23:00] practices or when consumers say I don’t want to own the stock of Exxon, these are signals, strong, strong signals that companies need to take heed of and reengineer how they’re doing things. You know, you look at a company like Levi Straus, for example, I mean, they’ve been sustainable or even LL Bean, which is a private company. These companies have been focused on sustainability and good practices without anyone looking. Now, everybody’s sort of saying, well, what are you doing? Show me what you’re doing in terms of sustainability, show me what you’re doing in terms of diversity and equity. And so, so I think that the drive towards transparency and the ‘show me’ part of it and having a Larry Fink letter and State Street and others, they’re all coming out and saying, this matters to us. As investors, we think it’s better for the planet. We think it’s better for profits. We think it’s better for people. It [00:24:00] and every company private -companies are not excluded from this, they are not excluded every company needs to -think about this.

Raza: Roberta you mentioned one of your boards. Can you introduce us to the other boards and organizations that you’re part of?

Roberta: Sure. So well, one of the guys, I absolutely love to talk about it’s a, it’s a prop tech company. So this is a technology company in solving issues and problems for the built environment. Company is called Cobu. I first met the founder, Ben Pleat, when he was still at Harvard College and incubating this idea at the iLab on campus there. I chair the advisory board. This company is, has created an app basically to connect people within residential buildings. So you live in a high rise. There’s three, 400 units. They might meet somebody at the mail slot. You might meet somebody, you know, in the elevator, but basically you really don’t know your neighbors and you really don’t know anything about them.

They’ve [00:25:00] created an app that helps you find the people who like to run or the people who want to make pizza, that people who have whatever interests may play Mahjong or, or badminton, whatever it could be .Pre-pandemic very hard sell, very you know, if you’re solving the problem of loneliness and conductivity that wasn’t so trendy and a top of mind in 2018 or 2019. When March of 2020 happened and the world really shut down. People came, you know, rushing to, to Cobu this a, you know, when can we install this in our building? So he’s about, you know, solving this problem, but it’s also about increasing net operating income.

Raza: It helps with retention.

Roberta: It helps with retention. Exactly. So that’s one company

Raza: Roberta, I recently received Ben’s update letter. We, many of us are investors in Cobu. What a great company.

Roberta: Yeah. Yeah. And the other one that I talk about is Tiedemann Advisors. You mentioned it in the opening.

 Tiedemann is going through what I’ll call the [00:26:00] triple Lindy in terms of difficulty. If this were an Olympic event the company has announced that Cartesian Growth, is the sponsor. It’s going public via a merger SPAC. So it’s three entities coming together. And of course they’re not all US-based because you know, the, the magic is in is in geography combination too. And so there’s just been tremendous work going on by the board and by the management team to harmonize financials, get the filings ready for the SEC, to do everything that’s needed in order to to get that company combined. At the end it will be in just about every, every important country of the world. There will be a an ALTE. This is the name of the the new entity, the combined entity. It’s very, very exciting. And the company will probably about 60 billion at that point. And it’s been a great, a great experience to go through that process.

Raza: Wow. Roberta it must mean that the board has a [00:27:00] really important role for this transition for this going public. Did that include adding more board members with skills and expertise for this transition? What has been the board’s role for this whole endeavor.

Roberta: Well, absolutely. The board has been very, very much part of every aspect all the way up to finally signing the deal, because that, that was the first part was, is there something that everyone can agree on? And, and that was, that was sort of step one. And that, that took a while. And then step two was absolutely doing the same thing we talked about earlier in terms of the skills matrix. What do we have? What do we need? And again, thinking about this as a global organization, it’s not just at the board level, but it was also at the management level. And we identified some key hires that we needed to make, which were important. And most of them have been, had been already made and we’re doing the same at the board level. I can’t really disclose some of that because it’s not public yet, but, but [00:28:00] absolutely very important to identify skills that this new entity needs and bring them on board.

Joe: What were the skills or expertise or other attributes that you thought might be important for the company to successfully go public that maybe you didn’t have?

Roberta: Well, we didn’t have at our board, someone that was really deep in risks and the risk management. So that was one that we identified early. And so that, that was one that was a key, a key skill that we wanted to bring to bring on for the combined entity. And we also felt that we needed to up-level on the compensation and human capital side as well.

So these are two examples of the kinds of skills where when you’re running a global, multi continent, all these different countries, cultures, languages, it’s, it’s a bigger effort. And so you wanted to make sure that you kept pace both at the management level, but also at the board [00:29:00] governance level.

Joe: That’s great. That makes total sense. The idea of a more sophisticated and more, maybe a highly developed sense of risk identification and management makes really perfect sense, especially now.

I mean, people actually now get there is risk out there. You may be doing well, and the idea of, you know, succession planning has always been around, but there are risks that if your board is not prepared or is not able to identify you’re really not doing your job.

Raza: Roberta and other, a prop tech company that we mentioned in the introduction called Kiavi talk about that a little bit.

Roberta: So Kiavi is sort of a prop tech/ FinTech company. So the company is the the technology solution for real estate investors. And the company has been around now since 2013, a late stage private company. We’re looking forward to going public sometime in in the future here and [00:30:00]the company has done a tremendous job of becoming a remote first company.

Pre- pandemic there were two centers of gravity, San Francisco for one side and then Pittsburgh for our operations. And now our CEO is in Montana our head of people is in Florida, Chief Risk Officer’s in Nebraska. Our CFO is in, I think, Seattle or Portland. Our general counsel is still in San Francisco as our is our Head of Product, but it’s just, it’s been a really interesting experience to, to live into a new future.

I can’t say it’s the metaverse, but, but it certainly, it’s certainly quite virtual in most cases because of the dispersion of people.

Raza: I think somebody said yesterday that these zoom meetings we all are doing is the metaverse! We are already in it.

Roberta you also have been, doing [00:31:00] Real Estate Development company, leadership and boards. Is there a difference between a real estate company board versus a regular company board or, or is there any distinction or unique issues that they have?

Roberta: Great question. I would say if you’re making software, you’re selling software. If you’re making real estate, you’re selling space. So in the sense you’re still in the manufacturing business, it’s a different type of manufacturing for sure. But the basics of business are really the same. What I would say, though in real estate is the bets are often bigger depending again, on the scale of which you play, but the bets can be bigger. And the other thing I would say about real estate is that- you can’t always get away from some of the personal [00:32:00] liability and personal guarantees where in, you know, any of the other companies that I’ve been a part of, you know, no lender is looking to the CEO or the principal to say, well, I need you to, you know, persoanlly guarantee for the bad acts, if something happens on the property.

So that, that is different. And so. So I would say that there, there definitely are some distinctions and differences, but business is business. And most of it is, is actually pretty much the same. The other thing I would say is in real estate, and this is a happy one there’s a lot of leverage on the people side.

You do not need a lot of humans to run a really large real estate portfolio. And again, unless, unless you’re going to bring everything in house and have your own construction company and have your own architects and have your own engineers, which most people don’t do, most people outsource a great deal of those. And, and [00:33:00] it’s very site dependent, which, which ones you need. I certainly found that from my own experience, the consultants, or even, even the lawyers that. I went to local permitting attorneys depending on the municipality.

Raza: You’ve been part of startup boards as well as large boards. How has been your experience with the startup boards?

Roberta: Well, I would say my one constructive suggestion for every startup. is bring your startup board together for meetings. I would say that startups are much more lax around board meetings and often do one-to-one, you know, I’ll get a call from the CEO or one of the senior leaders like to spend some time with you pick your brain on X or Y or Z and I think that’s a, that’s a missed opportunity because I think the genius is in the room. And whether it’s a zoom row or an in-person room, the genius is when people get together and I hear what Joe’s saying, you know, Raza, here’s what I’ve said. [00:34:00] And each of us then build ideas and questions that the others have along with management that’s in the room.

So I would say that that’s a key distinction is I think startups are just running so fast so far. yeah, just it’s like, oh my God, a board meeting that I don’t need to do that. So I’m not going to.

Raza: As angels, and then as a venture investors, we, of course do bring the board together and insist on a board calendar and schedule and meeting. We always educate startups that a board is, you know, the most awesome asset that you can have. To, to help your company and you should definitely be fully utilize it. So we insist on a board. We insist on board meetings. I think it probably just depends on the stage of the startups, how early they are. Once they get a significant chunk of money the investors are going to be insisting on a board.

Roberta: Yeah, absolutely. You’re absolutely right. [00:35:00] And yes, yes. Everything you said. Yes. Yes. Yes.

Joe: Roberta, it’s been great speaking with you today. What a terrific conversation. Thanks for joining us.

Roberta: Well, it’s been terrific to be with you. And I wish you both a very good day and thanks to you and to your listeners.

Joe: And thank you all for listening to on-boards with our special guests, Roberta Sydney.

Raza: We’ve a request for our listeners. Please take a moment to rate and review On Boards Podcast on Apple Podcast App if you enjoyed listening it, it really helps others discover our podcast. Also, you can visit our website at onboardspodcast.com. That’s onboardspodcast.com. We’d love to hear your comments, suggestion, and feedback.

Joe: Please stay safe. Take care of yourselves, your families, and your communities as best you can and Raza you take care too.

Raza: You too, Joe

Joe: Thanks.[00:36:00]

Roberta: Thank you.

34. Boardroom Bound with host Alexander Lowry

Alexander Lowry is a professor at Gordon College in Wenham Massachusetts where he is the Executive Director of the Master’s in Financial Analysis program and the creator, voice and driving force behind “Boardroom Bound”  – a weekly podcast about boards of directors, how to become a board member, how to excel at the job and the important impact that boards have on business and our society. 

Thanks for listening!

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

Links

Alexander Lowry Bio

Gordon College Masters of Science in Financial Analysis

Recommended Books

Authored by Boardroom Bound Guests

Governance in the Digital Age/Dottie Schillinger

Dare to Serve/ Cheryl Batchelder

Be Board Ready and Behind Boardroom Doors/ Betsy Atkins

Boards That Lead/ Ram Charan, Dennis Carey, and Michael Useem

Authored by On Boards Guests

Family Business Handbook – How to Build and Sustain a Successful Enduring Enterprise/Rob Lachenauer and Josh Baron

The Board Members Guide to Risk/David Koenig

High Performance Boards/Didier Cossin

Startup CEO: A Field Guide to Scaling Up Your Business/Matt Blumberg

Our Common Ground: Insights From Four Years of Listening to American Voters/Diane Hessan

Quotes

Boards are one of the most important things in the business world and people weren’t talking about – that’s what led me to start Boardroom Bound.

If someone says, “Help me get a board seat,” that’s like saying, “Help me get a job.” I don’t know what to do with that. What industry you want to work in? What size of company? Is it compensated, non-compensated, public versus private? There are all these sorts of things you have to help me figure out to know what you should do, and it only then that  I can even begin to start giving you guidance. It’s as if I went to you guys and said, “Guys, help me get a job,” you’d say, “What does it mean?”

Even after you have given some thought to getting a board seat, I would test you a little bit. All right, so tell me what’s most important. Is it the compensation?” And some people would say, yes. I appreciate their honesty, but that’s not a good driver for it. “But okay, if it is the compensation, what do you think you’re going to make in what are you trying to do?” “Well, I want to be on the board of JP Morgan and make $250,000 a year.” I’m like, “Hmm. What kind of size company did you work in?”

”I worked at a bunch of startups.” “Well, that’s probably not realistic. Let’s take what you came up with and let’s talk about reality. You’re probably not going to be on a board with a company cap size bigger than where you’ve worked before.

If, for example, you have only worked in private companies, then you should focus on that. There are lots of different opportunities there. I would take exactly what you said, Joe, let’s dive into it a little bit more, make sure we’re all coming from the same page, and then you can come up with a game plan to do it.

Once you’ve got that, okay, networking is going to be a big part of it. For some people that’s a dirty word. It doesn’t need to be a dirty word. How big is your network today? Do you know people who are on boards? Do you know people that service boards like accountants and consultants and lawyers that can be helpful for you? And then how much time will you spend every week? Are you going to spend an hour a day? Are you going to spend an hour a week? Now, a lot of that’s going to predict how long it’s going to take for you and how successful you will ultimately be.

Big Ideas/Thoughts

Being a Board Member is a job

Joe  Some people don’t understand that a board seat is a job. Some people think it’s kind of a nice thing to do when you retire or in your “spare time” but in fact, it’s a job and you need to take it as seriously as you would any other job.

Accepting a board seat

I think most first-time board members will usually jump at the chance to be on any board, and that is not a great idea.  Someone has worked really hard to land a paid board seat. That was their dream, that was their goal, and they made it happen. You’re super excited, this is amazing, right?  Well, it doesn’t mean you should take it. Think about this as like you’re applying for a job. Just because you get a job offer doesn’t mean it’s going to be a fit. Is this a place where you’re setting yourself up for success? Can you do this? Do you want to do this? Boards are very different from each other.

Some boards rubber stamp what the CEO comes up with. Is that the kind of board you want to be on? If so, great. Know that other boards are very collaborative, very open, very discussion oriented, very much about coming up with a strategy that helps the organization. Is that the type of board you’re going to fit in with? Is that the kind of the space you want to be in?

Due Diligence before accepting a board seat

An example of doing due diligence: A guest was offered her first board seat, and she had worked really hard to get it. She was excited about it, it was a public company, it checked all the boxes, but she didn’t feel comfortable. She went through the interview process but had that little person on her shoulder telling me “there’s a danger here, Will Robinson” – think about this.” 

Here’s what happened: She offered:  “Let me sign some NDA so I can sit in one meeting. I won’t vote. I’m just sitting in the back. I want to observe. I need to observe.” And they thought she was the right person, so they agreed to this. I don’t know why. She actually saw a fistfight break out during the meeting. She’s like, “I knew this was not the place for me.”

That’s an extreme version of due diligence.  The point is you want to be on the right board for you because you will do well. And if you do well, that will lead to other boards because the people you’re sitting and working with will inevitably also be connected to other boards and they’ll know, “Oh my gosh, Johnny over here was phenomenal. I should think of another opportunity.” But if you stink it up in the boardroom, you’re not going to get another one.

Bo proactive about onboarding

Alexander

Isn’t it terribly ironic that companies spend all of this time and energy and money trying to bring someone on, but don’t didn’t treat a bioard members the way they treat any normal employee who they hire.

Joe

Yes, ironic that people, boards, organizations spend so much time recruiting and then they drop the ball with onboarding and fail to get full value out of this person.

Alexander

If you think about this whole onboarding process, show up at your desk, all the stuff is laying there and you come to a certain training and meet all the people. Often, in the boardroom, it’s, “Well, you know what you’re doing. We’ll just throw you in, come to the next meeting and you’ll be great.” That’s not setting anybody up for success.

If your company is not taking it upon themselves to do a proper onboarding process, make sure that you are doing it to set yourself up for success. 

Transcript:

Joe: [00:00:00] Hello and welcome to On Boards, a deep dive at what drives 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 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, as well as the important issues that are facing boards, company leadership and stakeholders.

Raza: Joe and I speak with a wide range of guests and we talk about what makes a board successful or unsuccessful, what it takes to be an effective board member, what challenges boards are facing and how they’re assessing those challenges, and how to make your board one of the most valuable assets of your organization.

Joe: Our guest today is Alexander Lowry. Alexander is a professor at Gordon College in [00:01:00]Wenham Massachusetts where he is the executive director of the Masters in Financial Analysis Program, and he is the creator, voice and driving force behind Boardroom Bound, a weekly podcast about boards of directors, how to become a board member, how to excel at the job and the important impact that boards have on business and our society.

Raza: He’s also a nationally-respected governance expert, sometimes referred to as the “conscience of the board” due to his ability to bring a unique perspective impacting the boardroom. He was named by Private Company Director Magazine as one of its 2020 directors to watch. Previously, Alexander was a deputy COO at JP Morgan and a management consultant at PA Consulting Group.

Joe: Welcome, Alexander, thank you so much for joining us today on On Boards.

Alexander: Gentlemen, it’s a pleasure to be with you today. I’m a governance [00:02:00] geek. I love having conversations like this.

Joe: Well, the three of us will enjoy this conversation, maybe no one else, but that’s okay.

We both have been guests on your podcast and we really enjoy it. It might be interesting to just talk a little bit about how you went from being a management consultant and then a private banker at JP Morgan to a college professor and a podcast entrepreneur.

Alexander: If I told you I had a plan, it all worked out perfectly. I went to a great liberal arts undergrad, and from there, I think that management consulting was not the perfect start. You can research, you can write, communicate, you can present, and suddenly you’re sitting with CEOs of Fortune 500 companies when you’re 22 years old, traveling the world. It was pretty awesome.

But after doing that for about a dozen years, I wanted to try something different. I wanted to go to Wall Street, so I used my Wharton MBA to move across to JP Morgan. I was there for about four and a half years. in some pretty senior roles, having a great time during a crisis, it was nuts, it was really fun, and when I look back at that time, there was a key moment where my now wife, who was my then fiancee, who was a wonderful kind patient woman- I married [00:03:00] way above my station guys and she said, -“I don’t think you doing an a hundred hours a week and a bank is going to do a lot for us.”

I thought that’s a fair challenge, right? So, we’re thinking about we should get married, we should start a family, and if we want to have 2.5 cars and 3.2 dogsand the house and all that sort of stuff, we weren’t going to do that in Manhatten.

This opportunity came up at Gordon College. And to be honest, this was not the first thing I was looking for. This is enemy territory I’m New York sports fan, like there were a lot of red flags here, but coming up here, starting a Master’s program, I also lead career services for the school now, it gave me a lot of opportunities and that’s where the podcast came about.

It’s my fault that the podcast started, I will admit that. We have a professional radio recording studio and I walked by it one day, it was dark, and I asked our chief marketing officer, “Why don’t we use it?” He said, “Oh, the students use it all night every night.” I said, “It’s like terrible real estate. Why would you not use it during the day?” He goes, “You’re right. You should start a podcast.”

You guys know this, there’s over a million podcasts. We must’ve been the only school in the world without one, so I thought, “Okay, let’s start a podcast.” Well, nobody needs another podcast about how to get into undergrad or grad school or how to land a job. There are lots of [00:04:00] those, and you guys will love this, at the time, there was like one or two other podcasts in the boardroom. This is like one of the most important things in the business world that people weren’t talking about. I thought this would be what we should do.

Joe: Well, a couple of things. First of all, the red flag about your unfortunate alliance with New York sports teams, not withstanding, great to have you here.

Alexander: It’s instinct, so you don’t have to hold it against me.

Joe: But I would say this, no good deed goes unpunished, so you took that empty studio and turned it into something really, really impactful. Talk a little bit about some of the goals that you wanted to achieve and what has been happening with that.

Alexander: Well, my ideal is always finding synergies wherever you can. I think about the institution as a whole, because Gordon owns the podcast, we were using their studio, how do I raise the profile for Gordon in a very smart way? And I’m just a simple business guy. I think about that sort of world, and Gordon needed to do more. If I put my career services hat on as well, how do I open doors more or how may I make people aware of the great students we have here, open doors for internships and jobs?

Well, you guys have seen the same [00:05:00] thing. When you offer someone to come onto your podcast and to talk about themselves, to some extent, it gets past gatekeepers. You can go direct to them, to CEOs, to chairmans of the board, people that otherwise you would never be able to get to. It’s amazing how often they’d say yes.

I get to bring this person on, have a lot of fun having a phenomenal conversation with them and have some fun to chit-chat before and after you build a relationship, and maybe it also works that it helps our students grow and develop. But I now have executives that had never heard of Gordon before, never would have otherwise knowing about our school, we bring them in to talk at different parts, in different classes, and we’re engaging them in different ways. It’s been great for everybody overall. It has certainly raise the visibility of Gordon College, and to think that now, I have like a top podcast. Depending on who I have on a given week, it’s like number one in Ukraine. or number two in Australia, it’s just sort of funny to think like, “Okay, Gordon’s name is out there in different places in the world.”

Joe: Number one in Ukraine, that is something to be proud of!

Alexander: I spoke at the Ukrainian Corporate Governance Association or something like that, it just like popped up on the charts.

Joe: Wow. Okay. We got to work on our Ukrainian audience, [00:06:00] Raza.

I know one of the things that you do talk about is people who ask the basic first question, ” I want to be on a board. What do I do?” Let’s talk a little bit how you approach that because I know it’s a multi-layered answer.

Alexander: That is really the focus of my board podcast, and a lot of them are very different. Mine is really about howdo you become a member of a board and be really good at it. That’s the perspective we take. We’ll have special episodes flipped about how a board as a whole can be really good, but in general, it’s wherever you are in that spectrum.

I get people that are already sitting board directors who go, “Great, I want to do this as a portfolio.” I get people that just landed their first board seats who’d said, “What the heck did I get myself into? How do I do this well? I get people in the C-suite going, “I’m ready to be in a board and let’s make this happen.” People who are about to get in the C-suite going, “I’m looking a little bit ahead. I know I want to do this and start planting the seeds.” And people who are much further away from that are going, “I think I’ve heard about this. This might be really good. What do I begin to do? How do I plan it online?”

You have all those perspectives. But what you just said, Joe, I just got an email [00:07:00] the other day from a retired senior executive on Wall Street who said, “I’m retired now and now I want to get a whole bunch of paid board seats. Help me.” And I regularly get that a lot.

I likened it to the conversations I have in career services. I’m sure you guys skip this. Like if someone says, “Help me get a board seat,” I’m going to go, but that’s like saying, “Help me get a job.” I don’t know what to do with that. What industry you want to work in? What size of companies? Is it compensated, non-compensated, public versus private? There are all these sorts of things. You have to help me figure out what you want to do, and it only from then can I even begin to start giving you guidance, because otherwise I don’t know what to do with that.” if I went to you guys and say, “Guys, help me get a job,” I’d go like, “What does it mean?”

Joe: Yeah. Let’s start with this, the first thing you have to sort through, as you said is what do you want? Why do you want to do it? And what do you want to accomplish? So, there’s some thinking that needs to be done before someone joins a board, and right now focus really on paid positions. I’m thinking about private and public boards. Once someone has thought that through and they’re prepared to commit to do the [00:08:00] work of a board member, and I think you and I and Raza have talked about this, it’s a job.

Some people don’t understand that from the outset. Some people think it’s kind of a nice thing to do when you’re retired, but in fact, it’s a job, and you need to take it as seriously as you would any other job.

But once you have all that, if someone then comes to you and says, “Okay. I’d like to be on a private company board, I have expertise in risk management. I know I’m an A-plus financial acumen person. I’d like to be in a certain industry,” then what do you tell them? What’s the next step for someone who’s given it that thought and really has considered what they want to do?

Alexander: I don’t want to gloss over that Joe because it’s really important. If someone has done their homework, they understand. I can tell that they’ve already thought about their elevator pitch. They probably have some of the documentation. I mean, there are the key things you’ve got to have your board bio. You got to have your board resume, your LinkedIn profile, all that stuff is got to be ready because if you start doing the networking and someone says, “Oh, my gosh, you’d be great for company XYZ that I know. [00:09:00] Send me your materials, you’re not going to say, “I’ll get back to you in a week with those.” You want to be ready to go. In the same way, that thinking that you just talked about has to be followed by the action, and that’s the first start.

I would actually use this, “When you came with me, Joe, with that great pitch, I would test you a little bit. All right, so tell me what’s the most important. Was it the compensation?” And some people say, yes, I appreciate their honesty, but that’s not a good driver for it. “But okay, if it is the compensation, what do you think you’re going to make in what are you trying to do?” “Well, I want to be on the board of JP Morgan and make 250,000 a year.” I’m like, “Hmm. What kind of size company did you work in?” I worked at a bunch of startups.” “Well, that’s probably not realistic. Let’s take what you came up with and let’s talk about reality. You’re probably not going to be in a cap size bigger than where you worked before.

And that’s okay. You might have only worked in private companies. Well, then you should focus on that. There are lots of different opportunities there. I would take exactly what you said, Joe, let’s dive into it a little bit more, make sure we’re all coming from the same page, and then you can come up with a game plan to do it.

Once you’ve got that, okay, networking is going to be a big part of it. For some people that’s a dirty word. It doesn’t need to be a dirty word. How big is your network today? Do you know people who are on boards? Do you know people that [00:10:00] service boards like accountants and consultants and lawyers that can be helpful for you? And then how much time will you spend every week? Are you going to spend an hour a day? Are you going to spend an hour a week? Now, a lot of that’s going to predict how long it’s going to take for you and how successful ultimately you will be.

Joe: A lot of what you’re saying, in fact, all of what you’re saying, sounds like the kind of really good advice that you would give anyone looking for a new job. For example, yeah, your board bio or your board CV or whatever it is you prepare, it’s something different than you would have if you’re applying for a job, as you said, at JP Morgan or PA Consulting, you really have to be focused on it.

Again, I think a lot of people in the first instance don’t totally understand that. They just maybe assume that it’s, “Oh, one of these things I’ve had such great business experience. Of course, I’ll be on boards,” but it really is very focused. I love the way you kind of just went through that.

One of the things that I remember talking about is advice that you give about doing due diligence before you accept [00:11:00] the first board seat, because obviously, if you do well, then you’re going to feel better about yourself and you probably get on the board, and some of that has to do with what board did you join, and I think most first-time board members will usually jump at the chance to be on any board, and that is not a great idea. Why don’t you talk about why that is?

Alexander: Let’s be really clear. Someone has worked really hard to land a paid board seat. That was their dream, that was their goal, and they made it happen. You’re super excited. Like this is amazing, right? Well, it doesn’t mean you should take it. Think about this as like you’re applying for a job. Just because you get a job offer doesn’t mean it’s going to be a fit. I don’t mean the negotiations like culturally, for example, like, is this a place where you’re setting yourself up for success? Can you do this? Do you want to do this?

A board is the same way. Boards are very different from each other. Some boards think about like, let’s go some extreme examples, some of the ones that have been in the news, like some boards are rubber stamping what the CEO comes up with. Is that the kind of board you want to be on? If so, great. Know that other boards are [00:12:00] very collaborative, very open, very discussion oriented, very much about coming up with a strategy that helps the organization. Is that the type of board you’re going to fit in with? Is that the kind of the space you want to be in?

Some boards are kind of cutthroat, like every one of them has so much value that they want to add they’re kind of stepping on each other and everyone’s making sure they’re getting all their points. Others very much hold back. It’s like, “Let’s make sure we’re sharing our valuable air time.” It’s like a baseball game, you only get to bat three, maybe four times a game. That’s the amount of time you get to talk on your board meeting of the day. You need to know what that feels like.

How about the organization? Is the C-suite team collaborative? Are they engaged? Are they working well? Is there a history of the CEO not getting on with their employees or their lawsuits? Like you really have to know what sort of organization you’re stepping into and the value that you bring to it as well.

One extreme example, we had someone on my show who admitted to me, she said, “There’s board that I got offered my first board seat on, and I worked really hard to get that. I was excited about it. It was a public company, I checked all the boxes, but I didn’t feel comfortable. I went through the interview process and I had that little person on my shoulder telling me there’s a danger here, Will Robinson, think about this.”

Actually, I’d never heard anyone successfully did this, where she got them, “Let me sign some [00:13:00] NDA so I can sit in one meeting. I won’t vote. I’m just sitting in the back. I want to observe. I need to observe.” And they thought she was the right person so they agreed to this. I don’t know why. She actually saw a fistfight breaking out in the meeting. She’s like, “I knew this was not the place for me.”

I’ve never heard of that before, but that’s like an extreme version of due diligence. The point is you want to be on the right board for you because you will do well. And if you do well, that will lead to other boards because the people you’re sitting and working with will inevitably be also be connected to other boards and they’ll know, “Oh my gosh, Johnny over here was phenomenal. I should think of another opportunity.” But if you stink it up in the boardroom, you’re not going to get another one.

Joe: From the board side, identifying and recruiting the right person is an important first step, but it is only the first step. The next step is really onboarding this new valuable board member that you’ve spent so much time finding, and yet I think you and I have talked about this, many boards are terrible at onboarding. What advice do you give about onboarding, [00:14:00] either to the individual board member or when you talk to people who are on the boards that you interact with? What kind of advice do you give them about that?

Alexander: Isn’t it terribly ironic? You spend all of this time and energy and money trying to bring someone on. Now, I get during COVID for some boards, it was extreme, it was much harder. But even before COVID, there are lots of boards that didn’t treat it the way they treat normal employees who get hired.

If you think about this whole onboarding process, show up at your desk, all the stuff is laying there and you come to a certain training and meet all the people, in the boardrooms, it’s like, “Well, you know what you’re doing? We’ll just throw you in, come to the next meeting and you’ll be great.” That’s not setting anybody up for success.

If you are joining a board that acts like that, well, then you need to act differently to set yourself up for success. You should insist on meeting with every member of the board, even if it’s just via Zoom. You want to meet with the company secretary, every member of the C-suite, and you want to know what’s going on and understand it.

The company secretary, by the way, is your best friend. That’s the person you want to be building a relationship. They’ll be helpful. By the way, they are the ones who set the schedule for the boards. If you’ve got some future commitments, like other boards, you need to whisper in their ears before they set the dates, because it’s [00:15:00] embarrassing if they have to change them later on your behalf, so you need to make relationships with all these people.

Ideally, you’d have met many of them during the interview process. Some boards do it differently than others. And if you haven’t, you need those relationships. Now, every board is a little different because of COVID now. Some are still entirely virtual, some are meeting some in-person, some virtual, and if you can get together during the in-person stuff and during the dinners start to have conversations to build relationship, that’s really important. But if your company is not taking it upon themselves to do a proper onboarding process, make sure that you are doing it to set yourself up for success.

Joe: Yeah, you just have to be proactive. And by the way, this is not COVID driven. This existed before COVID. It will exist if or when COVID goes away. I think it’s part of the viewing the board seat process as not really a new job. What you said, I think, is exactly right, “Oh, well, he was a super smart guy at blank, or she was fantastic as CEO of this company.” Yes, great. That’s why you recruited [00:16:00] them, but that doesn’t translate directly, especially in the first instance, at being a great board member. And I have to agree with you ironic that people, boards, organizations spend so much time recruiting and then they kind of drop off and drop the ball in really getting value out of this person.

Now, the best board members are going to shine anyway. It may take them longer. They’ll be proactive. They’ll ask the right questions. They’ll get there. But boards should be meeting them right there and onboarding them the way they do, as you said, any employee.

Raza: Alexander, you bring a lot of wonderful guests on your Boardroom Bound podcast. What are the top topics that are relevant today in the boardroom?

Alexander: We’ve seen it pivot just a little bit due to COVID and we can talk about that. But if I say even before COVID, the ones that were big then that are still big now, I think will be big forever. Some of those are risk management. We can do a deeper dive into that. [00:17:00] That’s never going away, never should go away. And if you’re in a board that hasn’t really focused on it and they didn’t realize it during COVID, that should be towards the top of your list forever.

For me, supply chain has become very big in the last two years. People have realized, if they didn’t already, that’s a critical thing.

We’re seeing chief HR officers actually getting appointed to boards now, which is a wonderful thing. If we didn’t appreciate our people before, we certainly want to appreciate them now when they’re so hard to find and retain, and that’s a wonderful value to bring to the board.

ESG was huge and growing before it’s taken off exponentially now with COVID, and ESG is so hard to describe because every board handles it differently. It might be in a different committee. Different industries think about it in different ways, and everybody can agree on what the letters are in a word, but how to go about doing it is changing so quickly as well, which is really fun for me. I would say those are some of the big ones that come off a lot with my guests.

Raza: Alexander, the next thing we wanted to do was it appears that the guests that have come on your Boardroom Bound podcast and our On Boards podcast have written many wonderful books. I wanted to go [00:18:00] through a list to plug in the great books that guests at our collective podcasts have written. Would you mind starting with a few and then I’ll add a few from the guests on our podcast.

Alexander: Sure. I’ll start with one related to COVID. I mentioned Dottie Schillinger before who was on our show in terms of diligence podcast. So they wrote a book called Governance in the Digital Age, and actually the timing was perfect as it came out just at the beginning of COVID. Their business has gone exponentially through the roof as more companies realized, “Wow, we need to be much more digital about how we do things in a boardroom and think about the board portal, the materials that are coming out.”

Their books has been really interesting, and I think I got her in the show maybe twice now, and what they do over there is really interesting.

Raza: The one that I’ll mentioned first is called Family Business Handbook; How to Build and Sustain a Successful Enduring Enterprise. It’s written by our wonderful guests, Rob Lachenauer and Josh Baron, published by Harvard Business Review. It’s a great book for family businesses and how to make them into an [00:19:00] enduring enterprise.

Joe: Yeah. And one that I’m going to talk about or want to mention is the Board Members Guide to Risk. We talk about how important risk is, and that is written by one of our former guests, David Koenig, who’s the founder of the DCRO, the Directors and Chief Risk Officers group. What he has done is, both in the book and through the DCRO, elevate the conversation about risk. And as we talked about earlier, it’s not just identifying, are we in danger of having something bad happen? Part of it is thinking about the notion of positive risk-taking, maybe we’re not taking enough risk, and that’s part of a more sophisticated analysis of what risk really means.

No question that COVID brought the whole concept of risk, which was always there and always important, but now it’s at the very top of mind. This is a great book for people that are interested in that.

Raza: Alexander, do you have another one?

Alexander: Yeah, I’ve got a couple more. I’ll talk about Sheryl Batchelder who has a book called Dare to [00:20:00] Serve, what she wrote when she was the CEO of Popeyes Louisiana Kitchen who engineered that turnaround, and she also brings in the perspective of a significant board member. She’s been on the boards of so many different ones, True Value, Pier One. US Foods, advisory board for Procter and Gamble, Chick-fil-A, so she’s got tons and tons of experience, and she brings all that together in her book. She was also a lot of fun. It was Episode 29 that she’s in.

Raza: The next one that I’ll mention is called High Performance Boards by our guest, Didier Cossin, and he calls himself the “board doctor.” This is a book that’s full of tools and processes for how boards can become much more effective. It’s just a great book, very practical, a handbook for helping boards become more effective.

Joe: I’m going to throw in Startup CEO: A Field Guide to Scaling Up Your Business by Matt Blumberg, Matt and his book are, I think, phenomenal, and his book really reflects how he is operating the new company he started called [00:21:00] Bolster, and it’s a really thoughtful look at how to build the right kind of board for a startup, and it’s, I think, a very thoughtful approach.

Alexander: Another one that I would put out there, actually two, by Betsy Atkins, and she is, if my memory serves correctly, the second most tenured female board member in American history, and she’s got a couple of great books. One is called, Be Board Ready, and the other is Behind Boardroom Doors. You can imagine the two different perspectives on it. She was very early in my show. I think she was Episode number 30, so she didn’t share much of her background.

Joe: Wow. The last one I want to talk about is by our guest, Diane Hessan called Our Common Ground: Insights From Four Years of Listening to American Voters. It’s not about the boardroom, but it is a phenomenal book.

Alexander: One more I’d like to throw in that is near and dear to my heart would be by Mike Useem. He is my favorite professor back when I was at Wharton getting my MBA and he taught leadership, and his book is called Boards That Lead, and it’s a bestseller written with Ram Charan. If you know him, he’s another boardroom expert as [00:22:00] well. It was a lot of fun for me to have Mike on my show, I think it was Episode 113, and really, it’s just sort of almost brought me back in the classroom, listening to his expertise again.

Joe: Just for all our listeners, all of these books will be listed on our website with links to the books, so you can check them out. Now, favorite episodes, favorite guests, who have you liked? Whom you had the most fun with?

Raza: Or things that really stuck or really important, new and impactful.***

Alexander: There are a couple that come to mind that stick out forever, so I would say one of the fun ones for me was Peter Gleason, the CEO of NACD. It was a great fun to have him on the show. He just knows everything there is about boards. And I remember when I was prepping with his team, they’re like, “Okay, well, tell us the tough questions you’re going ask him.” I’m like, “No, I’m not going to ask him. I just want him to share his expertise with us.” It was great fun.

That ties in with another favorite episode of mine, I went to their annual summit. I recorded a live episode there, so that was with Tom Leopard and I’ll call it a bonus owed. It was my first bonus episode. I think it was around number 40 or something like that, and Tom is unbelievably [00:23:00]seasoned not only in the boardroom and having led several companies in the C-suite, but also he was the mayor of Dallas and he ran for Congress. He’s just a super nice guy as well, and he just knows everything about the board, so that was a lot of fun to do that live at NACD summit. When I saw Peter, I came up to him. He said, “I remember you. I remember you. We did that podcast together. Okay. This was not so bad.”

Another fun one that I would also recommend for all of the people listening to this, if you’re on that boardroom journey, trying to think how do I get better, Mark Pfister, our Episode 20 markup, is another boardroom expert. He does a lot of training around this. I tried a double episode, so Mark had so much content to give. I gave him two. We used to do a half hour. I gave him an hour and we still tried to pack everything he did. If you’re trying to figure out how do I pull altogether my materials, how do I interview, how do I do due diligence, Mark covers basically everything on that Episode 20, so that’s great fun. If you want to hear more, he does his sort of speeches all throughout the country and throughout the year as well.

Joe: Interesting. Earlier this season we had a guy named Marcus Peacock on. He’s the COO of the Business Roundtable and [00:24:00] just talking with him about the Business Roundtable, about the statement they put out four or five years ago now, but also about who their board is, consisting only of CEOs of some of the most well-known companies in the United States and how seriously they take their job. It was really, really interesting to look at and think about what CEOs want on the boards on which they serve, and really it was a good insight into what really is important when those folks are in the room together.

Raza: And Joe, for me, our most recent episode with our guest, Lisa Shalett was a jump out as well. She and her co-founder have gathered this great group called Extraordinary Women On Boards, EWOB, and we just had a tremendous conversation.

Joe: Yeah, I agree. I encourage people to check out Extraordinary Women On Boards, 500-plus women around the country and around the world [00:25:00] all on boards working together to be excellent board members and to really dive into the issues that will make their boards better. I agree. Good one, Raza. Excellent.

Raza: Alexander, to offer you the final word, what are your plans for the coming year for the Boardroom Bound Podcast? Are you evolving it in certain ways and taking a new direction?

Alexander: I’m listening to my audience’s feedback and trying to do things more intentionally for them. I’ve just, in the past, been able to have some of the most amazing people on the board, like Julie Daum, the world’s leading board headhunter, and be able to have conversations.

I’m trying to be a little bit more thematic now, so for example, the month of February, I want to have three leading voices of Black people in the boardroom to be able to use my platform to share with them. I use the three annual, I call it, military-type dates of Memorial Day, 4th of July, and Veterans Day to have semi-retired four-star generals who’ve gone from a battlefield to the boardroom, so doing more thematic things like that to use my platform, whether it’s promoting diversity, equity and inclusion or different ways, or we did some things for [00:26:00] Hispanic Heritage Month last year, we’re going to be a lot more thoughtful about how I align my guests with the calendar this year.

Joe: So, full speed ahead for ’22?

Alexander: I’m going to keep up with the weekly episodes. I’ve really enjoyed doing that. I love that you guys do two a month and you do these deep dives, which is wonderful. I know from some people, my audience, I regularly get this like, “I’m about to binge on more of your podcasts. Please keep it up.” I try to keep up with the weekly episodes as much as we can.

Joe: Well, that is great to hear. That’s really excellent.

Alexander, it’s been great speaking with you today. Thanks for joining us on On Boards, and thank you all for listening to On Boards with our special guest, Alexander Lowry.

Raza: We have a request for our listeners. Please take a moment to rate and review On Boards Podcast on Apple Podcast app if you enjoyed listening to it. It really helps others discover our podcast. Also, you can visit our website, onboardspodcast.com. That’s onboardspodcast.com. We’d love to hear your comments, suggestions, and feedback.

Joe: Please stay [00:27:00] safe and take care of yourselves, your families, and your communities as best you can. And Raza, you take care as well.

Raza: You too, Joe.

Joe: Thanks..

33. Extraordinary Women on Boards: a force in advancing diversity and excellence on boards

After a fascinating career at Goldman Sachs, Lisa Shalett “retired” in 2015 – and two years later started what has become Extraordinary Women on Boards, EWOB, a peer-to-peer community of hundreds of women directors from the US and around the world, focused on advancing board excellence, modernizing governance and increasing board diversity.

In this episode Lisa talks about how Extraordinary Women on Boards started, how its membership exploded and how it has become an extraordinary force in advancing diversity and excellence on boards.

Thanks for listening!

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

Links

Extraordinary Women on Boards (ewobnetwork.com)

Lisa DeCarlo

Lisa Shalett Bio 

Quotes

When I look back on my somewhat eclectic career, twenty years of which were at Goldman Sachs, there were a lot of things that I did that ended up preparing me for what has become Extraordinary Women on Boards…it’s funny how my background danced in and out of risk-related topics and content-related topics and suddenly here I am spending a lot of time on those issues.

How Extraordinary Women on Boards came about

Extraordinary Women on Boards was unplanned, and after a career of paying attention to pain points and wish lists and identifying opportunities that largely comes from covering really important and smart clients, I found myself in a situation where having “left the building,” so to speak, wandering the streets of New York, I was meeting a number of women who were at the same life stage that I was then at: having stepped away from an accomplished career and trying to put together, I think what we call portfolio careers or portfolio lives.

I was very lucky to, quite unintentionally, end up on two boards, a public and a VC-backed board, and the women that I was meeting were also starting to serve on boards as part of their portfolios, and I found it quite amusing that the most interesting thing that these women would relate to in my background was that we were all on boards and we were all starting our board careers.

That led to 15 coffees in a row on the topic of boards, and in particular, a few needs and pain points that just kept emerging that led me to believe that I should bring this group of women who were all board directors together to meet each other.

What I was hearing during was as follows; number one, women board directors wanted to meet more women who were already on boards. Often they were the only woman on their board at that time. That was in 2016, not that long ago, and the first meeting of what became Extraordinary Women on Boards, even though intended as a one-off event was in the beginning of 2017.

These women wanted to talk about their board work. It’s not enough to have to claw your way into the board room, you want to be excellent in the boardroom. You want your board to be excellent. And there was something so inspiring about women who wanted to talk with other women board directors in order to just crush it in the boardroom.

One of the other things that I was hearing was that despite there being many excellent forums, there was often a situation in which women felt talked over. There’s been a lot of research about how that sometimes can happen, no offense to men, but sometimes that happens, and therefore these forums weren’t really allowing a dialogue in the way that these women wanted.

 

Impact of the Pandemic

When the pandemic hit, and anyone in this audience serving on any kind of board and certainly I’m sure the two of you remember vividly, it became a serious firehose experience. There was chaos. Boards were meeting 24/7. There were risks that folks were aware of, but that suddenly were all happening at the same time, and no one had really thought about the convergence of all those risks. And then there were completely new risks and issues on the table that no one had ever really discussed before, and so there was a tremendous need to get together and have discussions and really curate those discussions.

I remember one of the things from those days was there was suddenly so much information available. Your board was meeting all the time. You wanted to stay on top of everything. You only had kind of a tunnel vision of what your board was focused on, so it seemed like a compelling opportunity to bring people together, to compare notes, to get a horizontal view, and focus on all of these new risks.

It’s funny, I’ve sat in the same room, for now it feels like two years, and met through Zoom hundreds of truly extraordinary women, and we all would get together and have fantastic discussions. The goal was to leave the Zoom even smarter, go back to your boards and be even more influential, bring really good insights and figure out what the emerging best practices were going to be.

What Extraordinary Women on Boards Offers

We offer educational sessions that are really interactive, engaging Zoom sessions on important topics for board directors, and they’re not topics that are discussed everywhere in the same way. We really try to come up with an interesting angle, always yielding, per my Goldman training, “actionable insights,” and what are the questions that you can bring back to your boardroom.

We also curate a newsletter every week, which really scans the environment quite eclectically for articles that ought to be relevant for board directors and why. We have meet-and-greets so that people can still meet each other in Zoom, and we came up with a great format.

We also try to find our members board opportunities because one of the pain points that we’ve heard emerge is that, despite what you’re told- which is once you get on your first board, it’s easy to get on subsequent boards  – that is just not true. We love when people looking for diverse candidates reach out to tap our community of experienced directors.

Creating an environment to really learn

I mean, my gosh, you’ve had a successful career, but sometimes in the context of board work, especially if you’re new to boards, there are some super basic questions. You shouldn’t feel embarrassed to ask those questions. Everybody has those questions. And so creating an environment where there’s immediate respect, you feel included, you feel welcomed, and there’s an assumption that we’re all going to learn from each other, I think that’s what helps the magic to happen.

One of the things that happens with Extraordinary Women on Boards is that we feel as if there are these really smart questions that need to be asked. There’s new information or best practices in this world of emerging best practices that the boardrooms need to hear. You can then go back to your boardroom and feel confident that you’ve got an insight that maybe the rest of the board might not have.

Big Ideas/Thoughts

I often think there’s so much effort put into finding a board director and not enough effort put into onboarding, as you mentioned. There needs to be much more intentionality around that because that’s going to make or break the success of that board director. And especially when they’re diverse, you want them to be successful, but to make someone feel like an only and just say, “Great, here’s your seat,” is not enough. Boards have cultures, and it’s so interesting to think about the dynamics in the room — so how are you setting the board up for success by bringing on any new member? It’s incredibly important.

It’s so interesting because when someone joins a board as a new board director they might be a very experienced board member on other boards, but they have joined a new board and there’s this weird dance that happens where someone doesn’t want to be so presumptuous as to immediately start asking questions, even though they might be incredibly thoughtful.  There’s a whole “beginner’s mind” thing that you don’t want to ruin the newness of somebody’s observations. You want to solicit it. So few times do boards solicit that from new board directors, “What are your impressions? How do you think about that?” There’s such an opportunity for feedback that’s missed – what a waste!

Transcript:

Joe: [00:00:00] Hello and welcome to On Boards, a deep dive at what drives 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 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, as well as 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 takes to be an effective board member, what challenges boards are facing and how they’re assessing those challenges, and how to make your board one of the most valuable assets of your company.

Joe: Our guest today is Lisa Shalett. Lisa is an accomplished senior executive, [00:01:00] corporate advisor, and independent board director with a remarkable breadth of leadership and operational experience over a 25-plus-year career, including 13 years as a Goldman Sachs’ partner. She has served on the board of every type of company; public, private equity-backed, venture capital-backed, family-owned, and nonprofit, and brings a deep understanding of stakeholder priorities and long-term value creation to the boards on which she serves.

Raza: Lisa retired from Goldman in 2015, and two years later founded Extraordinary Women on Boards, EWOB, a peer-to-peer community of hundreds of women directors from the US and around the world, focused on advancing board excellence, modernizing governance and increasing board diversity.

Joe: Lisa chairs the board of Generation W, a nonprofit organization that empowers women and girls. She is a distinguished scholar at Duke [00:02:00] University’s Coach K/Fuqua Center on leadership and ethics, a senior fellow of the McDonald Conference for Leaders of Character at West Point, and she continues to advise growth companies and support high-impact entrepreneurs around the world. Welcome Lisa, thank you so much for joining us today on On Boards.

Lisa: Thank you so much for having me. I love this podcast, and I’m glad to be here.

Joe: Thank you. As I was reading your introduction, I was thinking, “How, does she have time to do all of this?” But I think if you give a little background of your life before Extraordinary Women on Boards, perhaps that’ll give folks a little context.

Lisa: It’s funny when I look backwards on my somewhat eclectic career, twenty years of which were at Goldman Sachs, there were a lot of things that I did that ended up preparing me for what has become Extraordinary Women on Boards, and so I spent the beginning of a career that I never expected to be on Wall Street in the [00:03:00] equities division at Goldman Sachs. I have a Japan background way back from when I was in high school and won a scholarship to live with a Japanese family subsequently learning Japanese, becoming fluent in Japanese and ending up in the right place at the right time as far as the Japanese economy taking over the world. Lo and behold, there was this job I discovered called Japanese equity sales that I did for a number of years. That’s what brought me into Wall Street and started my career at Goldman.

I worked in New York on the Japan desk there covering institutional investors who were looking to invest in Japan, finding it difficult to navigate. I tried to be a good Sherpa. I moved to Tokyo and ran the Japanese business for Sachs for a few years. I came back. I ended up in a merchandising role running the morning call in the fire hose of all that was coming out of Goldman Sachs’ research, how do you funnel that into the most important points for all of the salespeople, the traders, the [00:04:00]sales traders of such an important, interesting role as it related to content.

I was plucked out of the equities division and dropped into the chief operating officer role of global compliance and then stretched to legal and audit right at a time when pre-financial crisis, the world was blowing up in terms of the financial system. When Bear Stearns and Lehman went under, everyone, including Goldman, became a bank holding company, and I had a front row seat and frankly was working with some of the most brilliant risk geniuses in the world, and that experience still has shaped me and shaped my board work today.

Then after four and a half years of that, I raised my hand looking for my next thing and ended up in the executive office at Goldman Sachs running Goldman’s brand and ended up, at that time, being a brand that soon became known as the poster child for all that was evil on Wall Street. This was the financial crisis and it was a brand case study for the ages at a time [00:05:00] when digital and social channels were first emerging, and it really changed the nature of communication, advertising, marketing, et cetera. So, it’s funny how my background danced in and out of risk- related topics and content-related topics and suddenly here I am spending a lot of time on those issues.

Joe: It sounds like an incredible ride at Goldman. But when we talked recently, and I asked you how Extraordinary Women on Boards came about, I think what you said is it found you, which I found to be a really interesting way to think about it. We’d love to hear how it came about.

Lisa: Sure. It was unplanned, and after a career of paying attention to pain points and wishlists and identifying opportunities that largely comes from covering really important and smart clients, I found myself in a situation where having “left the building,” [00:06:00] so to speak, wandering the streets of New York, I was meeting a number of women who were at the same life stage that I was then at; having stepped away from an accomplished career and trying to put together, I think what we call life portfolio careers. Rather than doing one intense full-time role, you’re still spending a lot of time to your earlier point, but just doing a bunch of different things, and upon leaving Goldman and becoming eligible to serve on a board. I was very lucky to quite unintentionally end up on two boards, a public and a VC-backed board, and the women that I was meeting were also starting to serve on boards as part of their portfolios, and I found it quite amusing that with the background that I just told you, which wasn’t a typical background at all, that the most interesting thing that these women would relate to in my background was that we were all on boards and we were all starting our board careers.

That [00:07:00] led to 15 coffees in a row on the topic of boards, and in particular, just a few needs and pain points that just kept emerging that led me to believe that I should bring this group of women I had just met who were all board directors together to meet each other.

What I was hearing during was as follows; number one, women wanted to meet more women board directors. Often they were the only woman on their board at that time. That was in 2016, not that long ago, and the first meeting of what became Extraordinary Women on Boards, even though intended as a one-off event was in the beginning of 2017.

But women wanted to meet other women on boards. Women wanted to talk about their board work. It’s not enough to have to claw your way into the board room, you want to be excellent in the boardroom. You want your board to be excellent. And there was something so inspiring about women who wanted to talk with other women board directors in order [00:08:00] to just crush it in the boardroom.

One of the other things that I was hearing was that despite there being many excellent forums, there was often a situation in which you felt as a woman talked over. There’s been a lot of research about how that sometimes can happen, no offense to men, but sometimes that happens, and therefore these forums weren’t really allowing a dialogue in the way that these women wanted.

Joe: Why don’t we talk about how you connected with Lisa DeCarlo who’s the co-founder of Extraordinary Women on Boards?

Lisa: My co-founder Lisa DeCarlo is awesome. Thankfully she joined me in 2020 in August when this had become already a 24/7 thing for me. I found myself a startup founder, so I reconnected with Lisa. I had met Lisa in a very interesting way, a way that’s very relevant to Extraordinary Women on Boards.

Lisa, who also had had a very long and successful career in financial [00:09:00] services, very much kind of a builder and innovator inside of organizations having stepped out now to be an entrepreneur, one of the things that she had co-founded was this incredible program called The Decade Game, and I was very lucky to be able to attend one of The Decade Game workshops in November of 2019 right before the pandemic moved everything to virtual, so this was in-person, focused on helping women think about their lives in decades and really develop goals, and it was so aligned to how I was already thinking about my portfolio life. This is the brainchild of Carolyn Buck Luce who really created this notion of The Decade Game. We had already connected about this life stage, and when we came together, I had a community that was focused on boards, but also overlapped with the life stage. Lisa and I were still completely obsessed and passionate about transitions, about women in these transitions and this [00:10:00] point of kind of re-imagining retirement and we decided to go all in on the community of boards and try to combine those interests as best we can. It’s been so much fun to work with her.

Joe: Yeah, none of this sounds like retirement to me, by the way, but it sounds like something else, but I understand that’s the word that sometimes people use when they stop their primary career, but the portfolio careers that you’re describing, if anything, are more involving.

Let’s talk a little bit about that first meeting of what turned out to be Extraordinary Women on Boards, and then what happened when COVID hit, because I think what you’ve told us is that it kind of exploded after that, which is interesting.

Lisa: I got 15 women together that I had met in my coffee wanderings, and I didn’t just want to bring them together in a social environment because one of the things that I saw in common is that we all were interested in learning and sharing our collective wisdom, and [00:11:00] so I happened to be introduced by a friend to someone that your audience may know, Dave Chun, who is the founder and CEO of Equilar, and at that time he was doing some really cutting edge work with CalPERS and CalSTRS on board diversity. When we met and he told me that, I said, “Well, how much of this have you discussed with women board directors who are going to be very interested?” He said, “Honestly, my head’s been down. I haven’t even had a chance.” So, I said, “Okay, you’re going to buy lunch in a private room the next time you’re in New York. I will fill it with these 15 women who want to meet anyway, who will be very interested in what you have to say, and you will be able to have an amazing opportunity to get feedback.” He says, “I’m in.” So, that became this one-off gathering.

It was intended to be at the end of it like, “Okay, here’s everyone’s email addresses, let’s stay in touch.” Now, we know each other, and within 48 hours, every single woman who was in that room reached out to me and said, “You’re going to keep doing this,” and a side hustle was born. From that point on, every five or six weeks, I would find a law firm to host us. I would [00:12:00] gather this group together, and inevitably, as I found interesting topics to talk about, we did fireside chats and various things, women would want to bring other women who similar to them were already on at least one public or private for-profit board, and the group grew to a hundred just by word of mouth, nothing else, right before the pandemic.

Joe: When the pandemic hit, what happened?

Lisa: Well, when the pandemic hit, and anyone in this audience serving on any kind of board and certainly I’m sure the two of you remember vividly, like it became a serious firehose experience. There was chaos. Boards were meeting 24/7. There were risks that folks were aware of, but that were all happening at the same time, and no one had really thought about the convergence of all those risks. There were completely new things on the table that no one had ever really discussed before, and so there was a tremendous need to [00:13:00] get together and have discussions and really curate those discussions.

I remember one of the things from those days was there was suddenly so much information available. Your board was meeting all the time. You wanted to stay on top of everything. You only had kind of a tunnel vision of what your board was focused on so it seemed like a compelling opportunity to bring people together, to compare notes, to get a horizontal view, and kind of focus on all of these new risks.

We flipped to Zoom. Zoom was a lot easier than planning a physical event, and it was just me at that point. I just did more of them, and people kept showing up. The fact that they kept showing up encouraged me to keep doing more of them, and with the geographical constraints removed in terms of referrals, the group quickly grew to hundreds of women who were on boards and wanted to be a part of this, referred by other members.

It’s funny, I sat in the same [00:14:00] room, for now it feels like two years, and met through Zoom hundreds of truly extraordinary women, and we all would get together and have fantastic discussions, and the goal was leave the Zoom even smarter, go back to your boards and be even more influential, bring really good insights and figure out what the emerging best practices were going to be.

Joe: Yeah. Like a lot of things, as you pointed out, Zoom really had quite an impact on boards and a lot of other business endeavors. One of the things you mentioned, geographical diversity, I mean, for you and for this kind of organization where you want to share ideas and really talk about best practice and people’s experience, being able to include a broad range of people around the country, and I know in other countries as well, must have really given it some real energy going forward.

Lisa: There was a lot of energy in the Zoom. There still is [00:15:00] to this day. When you think about it, we represent hundreds of boards, and in addition, the community itself has such a wealth of experience and expertise that sometimes we wonder why we bother finding an outside speaker because there’s usually an expert in the Zoom, so to speak and the community has been really wonderful that way.

I’ll share one other observation about this hybrid world we live in. We actually tiptoed back into doing live events, and we did an event in New York right before Thanksgiving that was focused on crypto because one of the things that we want to do is make sure that we stay relevant and cutting edge, and it was in-person, like in the old days. It was a panel discussion, there was a small audience, and we tried to do very engaging conversations where we learned not only from the speaker, but from the members asking questions. It was so hard to do in person the same way you can do in a [00:16:00] Zoom. In a Zoom, it’s much more egalitarian and it’s much more inclusive because you see who’s asking a question, and sometimes my line of sight in the room prevented me from seeing who was raising their hand. You know the questions in advance because people are putting them into the chat so you can segue and manage a conversation much more thoughtfully than the mind reading or the surprise of who’s raising their hand and what they’re going to say can derail a conversation. And then some people are much more comfortable asking questions in a Zoom than in person, and so I’ve been reflecting on that ever since as to how we navigate going forward.

Joe: It is funny that we all refer to 2019, barely two and a half years ago, as the “old days,” because so much really has changed in a lot of what we do.

Raza: It has.

Lisa, , what is it today? What activities are you doing? How do you help members, and what is the shape of conversation for EWOB today?

Lisa: Sure. What we [00:17:00] offer are these, I’ll call them educational sessions. They’re really interactive, engaging Zoom sessions on important topics for board directors, and they’re not topics that are discussed everywhere in the same way. We really try to come up with an interesting angle, always yielding, per my Goldman training, actionable insights, and what are the questions that you can bring back to your boardroom. We’ve gotten good feedback on that. Curation is still a very important part of it. The firehose of both being out of the flow because you’ve left your organization that used to provide you with a lot of information, but bombarded by flow because we live in this firehose world.

We curate a newsletter every week, which really scans the environment quite eclectically for articles that ought to be relevant for board directors and why, and so we try to cultivate that. We have meet-and-greets so that people could still meet each other in Zoom, and we came up with a great format for that.

We also try to find our members board [00:18:00] opportunities because one of the pain points that we’ve heard emerge is that, despite what you’re told, which is once you get on your first board, it’s easy to get on subsequent boards, that is just not true, and so Lisa and I have become very scrappy trying to find opportunities, and in doing so, kind of help create more flow, more transparency, more access for our members, experienced board directors, and more opportunity to say, “Hey, this is what this board is looking for. Here’s why I think I’m a fit.”

In doing so, we have really helped a lot of our members get on more boards, and we’ve helped the world seemingly understand that, “Yes, there are diverse, experienced board directors. We have a whole community of that. Please come tap our community, and we’d love to help you find a great fit.” So, those are some of the things that we do, and we are very entrepreneurial about it and keep innovating.

Raza: That’s such a great community that you’ve gathered, Lisa, and to your point, I think the excuse of “we can no longer” is [00:19:00] no longer valid that we can’t find qualified women to be on boards. That’s really, really old.

Talk a little bit about that supportive environment that you wanted to bring where women can be comfortable having conversations that maybe they otherwise don’t. How has EWOB created that environment?

Lisa: Well, I just would say women are used to being in all kinds of rooms, boardrooms, meeting rooms where they’re not the majority represented in the room, so it’s not about being uncomfortable per se, it’s just about really, how are we going to have a very productive, thoughtful, and actionable conversation given that we all seem to share the very nerdy goal of excellence? We want to tap into the wisdom in the room, as I said, and also just want to learn together, and by not being talked over by being able to feel as if you can be an incredibly accomplished executive.

I mean, my gosh, you’ve had a [00:20:00] successful career, but sometimes in the context of board work, especially if you’re new to boards, it’s like having super basic questions. You shouldn’t feel embarrassed to ask those questions. Everybody has those questions. And so creating an environment where there’s immediate respect, you feel included, you feel welcomed, and there’s an assumption that we’re all going to learn from each other, I think that’s what helps the magic to happen.

Joe: I was going to say being a board member is a different job, so even if you’ve had a career and you’re now moving into the boardroom, being a board member on an active company that is going to challenge you is a different kind of job, so it’s not surprising that whoever you are, it takes some work to kind of be as good, maybe as a board member, as you were in your other job.

I’d just say for the companies bringing new board members on, women, men, or whoever it is, onboarding is just as important as identifying and recruiting the people that you’re bringing onto your board. Because if you don’t do that right, then you’re [00:21:00] really not going to get kind of value from really, really potentially great board members that you otherwise would.

It sounds like you’re doing with Extraordinary Women on Boards, some of that work outside of the boardroom, which I think is terrific. It’s a great idea.

Lisa: Yeah, I think often there’s so much effort put into finding a board director and not enough effort put into the onboarding, as you mentioned. There needs to be much more intentionality around that because that’s going to make or break the success of that board director. And especially when they’re diverse, you want them to be successful, but to make someone feel like an only and just say, “Great, here’s your seat,” is not enough. Boards have cultures, and it’s so interesting to think about the dynamics in the room, so how are you setting the board up for success by bringing on any new member? It’s incredibly important.

The other thing that I think surprises me is just that there’s not yet mandatory director education. It seems very much board by board, and so you [00:22:00] might be a very experienced board director, but that doesn’t mean that your information is as relevant as it used to be when you joined that board. It doesn’t mean that you’re as cutting edge. It really depends on your own discipline, and so I think that more can be done in that arena as well.

Joe: I had no question about that. I think just to your point, companies put so much time into identifying and recruiting even one board member and then drop the ball because, as you put it, it’s not just bringing that new member on and making sure he or she really has the best possible chance at succeeding greatly, it’s also creating the board culture. Because if that isn’t working ,then the whole culture changes. It is at least as important as the actual bringing on the board member, you have to make it work. It’s like bringing a new member of a team. If that team is working right, then even though the parts may be all really, really high-end, it may not be a great team, so to really [00:23:00] to work on it.

Again, what you’re doing, I think you didn’t do it intentionally, but instinctively, you’ve found something that is so important to developing good board members and helping make high-performing boards.

Lisa: It’s so interesting though, because when someone joins a board as a new board director, they might be a very experienced board member on other boards but they joined a new board, there’s this weird dance that happens where someone doesn’t want to be so presumptuous as to immediately start asking questions, even though they might be incredibly thoughtful, and there’s a whole beginner’s mind thing that you don’t want to ruin the newness of somebody’s observations. You want to solicit it. So few times do boards solicit that from new board directors, “What are your impressions? How do you think about that?”

There’s such an opportunity for feedback that’s missed out, and then that board director, just out of respect and deference to the rest of room culturally, might sit [00:24:00] there for like six months and either be told that they’re not supposed to ask questions. They’re just supposed to listen. They’re a new board director or wonder whether it’s appropriate for them to ask new questions and what a waste, what a waste.

One of the things that happens with Extraordinary Women on Boards is that we kind of can feel as if there are these really smart questions that need to be asked. There’s new information or best practices in this world of emerging best practices that the boardrooms need to hear. You can go back to your boardroom and feel confident that you’ve got an insight that maybe the rest of the board might not have and get over the hurdle that one might feel.

I’m not saying women feel this any more than men, but get over the hurdle that maybe as a newer board director, you might feel when you’re not sure if you’re supposed to speak or if you’re going to bring something that the board will find relevant. There’s just a lot of wasted opportunity there.

Joe: No [00:25:00] question, and one of the things you said is just so right on the money, which is it’s a wasted opportunity to hear a fresh perspective. The idea that a new board member should just listen for a while. Well, yeah, of course, to some degree that’s true, but this is an opportunity to hear something that you have missed, and if you’ve spent the time to recruit this board member, why not take advantage of it right at the beginning. There’s just no reason for that.

Lisa: Yeah. I also think that being amongst other board directors, like maybe you’d serve on a few different boards, so maybe you have a wider perspective than just one board, maybe you’re on three or four boards, but even so in this environment, my gosh, what will the best practices be? To be able to get together and have the perspective of hundreds of boards, really enables you to add value in a new way, and hopefully, members of Extraordinary Women on Boards are adding even more value to their boardrooms. That’s what we hope.

Raza: Lisa, at Extraordinary Women [00:26:00] on Boards, what are the topics and conversations today?

Lisa: Sure. I don’t know that any of these topics will be particularly surprising to anyone who’s in your audience. These keep coming up over and over again. We like to look at sources of outside pressure because that is dialing up big time. Especially in the ESG world, there are so many different ways to scrutinize data to call out companies in a way that represents risk in new ways, and also to identify opportunities to figure out how to do things really well.

It’s very interesting to look at the different stakeholders and their voices and think about from the boardroom what that means and what new risks are. The other things that we look at, not surprisingly, the whole hybrid work arrangement, how we think about talent, how the board should care about retention, about leadership, about wellness and mental health, topics related to trust.

[00:27:00] Especially in technology, what are the ethics of algorithms of AI? How do we think about that? How do we tie things into compensation and reward? I mean, sometimes the topics are around committees because the scope of committees has changed as talent has become such an important issue as, do you have a separate ESG committee? These kinds of things that are kind of at the forefront of how boards should think about operating well is interesting.

Sometimes we talk about how to get on boards or public and private and what the difference is. We talk about how to have leadership within the boardroom, and we just had a session on the audit chair’s perspective. We talk a lot about various ways to see around corners. We had a fantastic session on cyber where we didn’t just talk about like, “Well, here’s what cyber is.” You’re left with a framework. You’re left with smart questions that just [00:28:00] aren’t being asked enough. That’s what we try to do.

Joe: One of the things that you’ve mentioned a few times is risk identification and talking about risk, and I wanted to mention that one of our favorite guests in the past was David Koenig who started the DCRO. I’m not sure if you’re familiar with them, but I try to let everyone know about them because he has started an organization that trains people to be qualified risk directors and in the world we’re living in, especially as we’ve gone through COVID, and to really focus on risk that maybe wasn’t as acute as it was prior to that, but I think it’s just a fabulous thing to keep in mind. Do you know DCRO?

Lisa: I’ve heard of it, but haven’t had the pleasure of talking with anyone from that organization yet, but I’ve heard of it from some of our members as well.

Joe: Well, we’ll connect you

Lisa: Oh, fantastic. Thank you.

Joe: You would have a great conversation with David, that’s for sure.

Raza: Lisa, what boards are you currently serving on?

Lisa: [00:29:00] I’m currently serving on four boards ,and that might sound like a lot, especially given what I’ve just told you, but they’re all different boards, and I personally find that really intellectually stimulating. I’m on one publicly-listed board, which is PennyMac Financial Services, so the ticker is PFSI; AccuWeather, which is a well-known brand, but actually a family-owned company; Bully Pulpit Interactive, which is a cutting-edge digital company that’s PE-backed; and my most recent board is Empower Partners, which is a VC fund where I’m the independent board director and it was founded by some powerhouse women in Japan who many of whom I know from my Goldman days who started the first women-founded VC fund in Japan and also the first fund focused on ESG so very aligned with interests of mine.

Raza: Oh, that’s tremendous. Not to get into any specific [00:30:00] issues, but the combination of the boards that you were on, are they facing similar type of issues that you are talking at EWOB about?

Lisa: As a board director myself, I think that sitting in the boardroom is the perspective that we try to bring to the conversations that we have. If we’re not relevant, then why bother? But there are definitely issues that are cutting across all of these boards that I sit on for sure, and then there are things that not surprisingly are just specific to the boards, but I find that there’s a lot of convergence around the same kinds of topics and that makes the discovery of emerging best practices more important.

Raza: Yeah, it’s current, it’s fresh. You’re seeing the same things, and that’s what you were bringing to your audience. Lisa, how can people connect to Extraordinary Women on Boards, and how can they become members of your organization?

Lisa: Sure. We have a website it’s ewobnetwork.com, and there’s a way to community with us through that. We, as I [00:31:00] said, are a peer-to-peer community for women already on at least one public or private for-profit board. That is a requirement of all members. Sometimes that creates a really difficult situation when an extraordinary woman who is not yet on a board reaches out to us, we try to be helpful, but we also try to stay focused, and so we’re trying to think about how to potentially serve that group as well, but I think reaching out through our website is a great way to do that.

Joe: Fantastic. We will encourage people to do it, and we’ll post that on our website as well.

Lisa, it’s been a great conversation today. Thank you so much for joining us, and thank you all for listening to On Boards with our special guest, Lisa Shalett.

Lisa: Thank you so much.

Raza: We have a request for our listeners. Please take a moment to rate and review On Boards Podcast on your Apple Podcast app if you enjoyed listening to it. It really helps others discover our podcast. Also, you can visit our [00:32:00] website at onboardspodcast.com. That’s onboardspodcast.com. We’d love to hear your comments, suggestions, and feedback.

Joe: Please stay safe and take care of yourselves, your families and your communities as best you can. Raza, you take care too.

Raza: You too, Joe.

Joe: Thanks.

32. Impact investing: Capitalism created this mess. Capitalism has to fix it!

Bob Rosenfield was the CEO of the second largest company in the $4 billion US auto glass repair replacement and claims services market, and during that time he learned that “it isn’t as hard as you think to do the right thing and doing the right thing can be very good for business if you do it right.”

He has since founded and is managing director of Cape Vista Capital, a family office investment entity focused on renewable energy, sustainability and broadening the availability of housing, healthcare, and a healthy food supply chain.  The goal: to realize excellent returns on investment and to use the leverage of Cape Vista’s investments to change the shape the environmental issues that we have created.

Thanks for listening!

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

Links

The Energy Switch

Global Impact Investing Network.

Global Impact Investing Principles

Cape Vista Capital

Quotes

Capitalism messed this up, capitalism can fix it.

My first experience with impact investing (while a CEO in the auto glass industry) was a tremendous learning experience in two ways: number one, it isn’t as hard as you think to do the right thing, and number two, doing the right thing can be very good for business if you do it right.

What we see now are vast billions of capital being deployed in an effort to fix problems created by the prior model, which considered all this stuff in externality.

Our public equity investments are really segment investments in renewable energy, for the most part, in companies that we think have been and will continue to be more committed to going from fossil fuel energy generation to renewable sources. It’s kind of that simple in the public equity space.

We have found that companies that are engaged in combating climate change are finding the cost of capital in issuing private bonds to be desirable for 5% and we’ve made several investments in solar and other combating climate change items or initiatives that help us generate a solid present income and yield.

Big Ideas/Thoughts

Bob  Some people are still going to believe they could get better than market returns in non-impact, so I think we still need to label it as such, but least in my opinion regular impact investing and non-impact investing are truly converging.  Companies that do not pay attention to what were previously called “externalities” will be outcompeted in the marketplace, so in that way, it’s fundamentally capitalist driven.

Raza I think, as you have said earlier, the externalities are realities, and I hope that the two worlds keep converging and I think that you’re rightly pointing out that that’s the fix of the capitalism, that capitalism actually needs to do.

Joe The “holy grail” is to be able to do the best thing for the economy, for the environment – for whatever area in which you’re involved – and also have it be good for your business, because the financial incentive is going to drive people to do “the right thing.”

Engine No. 1

The whole Engine No. 1 issue is: “ExxonMobil might be paying a 9 or 10% yield now, but if I hold this stock for 30 years, as opposed to another energy company that is paying attention to the future and doing better things, I’m better off with an investment elsewhere.”

There are three things that Engine No. 1 did.  First, in general point out that having a carbon-based, fossil fuel-based strategy might just be a losing strategy as an economic argument. But they did two other things to sort of turn that viewpoint into action, and I thought they were really valuable and important lessons in both.

They engaged with the Wall Street analyst community because there were institutional investors in there that couldn’t decide, do I go left, or do I go right? They helped quantify in the financial analyst community, how do you run the numbers? I mean, every securities firm that has an analyst that follows a company is going to do a 5-year projection or 10-year projection, discount it back, the stocks are undervalued the stocks are overvalued, so they engaged with the analyst in the meantime and pushed them, “What are you doing with these numbers? How could you project that up? That’s not likely. Here’s why.”

They also partnered with another firm, and the business proposition of their partner basically says: “Come to our website, and instead of giving us 100 bucks to support the cause of environmentalism, spend a $100 to buy a share of ExxonMobil and let us vote this year for you.” It’s democratizing the voice of stockholder constituency. I thought that was really, really, really smart tactics.

Transcript:

Joe: [00:00:00] Hello and welcome to On Boards, a deep dive at what drives business success. I am 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 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 as well as 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 takes to be an effective board member, what challenges boards are facing and how they’re assessing those challenges, and how to make your board one of the most valuable assets of your organization.

Joe: Our guest today is Bob Rosenfield. Bob is founder and managing director of Cape Vista Capital. Cape Vista is a family [00:01:00] office investment entity focused on renewable energy, sustainability and broadening the availability of housing, healthcare, and a healthy food supply chain.

Raza: Bob is a lifelong entrepreneur and describes himself as a committed challenger of the conventional wisdom in business. Prior to Cape Vista, he was the CEO of Truroad Holdings and JN Phillips Auto Glass, guiding the company’s growth from an 8-store local business to become the second largest company in the $4 billion US auto glass repair replacement and claims services market. That business was acquired by the number one industry participant in August 2019.

Joe: Bob was born and raised in Greater Boston where he developed a fondness for all things nautical and for the Boston sports scene. Near and dear to my heart, he is an avid and knowledgeable Celtics fan. Welcome, [00:02:00] Bob, it’s great to have you to join us today on On Boards.

Bob: Great. Thank you. It’s great to be here. I really appreciate the work you guys are doing to strengthen private company and public company boards, but near and dear to me, being the CEO of a private company, and it can be lonely at the top, and having a good circle of advisors and solid board is so important, so thank you for the work you guys are doing.

Joe: Thanks for saying that. I appreciate the kind words. Before we start to talk about impact investing, could you give us a little bit more background about your role as CEO? For how many years was it that you were CEO in the auto glass industry? And just talk a little bit about that.

Bob: Yeah, that was 23 years as the CEO at what was originally JN Phillips, 34 years all told with the company and in that industry. The industry, when I entered it was in a state of[00:03:00] moderate consolidation, but accelerating, and so when you’re an entrepreneur, you have to embrace change. There were 30,000 auto glass shops in the country, and that number was going to go down. The biggest player maybe had one or two percent of the market. We were a small player in Massachusetts, and I wanted to have some fun. I wanted to grow it. I wanted to be on the right side of the consolidation line.

 I guess when I started, we were about 30 people. When I exited, we were about a thousand and I learned a ton. I loved the people I worked with, I loved the challenge. And the industry did consolidate, and you know what, the industry got better. It got more professional. It had a greater chance to raise capital to improve the service offering, and it was a good ride and I love that industry, but it was time for me and the company to move on to something else.

Joe: Great. Thanks for giving us that context. Now, you [00:04:00] became involved in impact investing while you’re still CEO in the auto glass business. Can you tell us how that came about?

Bob: Yeah. I realized in 2010 or maybe a few years before that, that when people think about glass, they think about recycling it because you take the bottles and you go back to the supermarket or wherever. In some states, they give you a nickel and others still, it’s part of their recycling stream.

But a windshield isn’t like bottled glass. It’s a sandwich of glass and plastic. The conventional wisdom was, “Oh, you can’t recycle that because you can’t separate the glass from the plastic that was originally joined in a lamination process. And as you mentioned at the outset, I like to challenge the conventional wisdom and said, “No, there’s got to be an answer.”

We became the first auto glass company in the US to recycle the windshields, it’s called post-consumer, that we took out of your car when the old [00:05:00] windshield was broken, and that was a tremendous learning experience in two ways. Number one, it isn’t as hard as you think to do the right thing, and number two, doing the right thing can be good for business if you do it right.

One of the steps we took in that project was to hire an environmentally-focused marketing firm, and the first thing they said to me was, “We have to be sure as a client you’re not going to do greenwashing.” And I said, “What’s that?” This was in 2010. And they said, “You can’t go out and make promises just to think you’re going to get more customers and more business and not back it up. It’s not the right thing to do. We won’t do that for you. And, in fact, the more you can do to verify your efforts, the better.”

We actually joined with UL, Underwriters Laboratory, and they audited our process so that we could prove that the windshields really were being [00:06:00] recycled. We could prove the things we were saying in our consumer and B2B marketing. That learning experience taught me a couple of lessons about impact investing.

Joe: When we spoke earlier, you’ve mentioned that once you started to do the recycling and you were the only auto glass business doing it at the time, you made a radio ad that says something like, “Go to anyone you want, but here’s what we’re doing,” and that, as I understand it, attracted a lot of attention. To your point, you were doing the “right thing,” but it also did generate business because people wanted to hear that and wanted to be a part of that. Is that fair to say?

Bob: That’s absolutely the case. I would walk through our contact center. In our radio ads, we promoted our toll free number and when people called it, it would ring in our contact center and I would walk around and talk to the agents and ask them. What I didn’t tell them[00:07:00] at the time was, you may know I was the spokesperson for the company, so I was just wanting to hear if any of the messaging was, “Could you get that guy off the air? I’m tired of hearing him or something like that.”

But fundamentally, they said, “Yes, the phone is ringing and Bob, more people than I would have expected have said about the copy in our ad wasn’t different between glass companies. I chose you because recycling the windshield is something I’d like to be a part of.”

Joe: That is the holy grail, to be able to do the best thing for the economy, for the environment, for whatever area that you’re in, and also, let it be good business for you because obviously the financial rewards, the financial incentive is going to drive people to do this.

Now, when you first did it, and before you knew it was going to be something that would be well received by [00:08:00] customers, how much support from your board of directors did you have? How much of a factor was that support in whether you did it or not, or did you just kind of take the initiative on your own and hope that you could convince them it was a good idea?

Bob: It was interesting. We had two tracks to go. One involved a significant capital investment, and one did not. And as I thought about risk return for the company, aside from operational issues, just kind of risk return, I was like, “Well, I don’t need to go to a board and ask for a capital plan, like this is just a transaction. We could start it, we can try it. If it works, great. If it doesn’t work, we don’t have a long contractual commitment to make it work.”

I was a bit of a maverick. Now, as much as I’m delighted at the work you guys are doing, I think I learned about the [00:09:00] effectiveness of boards by, in a lot of ways, not having a highly functional board. So being a CEO in an environment where I spent a lot of time educating my board members/family members how they could be effective board members at 10 in the morning and VP of this at noon, and of course, as you guys know, that takes a ton of work. Truth be told, I probably did more asking for forgiveness than asking for permission.

Joe: Got it.

Raza: Bob, I want to switch to the impact investing that you do. The first thing I want to understand is, your thoughts on what is impact investing? And I put this in context of is it that the underlying assumption as we’re kind of talking that the holy grail is that do good and you make money, but is the underlying assumption for impact investing is [00:10:00] concessionary returns. How do you define impact investing and how do you see that?

Bob: Yeah, that’s a good place to start. I think if you asked 10 impact investment professionals, you might get 12 different answers. But one of the textbook answers is, well, you look at ESG, you look at the ESG score, and you use that as a filter.

There are some industry standards starting to come about. There’s a group called GIIN, Global Impact Investors Network, and they have yet another acronym, IRIS+, of how to measure the impact that an organization is having. There are efforts at quantification.

I look at it in a simplified fashion, which is that the way we got in this messy situation of environmental and social disequilibrium was a motto [00:11:00] of capitalism that was sort of defined in the 1930s in micro and macro economics. And these other issues, environment, climate change, global ice melt or polarized melt, I should say, those were not in anybody’s equation and it’s been too slow to have them factored into traditional economic model.

The schoolyard way I would say that is capitalism created this mess. Capitalism has to fix it. What we see now are vast billions of capital being deployed in an effort to fix problems created by the prior model, which considered all this stuff in externality.

Raza: Bob, in that thought process of regular investing or capitalistic investing versus impact investing, do you think or feel that these worlds are converging and should converge, or regular capitalistic investing [00:12:00] is still a little separate than impact investing where people are looking for impact in addition to investment returns?

Bob: Yeah. I think while they are converging, they need to continue to be well-defined. And what I mean by that, there’s a segment of investors that think, “Well, I can get disproportionate returns investing in bad stuff.” the dividend rate at ExxonMobil is pretty high or had been, and so some folks said, “Well, I’m going to be a non-impact investor and I’m going to get higher returns on account of that.” That may be true or it may not be. That was the whole engine number one issue. They’re saying, “Well, you might be paying a 9 or 10% yield now, but if I hold this stock for 30 years, as opposed to the other energy company that’s doing better things, I’m [00:13:00] better off over there.”

But some people are still going to believe they could get better than market returns in non-impact, so I think we still need to label it as such, but they are truly converging because, at least in my opinion, companies that do not pay attention to what were previously called externalities will be out-competed in the marketplace, so in that way, it’s fundamentally capitalist driven, but that’s in the long term. In the near term. I think things should be labeled as clear as possible.

Raza: I think, as you have said earlier, the externalities are realities, and I hope that the two worlds keep converging and I think that you’re rightly pointing out that that’s the fix of the capitalism, that capitalism actually needs to do.

Joe: I wanted to just jump in for a second and ask you, to what extent you [00:14:00] observed the pandemic having an impact on the whole concept of impact investing? When we talked to you earlier, there were a few things that I think you considered to have really brought it to the forefront.

Bob: Those of us at least in this country and probably many other countries, I’d say we were conditioned in certain ways that every problem gets solved in either a half-hour TV show or a one-hour TV show, like everything resolved, and so they’re sort of like no problem bigger than us and so all the assumptions we have hold into perpetuity.

They’re good. There’ll be minor aberrations, but you know the field of play and the frame of reference. Nobody is moving the foul line from 15 feet to 16 feet over night, and then we all realized that that’s not exactly true. [00:15:00] That’s not a reliable set of assumptions. Things can change instantly and they do, and this may not be the last pandemic. And what else will happen to shift the assumptions of my world? Maybe that scientist who says melting of the polar ice caps might be linear, but there could be seminal events and the dam breaks, so to speak, and I think that just became reality. It was probably the biggest impact .

Raza: Bob, we want to talk about how your firm Cape Vista does impact investing. Is it investing in public markets, private markets, startups? How is Cape Vista investing?

Bob: Yes. Thank you for asking. Really both.

Our public equity investments are really segment investments in renewable energy, for the most part, in companies that we think have been and will continue to be more [00:16:00] committed to going from fossil fuel energy generation to renewable sources. It’s kind of that simple in the public equity space.

We are not using ESG scores in the way that maybe others are. We are also investing in some public income instruments, the Calvert Social Income Fund, a company called CNote. There are a couple others, and those are CUSIPs that you can go out and buy and they’re going to pay you an interest rate and a duration and you can trade them, and we found that to be a balance to our equity portfolio as well.

In the private segment, also fixed income and equity investments. We found that companies that are engaged in combating climate change are finding the cost of capital in issuing private bonds to be desirable [00:17:00] for 5%. If they get the money from it as equity, it’s going to cost a lot more than that, and so we’ve made several investments in solar and other combating climate change items or initiatives that help us generate a solid present income and yield.

Joe: Are the returns as good as they would be if you are not at all focused on the impact your investments were having?

Bob: Well, the fixed income market is crazy. We consider the risk return profile on corporate bonds to be out of whack. And government bonds, I heard someone the other day say instead of it being risk-free return, it’s return free risk. Maybe we could get 3% on a bunch of junk bonds, so to speak. If we get 4% loaning money to a company or buying a bond from a company that’s putting [00:18:00] solar into low-income housing, houses of worship, other places that couldn’t access that capital, that 4% or 4-1/2%, well, yeah, they were borrowing that money at 7 or 8 two or three years ago and maybe a conventional commercial bank might charge them a little more, but we feel like relative to the public fixed income market, we’re doing well and we’re good with it. We don’t consider it concessionary as much as picking a segment of the market that is not as worked over.

Raza: How do you determine a good impact investment? Now, this is going back to the thing that we alluded earlier, a score, data, frameworks, standards or is it subjective and based on pieces that the impact investor wants to help with?

Bob: When I got out of business school, it was just [00:19:00] when the spreadsheet was coming into its own, and good for the Boston economy because originally if you remember, it was Lotus 1, 2, 3, and it was here at Cambridge and it was a tech star and a rocket ship. Anyway, like the confluence of those two things said, “Well, everything could be figured out in this spreadsheet, just do a 10-year discounted cashflow and the answer will pop off the page because now we have those great tools for that.” Over time I just sort of learned to understand that, but trust my instinct and try and make a read on people.

We explore a lot of private deals. First, what segment are they in? Number two, how competitive is the marketplace? How big is the marketplace? Therefore, the third layer, how realistic are their goals? And number four, do we think this team can execute? Do they have marketing skills, [00:20:00] sales skills, operation, technology, and those are the four layers of the filter.

We went through that and one investment we’ve made. is with two young persons who had about ten years’ experience in developing a large community and small utility scale solar, which is a lot of jargon words. It’s basically go see the farmer in Augusta, Maine who’s got 50 acres that are not useful. Go to the city of Augusta, tell him to start to put a bunch of solar panels in the field and feed that energy back into the city of Augusta homeowners or to the power company in Maine and everybody wins. To us, well, we need more solar, that’s the highest and best use for the land, these guys have a track record and they’re the kind of people that [00:21:00] are going to own what they do, so to speak.

Raza: What is that company called?

Bob: It’s called East Light Partners. They’re based in Cambridge and this is their second fund, and two things are happening. Number one, they’re doing that. And number two, what happens in that project is you get a power purchasing agreement. Let’s say Central Maine Power will take 20 megawatts a year at this price, and then that becomes securitizable and there’s a lot of demand for that as a derivative.

Raza: Bob, on the ESG, if we break it into E S and G, is it that you mostly focus on the E part? Do you also look at the S and maybe even the G part of investing in the ESG sector?

Bob: Our history has been mostly around the environmental. I think that the social is harder for a [00:22:00] small shop to sort through and we are hopeful that better quantitative information will come out and help us think about that segment. I would say 80% of our energy is in the environmental focus.

Raza: Any interesting companies, sectors or deals that you want to mention that you’ve recently done that you are excited about?

Bob: There are a couple of things. One we’ve invested in, and it was a bit of a leap for us to support crowdfunding opportunities, but we came across this organization called Raise Green. They’re a platform. We learned of them first through a company called BlocPower, and it’s a really interesting entrepreneur/CEO leader, Donnel Baird, but their business model is really simple. They’re based in New York City, in the boroughs of [00:23:00] New York City, and they will go to a large multi-family building or multi-office building that’s got a big boiler in the basement, oil boiler, maybe gas if they’re lucky and say, ” we’re going to help you take that boiler out of the basement and we’re going to put those systems on the wall. They’re called split systems you’ve -probably seen them, Mitsubishi or someone else- and just throw the remote and you get heat and you get air conditioning in the summer and it’s electricity, and we’ll get panels on the roof if we can and get clean electricity, but we’re going to get you off of fossil fuels and we’re going to do it fast and we’re going to do it efficiently, and that’s all we do. We’re now solving every climate change problem.”

They’ve had two capital raises in fixed income. They’ve done really well. This is not a guy who came from Westinghouse or came from [00:24:00] some Fortune 100 company and went out and classically raised capital. He said, “Hey, this is feet on the street kind of initiative that can make a huge, huge difference.” I really admire that company and the approach they’ve taken.

Raza: Talk about that crowdfunding platform that you mentioned as well.

Bob: Raise Green. Someone could go and subscribe and get alerts and get updated, or they could see the current financing opportunities that are available and just subscribe. It could be, I think, as low as a $1,000 and sort of as high as that particular organization it sets as a maximum limit.

Raza: Bob, the impact investment family office unit, how is the governance and decision-making of that unit working? How do you guys make decisions on investments?

Bob: I’m the one-man investment committee at this point.

Raza: Wonderful.

Bob: Yeah. [00:25:00] And I try and keep my network active, not just people in the space, but people that I trust, people that I’ve known from the auto glass industry, people that have been other entrepreneurs who’ve been successful, because everyone needs a reality check from somewhere. To say “Well, I make the decisions on my own in a vacuum” would be a disservice to me and a disservice to someone who is listening. It’s really important to sort of take in commentary, like from the side, not straight ahead. Do you know what I mean?

If I’m going to make a solar investment, yeah, you talk to people in the solar industry, but they’re biased. I’ll go ask someone in an industry that isn’t that, but maybe a real estate development where land up development of something else, and I just kind of always try and triangulate too whether my instinct and logic is [00:26:00] betraying me.

Raza: Bob, that triangulation and crowdsourcing of wisdom is such a great idea. We as angel investors do that all the time. We don’t know everything, and I think as you’ve mentioned, the pattern of industry insiders are the biggest naysayers for, “Oh, this can never work,” so you really have to get multiple perspectives into the equation to make your decisions.

Joe: The best thing to do is talk to your kids. They’ll give you a reality check.

Bob: No doubt about that. My daughter did a middle school project about the way that meat is produced ,and the net result is she got the principal of the middle school to go from being a mediator to being a vegetarian.

Joe: I love it. And that actually leads me to go back to a question that Raza asked about how one would determine whether certain companies or certain potential investments really are going to have a positive impact. You talked about [00:27:00] ESG scores as something that really isn’t reliable yet. What is out there that is reliable, and what is coming out that might allow people to have something to look at that would be very reliable?

Right now, it sounds like you really just have to do a very deep dive into the company and make your best judgment call. Are there things that are happening that will make that easier for investors?

Bob: I think that’s one of the reasons when I started out at impact investing and I canvassed the industry for advisers, it sounded as much like conventional investing as impact investing, which what I mean to say is, “Okay, we’re a wealth manager focused on impact, so we go and pick investment managers who are good at what they do,” and they go out and pick 30 companies and say, “Don’t worry about it.”

I realized I was more of a hands-on kind of [00:28:00] person and to be impactful in impact and value, at least for me, I needed to pick the spaces in which I thought I could accumulate some industry knowledge and make a difference. Anyone that’s interested in what’s happening in renewable energy, I’d encourage them to find the book called “The Energy Switch” by a local Boston guy named Peter Kelly-Detwiler.

A smart guy, he spent 30 years in the industry and wrote this book to explain to a lay person, “Here’s how the electricity grid works in the US, and here are the things that are going on that could impact it. Here’s the good news about solar. Here’s the challenge about solar. Here’s the good news about wind energy. Here’s the challenge, and how is this all going to play so everybody gets electricity at the right [00:29:00] cycle so that it comes in their house and does what it’s supposed to.

I spent hours and hours with that book, so I would understand the assumptions in the narrow slice of renewable energy I’m interested in providing capital to.

Joe: That sounds great, but it also sounds very, very labor-intensive. My question I am going to go back to it is somebody isn’t willing to read a couple of books and talk to a bunch of people and really do it, are there things out there that are either in existence or being developed? What are the things that might happen that make impact investing easier for a range of people?

Bob: Yeah, I think there are three sources. One I mentioned earlier, the Global Impact Investing Network. They publish a lot of information and they’ve put a lot of work into this [00:30:00] sort of standard. I talked with you guys earlier about kind of, can this be made similar to a GAAP accounting? They’re working hard at that.

There’s another consortium that have published. I think it’s called Global Impact Investing Principles, and they have recruited corporations, large and small, to say, “We will operate our business in accordance with the seven principles of impact management.” And I think that together with the UN has published their sort of standards and priorities around climate change and impact. Those three sources, I think, would give someone a really good start at, “Okay. Who’s committed to what, and what is the score card? Even if it [00:31:00] isn’t refined down to the decimal place, what is the score card that’s starting to emerge?”

Joe: Another way to have an impact through your investing is to be active. You mentioned earlier a very well-known example, Engine Number 1, which through very careful thought and strategy got three members on the board of Exxon. They made it a point to use their money to have an impact on one of the largest corporations in the world to change how they are managing their company in the future, and the principle is “we think you’re not taking the risk of the way you operate fully into account. And unless you do, your company is going to be worth less at some point, and we’re going to put pressure on you to do that because that’s better for us as investors. That’s better for stakeholders in general.”

It’s something similar to what you said earlier, Bob, we’re now looking at a longer term impact. That’s true [00:32:00] in most successful companies, family-owned businesses, that can look 5 or 10 years down the road. CEOs of public companies who are not completely bound by the quarterly report, but are thinking long-term for their company. This kind of activism is another way to put pressure on companies to think about the big picture, to think about what you refer to as the externalities that, in fact, are an integral part of what companies should be taking into account as they develop their strategic plan. What are your thoughts about that?

Bob: Yeah, I think that’s a great example, in particular, because of how public it is in was and how everyone kind of knows the brand ExxonMobil and kind of what they do and what they bring to the marketplace.

But there are three things that they did. You mentioned the first one, which is just in general point out [00:33:00] that having a carbon-based fossil fuel based strategy might just be a losing strategy as an economic argument. But they did two other things to sort of turn that viewpoint into action, and I thought they were really valuable and important lessons in both.

One, they engaged with, let’s say, the Wall Street analyst community, because there were institutional investors in there that couldn’t decide, do I go left or do I go right? What it really did is it helped kind of quantify in the financial analyst community, how do you run the numbers? I mean, every securities firm that has an analyst that follows a company is going to do a 5-year projection or 10-year projection, discount it back, the stocks are undervalued the stocks are overvalued, so they engaged with the analyst in the meantime and pushed them, “What [00:34:00] are you doing with these numbers? How could you project that up? That’s not likely. Here’s why.”

The second thing is they partnered with another firm, and I’m going to paraphrase it and I might not get it exactly right, but this is my recollection of the website and the business proposition of their partner. It basically said, “Come to our site, and instead of giving us a 100 bucks to support the cause of environmentalism, spend a $100 to buy one share of ExxonMobil.” And maybe it wasn’t a 100, maybe it was 300, maybe it was 65, I don’t remember, but it was buy one share of ExxonMobil and let us vote this year for you.”

It’s kind of democratizing the voice of stockholder constituency. I just thought that was really, really, really smart tactics. Blackstone is going to own [00:35:00] a million shares, and they talked to Blackstone and said, “Here’s why.” But they’re like, “Well, if I can get a hundred thousand people to buy 10 shares. if we’re right, the stock will go up. The stock is not going to crash, and the stock is better than a $100 just given away to a donation.”

I think that’s a good model going forward to try and cause the CEO of that company, the board of that company, to say, “Well, we have to do more. Our shareholders are demanding more than short-term profits, and in our next investor call, some analysts might say, ‘Well, I’ve got a question about Year 8 in your projections,” And that’s what has to happen, and that’s the sort of the blood and guts or the nuts and bolts of turning capitalism. I doubt you’d find an analyst on Wall Street who doesn’t have a methodology [00:36:00] for trying to address the cost of ignorance in de-carbonization.

Joe: No. I love the story you just told about the 3-pronged approach that Engine 1 took.

Last question. In looking at boards of directors, how can they put pressure on their company to take a longer view in how they’re running the company? And specifically, when companies we’re saying Exxon, as an example, I’m not accounting for the risk they’re taking, whether it’s through their audit committee of they have a separate risk committee, but they’re not accounting for the risk that, as you said, having a total fossil fuel program might be. How can boards put pressure on senior management to do that, to stop taking the short-term and to look long-term and to [00:37:00] take into account and report on risks that might arise from the type of strategy that they have used for years that are continuing? ,

Bob: I was probably further over to the strategic side as an executive, and I was fortunate I had a great team and they would remind me that someone had to dot the I’s and cross the T’s. But I always thought my job was to make sure our business survived and thrived and earn better than market returns, but when you’re running the shop and it’s like you got to make payroll every Friday and you really should check in to see if big customer number one paid on the fifth of the month like they always do. And if they didn’t, I better go get my line of credit. The CEO often has to be totally engaged in the moment.

But in the boardroom, [00:38:00] the board is best to help the CEO put that in the drawer for a couple of hours and say, “Let’s just assume that all those exigencies happen next week and then next month and the next four years, you’re going to handle because you have for 15 years, so let’s talk about where we need to fly this rocketship to that’s going to be of more value to our customers, either in the product and not be a commodity to earn a better price so we can make a better profit and reinvest in our company. And number two, position ourselves so our competitors, current or future, have a harder time by taking a bite out of us.”

If I were advising a board member, I would say spend the time with the CEO to say, “Where are environmental social issues going to impact our ability [00:39:00] to deliver a product that’s of increasing value to customers or going to put us at an advantage or disadvantage to our current or potential competitors?”

In that way, introduce to my CEO two things. Number one, yes, there are exigencies in the business and maybe asking our suppliers to tell us how their supply chain works and cut carbon by 10%, seems like a distraction, let’s turn that around and let’s visit it and say, “How do we make all of this into an advantage?”

that would be the kind of discussion I’d ask boards to foster with their CEO like, “Yeah. I get it in the short term. It might be a little bit of a hassle. There might be a cost, but what are the winning strategies associated with changing the direction of our company, and how do we implement it through [00:40:00] the organization? Is it sales? Is it marketing? Is it operational cost reduction?” And just make it a central part of the business’s long-term strategy.

Joe: Thank you.

Bob, it’s been great speaking with you. Thanks for joining us today. And thank you all for listening to On Boards with our special guest, Bob Rosenfield.

Raza: We have a request for our listeners. Please take a moment to rate and review On Boards Podcast on Apple Podcast if you enjoyed listening to it. It really helps others discover this podcast. Also, you can visit our website at OnBoardsPodcast.com. That’s OnBoardsPodcast.com. We’d love to hear your comments, suggestions, and feedback.

Joe: Please stay safe and take care of yourselves, your families and your communities as best you can. And Raza, you take care, too.

Raza: You too, Joe.

Joe: Thanks.

31. Joe Hurd: Every company is a technology company

Joe Hurd is a public and non-profit board director and early-stage investor. As an operating executive, Joe is the Operating Partner at SOSV, LLC, a $1B early-stage venture fund, where he leads strategy and business development efforts for the fund’s life sciences, deep tech hardware and mobile portfolio companies. In this episode, we talk about how technology is impacting every business and differences between US and UK boards.

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Joe Hurd Bio:

 Joe Hurd is a public and non-profit board director and early-stage investor.  Currently, he is a Non-Executive Director of Trustpilot Group plc (LSE: TRST; Audit, Nominations, Trust & Transparency), Hays plc (LSE: HAS; Audit, Nominations, Remuneration) and an Independent Director of SilverBox Engaged Merger Corp I (NASDAQ: SBEAU; Audit, Compensation). He spent three years as a Non-Executive Director of London-based GoCo Group plc (Remuneration, Nominations) until its successful acquisition in March 2021. 

As an operating executive, Joe is the Operating Partner at SOSV, LLC, a $1B early-stage venture fund, where he leads strategy and business development efforts for the fund’s life sciences, deep tech hardware and mobile portfolio companies. He is also a Venture Partner for Good Growth Capital, a female-led venture fund; and advises innovative Silicon Valley-based pre-seed and seed stage startups on go-to-market strategy, revenue models, and international expansion through The Katama Group, LLC, with a particular emphasis on diverse founders.

Joe built his business career leading strategic business development, strategy and sales teams globally for Facebook, Gannett, and AOL/TimeWarner. During President Obama’s first term (2009-2012), he served as a senior political appointee in the U.S. Commerce Department, where he helped implement the National Export Initiative, a successful effort to double U.S. exports over five years. Active in his community, He is on the Board of Trustees for Menlo College (Development Committee), and the Computer History Museum (Audit Committee); and the American Swiss Foundation Board of Directors.  Currently, he is a life member of the Council on Foreign Relations (Membership Committee, Co-Chair of the Diversity Subcommittee), the Trilateral Commission, and the National Association of Corporate Directors.

Joe graduated from Harvard Law School (J.D.), Columbia University (Master of International Affairs), and Harvard College (A.B. cum laude, East Asian Studies / Government). He is a member of the New York Bar and a Solicitor of the Senior Courts of England and Wales. Married with one daughter (16), two sons (13 & 6) and one Cavachon (1), Joe enjoys running, traveling (50 states; 62 countries), and reading historical biographies.

SOSV is a $1B multi-stage venture capital investor. The firm runs multiple world-class vertical startup development programs, and provides seed, venture and growth stage follow-on investment into superstar companies. Its unique full-stack model has delivered a net IRR over the last 20 years that puts SOSV in the top 10% of all venture funds worldwide.  SOSV has funded over 1000 startups to date, and currently funds over 150 startups per year through five startup programs: HAX (hardware and connected devices), IndieBio (life sciences), Chinaccelerator and MOX (cross-border internet and mobile in Asia), and dlab (blockchain, data and decentralization).  In addition, SOSV provides the seed capital to get founders moving, a global staff of hands-on engineers, designers, accountants, and scientists to speed up product development, over 1,000 global mentors with deep market and technical expertise, and an unparalleled network of fully outfitted laboratory and maker spaces to help startups go further, faster.

Quotes

My role as an operating partner of SOSV is to work on an ongoing basis with six or eight of our top portfolio CEOs. I tend to focus building on my 20 years of experience in digital media, on strategy, corporate development, business development, sales, and helping them penetrate the market. We want entrepreneurs that will make the world better.

“Deep tech” is a phrase that’s come into vogue over the last three or four years, and the focus is on technology companies that combine three things. The first is, for our purposes, hardware manufacturing, something tangible, something that you make, something that requires engineering and engineering skills, and then there is software. And, most importantly, mission and purpose -these are companies that are solving problems where it may not be clear for another 3, 5, 7, 10 years, whether you’re actually on the right path.

UK PUBLIC COMPANY BOARD vs US

When you’re a director of a UK public company, you need to think about all of the stakeholders of that company, not just the investors, but the employees, the suppliers, society as a whole. I had to really take a step back and put my legal hat on for a minute and really understand what the fiduciary duties of a director are and work the interests of all the stakeholders into my decision process when I was in boardroom conversations.

The first and the biggest difference between the US and UK is when you look at how governance is approached in the United States, it tends to be, as I alluded to earlier, shareholder first. You have fiduciary duty as a director to the corporation, the shareholders, sometimes the creditors.

In the UK, it’s much broader. It’s more of a stakeholder-first approach where you’re looking at, not just the investors in the company, the shareholders, but also the employees, the suppliers, the customers and society as a whole.  The UK corporate governance code actually enshrines this in law and regulation where it is a very broad principles-based approach to governance as opposed to a very specific rules-based approach that you get in the United States.

It’s hard to say whether the UK is better or not better, but it seems to me if the law has codified the need to take into account all stakeholders. If the law has mandated certain kinds of diversity, gender and/or racial, I would say that is better. I don’t think it is just reflecting what your cultural background is. It would seem to me that that is better because it forces those companies to move in a direction that is likely to make them stronger, is likely to make them more responsive to their stakeholders – and that is a very good thing from a capital point of view at the end of the day

Employees Voice in UK

In the UK,  they have said that directors and boards of directors have an affirmative obligation to reach out to the employees and bring the employees’ voice into the boardroom, whether they nominate a director to be the workforce net designate or even bring employees on the board in some cases. The code says that either one of your directors needs to be explicitly designated as the director that interfaces with the workforce or, if you want to take another model, you can bring employees onto the board and bring the employee voice in in that way.

Compensation for UK companies

 Part of the corporate governance code required that directors of UK companies are paid a salary. There is no equity component to the compensation and that is in keeping with the independent maximum, that you’re not running the company for the benefit of the shareholders only.  There’s nothing stopping me as a director from purchasing shares, provided that you adhere to the relevant purchase windows. So, that’s a pretty big difference between US and UK boards.

Big Ideas/Thoughts

When I say: “every company’s a technology company,” what I mean is that over the last 20 years technology has become so pervasive as to how companies operate that even if you’re involved in a non-tech sector, you still need to integrate, rely on and be mindful of companies that have more of a tech-focused approach than your company.

Whether it’s brick or mortar retail, travel or leisure, or oil and gas, companies are now realizing that technology is integral to all parts of their business: how they measure the business, how they measure productivity, how their competitors are able to scale and acquire customers, how they are using HR to bring benefits to the companies – technology is a factor in virtually every facet of their business.

Transcript:

Joe Ayoub: [00:00:00] Hello and welcome to On Boards, a deep dive at what drives 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 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, as well as important issues that are facing boards, company leadership and stakeholders.

Raza Shaikh: Joe and I speak with a wide range of guests and talk about what makes a board successful or unsuccessful, what it takes to be an effective board member, what challenges boards are facing and how they’re assessing those challenges, and how to make your board one of the most valuable assets of your organization.

Joe Ayoub: Our guest today is Joe Hurd. Joe is the operating partner for [00:01:00] SOSV, a one-billion plus dollar global venture fund that provides seed venture and growth stage funding to startup companies in the technology sector.

Raza Shaikh: Joe is a long-time Silicon Valley investor in technology and has focused on digital transformation across content distribution, and brand advertising for two public companies.

Joe Ayoub: Joe is also a seasoned board member, including several public company boards in the UK, and very important: although he was born in the shadow of Yankee Stadium, he is a lifelong Red Sox fan. Joe, welcome. It’s great to have you join us today on On Boards.

Joe Hurd: It’s a pleasure to be here, Joe and Raza. Thank you for having me.

Joe Ayoub: Let’s start off with what you’re doing currently, because it has a real bearing on some of the things we want to talk about; your role as operating partner at SOSV. Talk a little bit about that and what you’re doing for them, and then we’ll take it [00:02:00] from there.

Joe Hurd: Sure, by all means. So as you noted, SOSV is a billion dollar early stage venture fund. We focus primarily in two main areas; life sciences and healthcare, and hardware and engineering, otherwise known as deep tech, and we tend to be the first institutional money in to investors that are starting companies to solve issues of human and planetary health. We want entrepreneurs that will make the world better.

We have over 1,100 companies in the portfolio. We’ve been around for 14 years with operations in China, the United States and Europe. My role as an operating partner is to work on an ongoing basis with six or eight of our top portfolio CEOs, and I tend to focus building on my 20 years of experience in digital media, on strategy, corporate development, business development, sales, and helping them penetrate the market.

Because these are early stage companies, oftentimes you’ll have CEOs that have good product market fit with [00:03:00] the company, and they’re now just trying to create and generate a pipeline of major corporates that want to partner with them. So, the firm, Shawna Sullivan and the rest of the general partners have brought me on board to really spend time in depth with our CEOs, and if I can help them generate a five hundred thousand dollar or a million dollar portfolio line of business or pipeline of business, we can have a materially-outsized impact in that company’s development, so it’s a pretty fascinating role.

Joe Ayoub: Sounds great. Could you just talk a minute about why it’s called deep tech? I know some of the listeners will know, but it will have a bearing on some of what we might want to talk about here.

Joe Hurd: So, deep tech is a phrase that’s come into vogue over the last three or four years, and the focus is on technology companies that really combine three things. The first is, for our purposes, hardware manufacturing, something tangible, something that you make, something that requires engineering and engineering skills along with software. And [00:04:00] most importantly, mission and purpose, these are companies that are solving problems that may not be clear for another 3, 5, 7, 10 years, whether you’re actually on the right path, but you’re starting to work on them now.

The classic deep tech example is the hyperloop by Elon Musk where he’s creating a tube that would go either over or under the ground to transport people at very fast speeds unlike anything that exists on Earth today, or all the space exploration projects that are going on right now. These are big gnarly problems that have an outsized impact on humanity that require hardware and software, but have mission and purpose at their core.

Joe Ayoub: So, one of the things we talked about is your first board seat, which came about in a somewhat unusual way. Could you tell us about how that took place?

Joe Hurd: Yeah, yeah, by all means. So, I had the good fortune to start my legal career. I trained as a lawyer and went to law school in Boston, but started my legal career in London, of all [00:05:00]places, with the UK global law firm called Linklaters, and I went there as one of the earliest American hires to help them build their US-based corporate securities practice.

I spent five years in London. I had the chance to really get to know the market and know the law. I qualified as a solicitor in the UK. My friends who know me know that London and all things England is an important part of my personal story.

So fast forward, 15, 20 years later, I’m in Silicon Valley and got a call out of the blue from a headhunting firm in the UK. There’s a company called GoCompare, which had just gone public, and they were looking to add some directors that had sort of Silicon Valley of technology experience to the board.

GoCompare was an insurance price comparison website that had a deep technology plate, classic two-sided marketplace business and they wanted people on the board that had digital tech transformation experience to help other management in its transition from private to public company. [00:06:00]

So, I was never planning on being a director. I never thought about being a director. I was 46, 47 years old at the time, but because of my London background and my current Silicon Valley expertise, I was on this recruiter’s radar screen, and I must say that Peter Wood and the team at GoCompare opened up an entirely new world to me, fascinating experience.

Joe Ayoub: Well, it’s interesting because you have, of course, very important, a Boston background, but you’ve been in Silicon valley for a long time, you spend time in London, you’ve been investing in tech for years, and so you’re able to bring all of that, including, in my view, the kind of investor mentality which is not typical in a public company.

So, it would seem to me that that would make you very valuable. How did that aspect of your background play as you sat on your first public company board?

Joe Hurd: It’s really a good question. So, the important thing that I had to learn moving from the [00:07:00] tech investor world to the public company director world in the UK, I know this is going to touch on a few areas that we might get into later in the conversation, when you’re a director of a UK public company, you need to think about all of the stakeholders of that company, not just the investors, but the employees, the suppliers, society as a whole. This isn’t trying to be corporate governance code, a duty on the directors to consider the company in toto.

That’s a lot different than being an investor where you are maximizing decisions for an investor return as a shareholder. I had to really take a step back and put my legal hat on for a minute and go back and really understand what the fiduciary duties of a director are and work the interests of all the stakeholders into my decision process when I was in boardroom conversations. It’s incredibly important.

Joe Ayoub: Yeah, different perspective.

Your background in technology though must have been extremely valuable to them. And one of the things you said when [00:08:00] we talked not long ago was every company is a technology company, which really did strike me as being right on the money. Could you talk about that a little bit?

Joe Hurd: When I say every company’s a technology company, what I mean is over the last 20 years or so, technology has become so pervasive in how companies operate that even if you’re involved in a non-tech sector, you still, as you go about your everyday business, need to integrate and rely on and be aware of and be mindful of companies that have more of a tech-focused approach can very quickly disintermediate.

So, whether you’re a recruitment company where it used to be the recruiters would search your company directories and go to conferences to look for potential candidates to recruit and place, now all of that is online. There are platforms like LinkedIn that can dramatically accelerate your ability to do business.

If you’re not familiar [00:09:00] with, A, how to leverage those platforms through partnerships where you leverage those technology platforms, big partnerships or B, if you’re not keeping an eye on other upstart companies that have technology more at the fore of what they’re doing, you can very quickly find yourself on the back foot and potentially disintermediated.

So, a lot of the interesting conversations I have are with directors and operators at companies that historically have been, whether it’s brick or mortar retail, or travel or leisure, or oil and gas that are now quickly realizing technologies, integrating all parts of their business; how they measure the business, how they measure productivity, how their competitors are able to scale and acquire customers, and how they are using HR to bring benefits to the companies, technology is an every individual facet of these businesses.

Raza Shaikh: Joe, well said, and McDonald’s is a software company and so is FedEx in some ways and technology is [00:10:00] impacting everything.

Joe Hurd: Yeah, that’s right. McDonald’s is a data company, what and how much, what are the trends. By all means, that’s exactly right.

Joe Ayoub: Do you think it’s essential that boards have people with tech backgrounds as board members, people that can actually identify the kind of risk that falling behind in technology might raise?

Joe Hurd: I guess this is going to come across as quite self-serving, but yes I do. We all know that diverse boards and diverse groups make better decisions, and when you take a look at a board and you look at sort of the skills matrix on a board, I think every company should have someone that has digital transformation or technology transformation or information security/cybersecurity, some sort of tech background on the board, much like you need people that have CEO leadership experience or financial experience or HR experience or sales experience, what have you.

I think it’s an incredibly valuable skillset to have in the boardroom, but you have to walk a real fine line, because I think as with any director that [00:11:00] has a particularly relevant skillset, I think it’s just good corporate governance for all of the directors to lean in and be part of the conversation and not overly defer to the quote unquote, “digital director” to carry the conversation. I don’t think that’s good for the director or good for the company

Joe Ayoub: No, I think that’s true, but I think what you said earlier, when you’re creating the skills matrix for a board, if you looked at it 15 years ago, you’d see three or four really important items; CEO, maybe C-suite, maybe CFO, couple of other things, but it was pretty limited. I think in the new world, it is much broader, and boards that don’t have the kind of, we say, diversity of perspective, and that covers a lot of ground, but tech is definitely part of that.

Obviously, it includes diversity of various kinds – gender diversity, it includes racial diversity, but it definitely includes areas that companies might not have traditionally [00:12:00] considered as part of their board, but you guys were just talking about McDonald’s you would not think of necessarily as a quote, “tech company,” and yet technology is driving so much of what they do that without that on their board, they would really be missing something that is undoubtedly critical to their future.

Joe Hurd: I couldn’t agree with you more. And I think what bringing technology into the boardroom also does is because many of the employees that have these skillsets may not necessarily be C-level employees. They may be younger, they may be more geographically, gender, racially diverse.

And again, going back to my earlier point, getting all of those different perspectives in the boardroom I think is an incredibly important thing in this day and age when technology and the competitive landscape is changing so quickly. For example, who would have thought 18 to 24 months ago that supply chain would have risen to the fore as being such an important issue for boards to consider with the onset of the pandemic and coronavirus, or [00:13:00] procurement in the wake of everything we’re seeing with the pandemic and Black Lives Matter and the focus on corporate diversity. All of those backgrounds are relevant to the boardroom now, I think.

Joe Ayoub: Yeah. The last two years raised a lot of issues about what boards really need in order to update the skill matrix of their board of directors. No question about that.

Raza Shaikh: Joe, as a Silicon Valley guy, you ended up on a board for a UK company. So, you have a really good perspective on both sides of the pond, if you will. What are some of the differences of governance and perspective from both sides of that? Maybe we can start with that and dive a little bit more into it.

Joe Hurd: Sure. I’d be happy to. There are some pretty important nuances and differences in perspective when you are a director of a UK public company as opposed to on a US public company board. And I think the [00:14:00] first and the biggest is when you look at how governance is approached in the United States, it tends to be, as I alluded to earlier, shareholder first. You have fiduciary duty as a director to the corporation, the shareholders, sometimes the creditors.

In the UK, it’s much broader. It’s more of a stakeholder-first approach where you’re looking at, not just the investors in the company, the shareholders, but also the employees, the suppliers, the customers and society as a whole. The UK corporate governance code, actually enshrines this in law and regulation where it is a very broad principles-based approach to governance as opposed to a very specific rules-based approach that you get in the United States.

Raza Shaikh: That is different. Here in the United States with the Business Roundtable’s statement of corporate purpose and many other things, the needle is trying to move a little in that direction.

Joe Hurd: That is true.

Raza Shaikh: But legally, it still is the shareholder primacy that’s required [00:15:00] from the board.

Joe Ayoub: I was just going to ask, how far advanced do you think governance in the UK is on company boards in terms of recognizing the importance of all stakeholders versus the United States? So, there’s a stake in the ground, it started to move, but are we a decade behind? I mean, I don’t know if you can put it in terms of years, but how far advanced is the UK, since it’s incorporated in their statute or in their laws, I should say.

Joe Hurd: I think you hit the nail on the head. The linchpin is the current state of the law, both as passed by Congress and as derived through the courts. It’d be very difficult to put a timeframe on it, but what I will say is a lot of the advances that you’ve seen, Raza, you mentioned Larry Fink and the BlackRock letter and all the conversations around ESG and all the debate that we’re having now around bringing employees’ voices into the boardroom. That’s already been codified in statute in the UK.

How long would it take for that to [00:16:00] happen in the United States? Oh, that that’s a couple of years, at least, and I wouldn’t necessarily say it’s better or worse because you have to have laws that reflect each country’s individual culture and approach to doing business, but what is interesting to see is serving on a UK corporate board where we are now having conversations around what are the financial metrics going to be to apply across all companies to account for climate change and the impact of climate change, the TCFD disclosure regime?

I don’t know if we’re there in the US on that level. In the UK, they have already said that directors and boards of directors have an affirmative obligation to reach out to the employees and bring the employees’ voice into the boardroom, whether they nominate a director to be the workforce net designate or even bring employees on the board in some, cases. I don’t know if we’re having those specific conversations in the US at that level of law and statute.

Raza Shaikh: Some ways to go. What would be other differences that [00:17:00] you can highlight?

Joe Hurd: There has been in the UK for the last two-plus years an important conversation around racial diversity on boards. It’s called the Parker Review. Racial diversity in the UK is slightly different than how racial diversity is defined in the US just owing to the historical patterns of immigration in the UK versus the US.

But the Parker Review has gone through the FTSE 100 companies, and then even below to the FTSE 250, and they’ve sent the precept that by the end of 2021, there should be at least one ethically-diverse member on UK company boards, and that’s become a maxim and those companies that do not have an ethically-diverse member will have to explain or comply and factor that in. And that’s completely in keeping with the leadership on gender diversity five, seven years ago that the UK and other European boards took, so I think that’s one interesting development.

The US is also having conversations about diversity in boards, and whether it’s Goldman [00:18:00]Sachs or NASDAQ, or again, Larry Fink of BlackRock pushing US companies to be more diverse, but having that commitment across publicly-listed companies in the UK with a time period and then explain why it’s not happening, that I think is a pretty interesting development, pretty forward-thinking

Joe Ayoub: It’s hard to say better or not better. You said that earlier, but I’m going to put this out there that it seems to me if the law has codified the need to take into account all stakeholders. If the law has mandated certain kinds of diversity, gender and/or racial, I would say that is better. I don’t think it is just reflecting what your cultural background is. It would seem to me that that is better because it makes those companies, it forces those companies to move in a direction that is likely to make them stronger, is likely to make them more responsive to their stakeholders, and that is actually a [00:19:00]good thing from a capital point of view at the end of the day.

Am I going too far with that do you think?

Joe Hurd: No, listen, I think, no one will think you’re going too far. I think it is certainly a valid thing to debate and discuss. Another way of looking at it is the world has changed since a hundred years ago when a lot of these laws were written. Society has changed, the nature of who is in leadership and who is able to be influential in society has changed, and one would only expect that those societal changes would have a knock-on effect.

At some point, the law will catch up to society. I think we’re in the midst of all of those conversations now. Diversity is just one proxy, but there are others as well, whether it’s gender or sexual orientation, or even socioeconomic diversity, people are having those conversations, so what it means to bring people with varied backgrounds and skillsets into the boardroom. Those are good, healthy conversations to have. It doesn’t mean that any one approach is right or wrong, but let’s debate it and thrash it out and [00:20:00] eventually we’ll get to the right place as a society. That’s the hope.

Raza Shaikh: What about on the compensation side, especially for independent directors?

Joe Hurd: Yeah. It is really interesting again for UK companies, and again, this is part of the corporate governance code, directors of UK companies are paid a salary. You’re paid and compensated in cash. There is no equity component to the compensation and that is in keeping with the independent maximum, that you’re not running the company for the benefit of the shareholders only, and there’s nothing stopping me as a director from purchasing shares, provided that you adhere to the relevant purchase windows.

But I’m doing that on my own account and by my own volition, there’s no shareholder requirement to be on a board, and as I said earlier, you can’t be compensated with shares. So, that’s a pretty big difference between US and UK boards.

Raza Shaikh: It does make the independence part like much more serious. Does that play out as intended, that the directors in UK are more objectively [00:21:00] independent and building companies for that?

Joe Hurd: Yeah. I don’t know if I’d be able to answer that because I don’t know what the data is that you would look at to determine whether directors who are compensated in salary truly make more quote, unquote “independent decisions,” but what I will say is that if you are trying to adopt a stakeholder-first approach and at least hold up to the public that the directors are acting on behalf of all of these stakeholders in the company, then, yes, removing the stock-based compensation probably is one step in that direction, if that is your goal.

And that also, by the way, it’s not just for directors, but it’s also for operating executives. Another thing that I had to get used to as you look at executive compensation, and I saw this as I served on the remuneration compensation committee on the boards, the executives can be compensated with stock, but when they leave a company, there is a mandated, you need to hold onto those shares for [00:22:00]three to X number of years after you leave the company. You can’t just leave the company, sell your shares, take your money and go buy a house somewhere.

And that again, I think comes to just differences in culture that the UK society has towards executive compensation and US society has towards executive compensation, but there are those sort of structures built into the compensation philosophy for highly-compensated executives that does take some getting used to if you’re coming from the US.

Joe Ayoub: Yeah, it seems to me though, between the rules that apply to executives to hold their stock and the rules that apply to board members who can’t take equity as compensation for serving on a board, that those two things combined really change, if nothing else, the optics of what goes on at a board, that the board and its executives aren’t in some way colluding or even if it’s not intentional, moving in a direction that [00:23:00] will benefit them, maybe more than outsiders, so that they’re doing something to the company the last 90 days, the last year, whatever it might be, that will absolutely have an impact on their pocketbooks, but may not be good for the public at large and it would seem to me that particularly if you’re serving on a public company board, that isn’t a good thing.

It is not a good thing for non- insiders to feel like the insiders have a certain control over what might happen to their detriment. Now, we’ve seen lots of cases where it has been really abused , and I’ll just talk about WeWork. We’ve talked about this a few times, what that board put up with and that CEO for so long had to be at least in part driven by the fact that their stake in the company was increasing astronomically and they probably changed their approach, the people in that board, some of them were very experienced, but it feels [00:24:00] like they changed their approach in catering to the CEO because they didn’t want to mess up the IPO and the numbers they were talking about for that IPO before everything fell apart, it was a stunning number.

So, it’s hard to believe it doesn’t change how board members operate, it doesn’t change how senior members of the management team operate, and is that really okay? I mean, isn’t what the UK is doing, doesn’t that make more sense?

Joe Hurd: So, I would argue there’s probably a big difference between a privately-held company, which is the WeWork example or Uber or any of the venture-backed companies that exist in Boston, in Silicon Valley, and elsewhere, and a publicly-traded company.

 If you want to compare apples to apples, publicly-traded UK to publicly-traded US, I could make just as good an argument that the US model is plenty effective in whether it’s the whistleblower statutes from the SEC or the insider trading laws that for [00:25:00] the US model and US culture and US society, they’ve got a legal regime that, by and large, works, by and large right.

But I don’t know if I could, if I would get into the WeWork example where you have a set of rules that don’t necessarily apply to the same degree as they would for a publicly-traded company, and look at that as being a like for like comparison.

Joe Ayoub: Well, I would say two things. One is you’re right. It’s public versus private, but it does highlight board member activity and how they’re likely to behave under certain circumstances. So, that is an extreme example there’s no question. And the amount of money that was, if you will, lost during that time is hard to say.

But if you want to look at public companies, let’s look at Boeing. Let’s look at what the Boeing board did or did not do for a long time and the litigation that’s going on with them. It doesn’t feel like they were paying as much attention to what they needed to [00:26:00] be paying attention to for a period of time that was pretty significant.

Joe Hurd: Yeah. So maybe the fix is for, and this would apply to private companies and public companies alike, the examples that you just mentioned are perfect examples of why you want to have diversity on the board where for privately-held companies and the board is comprised entirely of investors in that company, maybe the fix is bringing independent directors into those companies at the earlier stage and in sufficiently high enough numbers where they can bring those diverse thoughts, not be completely tied to the share price and keeping the CEO happy and have a really robust debate in the boardroom about the actions that the company is taking.

You can make a very cogent argument that when you’re an investor in a company and particularly working in venture fund and your ability to get into the next deal is based upon your reputation on working on the car deal, ” go along to get along” is probably not the phrase that I would use, but it probably wouldn’t be [00:27:00] too far off. You want to be founder friendly and obviously that can go to an extreme.

And I think WeWork was extreme, just like Uber was extreme, but if you want to create a system where you’re bringing more and varied and diverse voices into the boardroom at an earlier stage in the company and therefore open up more opportunities for people who want to serve on boards, private boards, public boards, what have you, maybe you do think about bringing independent CEO into a board earlier on and don’t make it just one because one person will get outvoted all the time, but you make it two or three, some sufficiently high number, where those voices can have an impact.

Joe Ayoub: Raza, what do you think?

Raza Shaikh: Yeah, but in the end, the incentives and alignment of incentives matters, and I think we’re all trying to figure out a best system that works for us. It’s not perfect, but I think it gets there.

Joe Hurd: Yeah, you’re right. And like I said, I think that the challenge and the opportunity is to at least put these issues on the table and have conversations like this on podcasts like this and other [00:28:00] forums where people can weigh in collectively, then we all get to a better place. I don’t know if we were having these conversations five or ten years ago. I don’t know.

Joe Ayoub: I think that might be true. I think the conversations are happening, but I also do think that the way that US companies, both public and private, look at their boards is in fact changing. It’s slow to change and that’s okay, but it is changing. And what you said about investor-backed boards, we’ve heard from several people who really focus on investor-backed boards, and the idea of bringing in a couple of independents, really it’s part of what we’re saying. It’s part of diversity of perspective.

It can’t be bad to have someone who’s thinking from a different perspective and knows the company and understands the company and understands the finances, et cetera, to be part of that conversation because you’re bound to miss something if you have people all who are in the same boat together. It just can’t be as strong. You can’t have five centers on a basketball team. Even though they’re all [00:29:00] very talented people, you really got to mix it up.

Joe Hurd: Ursula Burns, and I don’t have the article in front of me so the stats aren’t exactly at my fingertips, but Ursula Burns, the former CEO of Xerox, issued a study in August or September where she took a look at 18 of the top private equity funds and the companies they had invested in over the last 15 years or so. And I believe the number was 800 companies and of those 800 companies, there were 4,000 or so board members, and of those 4,000 board members, 1% of them were Black. And these are privately-held companies by the top private equity companies in the United States.

And granted, we’re only talking about African-American directors, but if you then extrapolate that to women and people from other races, this gets to your diversity point. These boards are not that diverse. And when you have, which is like your five centers analogy, you have to query really how much new and original and groundbreaking thought [00:30:00] is going on when everyone’s coming from a similar background and motivated by similar economic interests.

Joe Ayoub: Yeah. I think so. Did we talk about a director as an employee designee? Did you mention that?

Joe Hurd: Yeah. So, the director’s employee designee, that’s the workforce net. So, when you go back to the UK corporate governance code, you need to bring in the employee voice, that code says that either one of your directors needs to be explicitly designated as the director that interfaces with the workforce or, if you want to take another model, you can bring employees onto the board and bring the employee voice in in that way.

The reason why I highlight that is there is no explicit obligation on directors in the United States to be accountable or take into account employee thoughts. If anything, it’s something that may be actively discouraged. That’s what’s meant with management as opposed to governance being a director.

Joe Ayoub: And from your observation, how did that play out?

Joe Hurd: So, I’ve now been on three UK boards; GoCompare, Trustpilot and Hays, which we just [00:31:00] announced ten days ago. All three of those boards have a director who is nominated as the workforce net, the workforce non-executive director.

So, some companies will pay an additional stipend for taking on the work. Others have it built into the overall director’s fee. But in all cases those companies has said to their employees, “This is the director who’s been nominated as the workforce net.” And what I’ve seen play out for me as a net is I often will go to brown bag lunches with the employees or go to site visits and make myself available to the employees, because I think it’s important, one, for me to get better understanding of the company and the culture, but I think also, particularly as a black director, it’s important for the employees to see me and be able to interact with me and know that I exist.

I think that just makes for better input from me in the boardroom, but I think it also getting to culture makes the employees feel, hopefully they feel a connection with me as a director that this is their company too and I’ve got as much of a vested interest in their wellbeing and they are [00:32:00]important as employees as they do.

Raza Shaikh: Despite the compensation differences and limits on those, would you still be recommending that people take UK board seats?

Joe Hurd: Hands down, hands down. To emphasize once again the need for diverse perspectives in the boardroom, it’s incredibly important. I think having the opportunity to work internationally and have that international perspective, that global perspective is important for any company.

 If all companies are technology companies, all companies are global companies as well almost from the very beginning, just given the internet and platforms and the fact that competition is coming from all quarters.

So, having that global perspective is incredibly important, and then as ESG becomes more and more important and climate change becomes more and more important to affecting decisions made in the boardroom, I do think that Continental European companies, UK companies have a slightly different [00:33:00] approach to how they are accounting for and governing for and legislating around all of these issues.

So, for an American who wants to get early exposure or earlier exposure to these issues, which are eventually going to make their way across the pond, I think serving on a UK board is incredibly helpful and rewarding.

The other thing I would point out is, and I don’t know how long this is going to last, but I’m certainly seeing it now, people are much more comfortable. Boards are much more comfortable now meeting virtually as opposed to meeting in person. So, most UK boards will meet anywhere from six to nine times a year, which is much more frequent than many US boards, although privately-held companies sometimes meet monthly in the US. But for the six to nine meetings in a year, you’ll now see we’re going to meet in-person four times and virtually five times, and that type of a meeting cadence, I think, is a lot easier for US-based directors than it may have been three, four years ago when the expectation was that every six weeks you’d be in the UK attending a [00:34:00] meeting in person.

Joe Ayoub: Yeah, I think the advent of some virtual board meetings, because I think there’ll be a mix going forward, is going to help a lot of boards, because even in US companies, you can be far more geographically diverse a lot easier of your four or five meetings, two or three are virtual because you’re not really asking someone from California to come over, to come to Boston for five, whatever meetings a year. I think that gives companies a broader reach in the pool from which they can draw their board members.

Joe Hurd: I completely agree. Although I will say virtual is not a panacea, I still think that there’s no substitute for being in the room together and forging that personal relationship. And more importantly, having a pull aside and being able to take someone by the elbow and really understand their point of view and where they’re coming from, that you may not be able to do when you’re six or nine boxes Brady-bunch style on the screen.

Joe Ayoub: Yeah, there’s got to be a mix and it’s got to work for whatever the group is, and we’re all going to have to figure that out one [00:35:00] case at a time.

Joe Hurd: Exactly.

Joe Ayoub: Joe, it’s been great speaking with you today. Thanks for joining us.

Joe Hurd: Joe and Raza, thank you very much for the opportunity. One person’s view as always, but I really appreciated sharing my thoughts and observations with you and your audience.

Joe Ayoub: And thank you all for listening to On Boards with our special guest, Joe Hurd. To our listeners, we have a request. If you enjoy our podcast, please take a moment to review and rate it on Apple iTunes. It really helps others find and discover this podcast.

Raza Shaikh: Also the easiest way is to go to our website, onboardspodcast.com. That’s onboardspodcast.com. All episodes are available. And if you have questions, comments, or suggestions for us, please, we would love to hear from you. You can do it right on the website.

Joe Ayoub: Please stay safe and take care of yourselves, your families and your communities as best you can. And Raza, you take care, too.

Raza Shaikh: Joe, thank you. You as well.

Joe Ayoub: Take care. Bye bye.[00:36:00]

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