Transcript of the Episode:

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

Hey Raza.

Raza: [00:00:10] Hi Joe, happy to be here with you co-hosting.

Joe: [00:00:13] Good to be with you.

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

Raza: [00:00:34] Joe and I speak with a wide range of guests and we talk about what makes great boards great, what makes a board unsuccessful, how to be a good board member, and how to make your board one of the most valuable assets of your company.

Joe: [00:00:52] Our guest today comes with a wide range of board experience, including both public and private companies as well as US and European board experience.

Raza: [00:01:01] She is also a highly regarded international lawyer, senior corporate executive and global business strategist at companies in different sectors of technology and life science industries.

Joe: [00:01:15] We’re very excited to have Yvonne Schlaeppi as our guest today. Welcome, Yvonne. It’s good to have you with us  on On Boards.

Yvonne: [00:01:23] Thanks, and it’s pleasure to be here with both of you.

Joe: [00:01:26] Can you tell us a little bit about, what you’re doing these days in terms of your board activity.

Yvonne: [00:01:32] So I’ve been in the last five years serving on boards, both in the US and in Europe. I’ve just come off a number of years of serving on a UK pharma board with principal manufacturing operations in France and the United States, which sells globally. I’m serving on a NASDAQ board where I’m nom gov nominating and governance committee chair. It’s an industrial company. I’m also on an advisory board at the Brigham and Women’s Hospital, which is big research hospital in Boston.

Alongside that I have a strategic and international transaction advisory firm with a couple of partners based outside Boston, and we advise life sciences companies and companies in the security credentialing space.

Joe: [00:02:16] What’s the name of the company?

Yvonne: [00:02:18] Strativise.

Joe: [00:02:19] Great. And how do you divide your time?

Yvonne: [00:02:21] Well, as my board work has evolved over the last five, six years, I’ve been spending more and more of my time on board work. So sometimes it’s about 50%, board work.

Joe: [00:02:34] I know one of the things we’ve talked about is that you’ve had experience on both US  and European boards. What are some of the differences between the two?

Yvonne: [00:02:44] Well, unsurprisingly, in OECD member countries my experience is that one can feel quite at home with the goals and objectives of boards of directors wherever they’re located. So there’s an enormous commonality, especially over the last few decades, and with the more modern corporate governance codes that have been adopted and rules that have been adopted, you will see this bourn out.

Of course, there are differences. So one example I happen to learn about in the UK is that the duty of care there, as it’s interpreted, can take into account an individual board member’s, prior profession or their background. So I having been a general counsel of companies, both headquartered in the US and also headquartered in Europe  would have ascribed to me in the UK a knowledge base that might be higher as to, let’s say, take over rules or M&A policy in general or shareholder rights than another board member on the very same board, who did not share that background.

Joe: [00:03:55] How does that, in practical terms, , how does that play out?

Yvonne: [00:03:59] Well, in practical terms, I only discovered this particular, UK rule and interpretation under the English Companies Act because the board that I was on was involved in a very heavy duty international transaction and going private, in fact of a UK, stock that was listed on Eurnext Paris UK company.

And our lawyers advised us of this and I quizzed them a bit about the meaning of this particular rule, but in practical effect, it had no impact. We took,  all of us, our responsibilities on the special committee of independent directors extremely seriously and acted with, you know, more than  scrupulous care.

Joe: [00:04:44] So it really had no impact?

Yvonne: [00:04:46] Well, it was good to know that in fact, a higher standard might apply to me than my colleagues, but it didn’t, in practical terms, make me do anything in addition to what I would, otherwise, Joe have done

Raza: [00:05:01] So Yvonne, the UK versus  US boards, I presume they meet a little more frequently. Is that more effective for boards?

Yvonne: [00:05:09] It has been my experience that FTSE 250 and FTSE 100 companies do tend to have more frequent scheduled board meetings, who knows whether they meet more frequently in terms of actual meetings that they hold during a year when a great deal is happening for the company.

But you’ll often see a UK company board scheduled to meet eight times or perhaps even more a year. And, again, in my experience, these boards will want to have their directors present physically.

Do I think that makes the board more effective?  In general  I do believe that being more present and involved and learning more about the company and what it’s going through makes for a more effective board than, then less frequent meetings.

Raza: [00:05:57] Let me pick up on what you said about physical presence. Would you say that, remotely attending board meetings is  similarly less effective . What would you say to this technology trend going on where people are either not attending, or, you know, just calling in?

Yvonne: [00:06:13] Well, it’s always in my experience, easier to be present when one is physically present. It’s also easier for the others who are physically present with one another to allow space for, their colleagues on the board to speak and share and question when you’re all in one room, but obviously it is wonderful to be able to use  video links and I’ve used them many times.

Joe: [00:06:37] Yeah. I have to say I don’t find them effective. Is it better to have someone there by video than not at all? Sure. But in terms of the dynamics of a board meeting, having one or two members that are , on video, trying to chime in during the discussion. I’ve rarely seen that really effective. I don’t know. Have you seen it?

Yvonne: [00:06:58] Well, I would say it’s not seamless.  I think it’s almost harder for the people who are together physically to remember that one or two of their colleagues are in two other cities and on two other screens, split screens in the conference room than it is for the person who’s actually attending by video because at least you’re, fully listening to everything, but you have to interject when you choose to, and that can be a little bit difficult.

But of course, if you’re handling a transaction or an urgency or something that has just come up,  some times you cannot get on that plane and just hop over to wherever the Board meeting is being held so it can be invaluable.

Joe: [00:07:37] But I think that should be the exception as you just suggested, because I think, first of all, I agree for the people in the room, it can be a little disorienting to have the voice from, you know, the ceiling suddenly interject.

But beyond that, I think that presence at the meeting means you’re more. “present” if you will.  Because , I’ve been on the phone or I’ve been on a video and if something goes on for a long time, it is hard to be as focused while you’re listening in or even if it’s by video than it is if you’re sitting in the room and the other board members are sitting around you.

Yvonne: [00:08:14] I would agree with that Joe, absolutely.

Raza: [00:08:17] Yvonne similarly what would you say are the differences between US boards and non-UK European boards?

Yvonne: [00:08:27] Well, one   difference that we tend at times to overlook in the US is that in many countries you either must or you can have a dual tier board. So  in that terminology or dichotomy, we in the US and in the UK have so-called unitary boards.

We have a board of directors, obviously, and we have the management team, including the CEO and the CEO sits on the board.

In a dual tier or two tier structure such as the German AG, for example, joint stock company, the larger German corporates that you will see listed on the exchange on the DAX, they have a two -tier board. They have a supervisory board and a management board.

A lot of countries have two-tier boards. The supervisory board sits at a somewhat at a remove., that’s the theory from the management team or the management board and the CEO is not  A member of the supervisory board.

Joe: [00:09:28] What is the impact of that? Does it in any way help or hurt or make it better . How does it affect the underlying board, the board  on which the CEO sits?

Yvonne: [00:09:39] Well, the management board I’m speaking now about Germany. The management board is in fact the senior executive committee or however particular companies may term it.  It is the management team and how does it impact that the CEO is not a member of the supervisory board, the upper board as just one attribute, of the supervisory board. That’s a little bit more difficult to predict. And the reason I say that is that in practice, many companies have the CEO attend supervisory board meetings, but again, to, to draw a practical contrast, think about our US board practice. Current practice is that at the end of every committee meeting, and at the end of every board meeting, you have an executive session from which the management. members, including the CEO, are excused.

So again, I would say there is a definite difference between having a supervisory board and a management board versus a unitary board. But in respect of one attribute, which is the non-membership of the CEO on the supervisory board  it can be a difference that is not as distinctive in practice as what you would suspect when you first read about a dual tier board practice.

Joe: [00:11:01] So what have you observed about the two board system, where it exists, in terms of impact that is different than the unitary board that we have here.

Yvonne: [00:11:12] There are huge differences, notwithstanding what I’ve just said.

So for example, in Germany, you, if you have, if you qualify for the co-determination act. then you will have employee representatives on your public company board. So, for example, a company like, Daimler, or,  Deuche will have half of its board members who are so-called shareholder representatives, as we would  imagine board members to be and half who are employee representatives or even more particularly union representatives. That that brings with it enormous differences, as you can imagine. but confidentiality rules apply to those employee representative board members, supervisory board members as well and they’re obliged to preserve the confidentiality of what is discussed in the board room.

Joe: [00:12:06] Have you observed that it has made a positive difference having a different makeup on the board?

Yvonne: [00:12:12] Absolutely. I mean, you will, you will see the whole current discussion that we’re having in the States, about stakeholder rights, that is an accepted part of the German system, that’s a part of the German corporate governance code. It’s also part of the corporate governance code in the Netherlands, for example. In other words, that the board is also in the company is to work towards the end of, representing the interests of stakeholders of the company as well as the company’s shareholders.

And that does have an impact.

Joe: [00:12:46] You know, that is interesting because my observation, and I’m curious what you each think, is that the idea that boards should be responsible for more than just the shareholders, but rather all of the stakeholders, I think  has really taken hold in this country.

And I’ve heard much more about that, in the last couple of years than I had in the past.

Yvonne: [00:13:08] I don’t think it’s a new idea though. It’s not even a new idea in the US I mean my, I have spent limited time reading my way back into corporate history in the US but if we went back to the 1890s or the 1910s I think we would see these concepts floating around in the US as well.

Raza: [00:13:24] But Joe, now, recently I have observed that many of the startups, even from day zero, incorporate as a benefits corporation to include in their charter that, they will take care of, not only the shareholders, but the stakeholders. So this is definitely taking a resurgence as well. Even even if it had been forgotten. And there had been a time where it was all about only the shareholder.

Joe: [00:13:49] In your view, does the two board system offer advantages that you think we should consider here? Not that it would ever happen, but I’m curious if you think it would be beneficial here .

Yvonne: [00:14:00] If I may, I might almost approach that question a little bit differently and say that I, I think there are aspects of corporate governance in countries other than the United States in our competitor colleague countries which we would do well to look at and consider bringing into US corporate governance practice.  For example, building out committees. Asking the question, do you have as, as we do in the US as well, but asking the question, do we have enough people on a board to handle the pace of work given what the company is going through today?

And we expect it to go through in another three years? So perhaps allowing oneself more flexibility as to numbers of directors for a given period of the corporation’s life, where there’s an extremely intensive  board focus. That would be one example I think we’re a certain freedom we could allow ourselves as opposed to feeling, Oh, we’ve only ever had seven directors, so we should not consider having more.

But now all of a sudden we have a risk committee and you know, a transaction committee and who knows what else and crisis committee for some sort of crisis.

Joe: [00:15:09] It makes a lot of sense to me. What other types of things do you think we might consider from our European brothers and sisters?

Yvonne: [00:15:16] Well, I think all of us, all of us should be focusing more extensively than we in practice often do on strategy, on corporate strategy. And that,  we could borrow some ideas from, again, colleague country’s corporate governance practices in that regard, but everyone has, in my experience, everyone has that same difficulty. having a supervisory board, seeing oneself in a pure oversight role perhaps helps a little bit more, to focus the supervisory board’s attention on their role in, overseeing and querying corporate strategy.

Joe: [00:15:56] I agree that, boards in this country  are by and large, not as focused on strategy as I think they should be at board meetings. I think often they do get stuck in the weeds, so to speak, and their highest and best use is usually strategy, looking down the road three, five years or whatever it may be.

Are there other things we can learn from, what our European colleagues are doing.

Yvonne: [00:16:20] I’m sure there are many, but maybe I’ll just leave it with that. I just bear in mind that a larger corporates  on the continent often have large boards, maybe as largest as 20 persons, and that can bring its own challenges with it.  But again, at times I would submit, could also bring some advantages in terms of dividing up workflow.

Joe: [00:16:41] Well, 20 is a, that’s a pretty, yeah, that’s pretty big board.

Yvonne: [00:16:45] That’s a lot of people. But if you take a look at at a Daimler at a Deutsche, and they have a lot of board members on the supervisory board.

Joe: [00:16:53] We talked, earlier, about, instances in which you’ve been involved in actually helping to construct a board, can you tell us a little bit about that?

Yvonne: [00:17:02] . Sure. I joined a board a couple of years ago that, is an established public company. albeit smaller and a member of the Russell 2000. And, the board chair had unfortunately died, just shortly the year before I joined. And the board had taken the understandable decision to take a pause before it appointed a new chair. But that board and that company for many years had been very stable. the business had been very stable and growth had been reasonable from year to year. Some of what that led to, I believe in board functioning is a, also a stability in board membership.

And when it came time through this disruption, as well as some aggravated if you will, growth, intentional, aggravated growth to sort of disrupt the board a bit and bring on new blood, I came on board and another colleague came on board and eventually I became  nominating and governance chair and we started to think about that board as a board that also wanted to look at its own governance, which it hadn’t really taken time to do before. They’d had a nominating committee, which served more purely as a nominating committee as the name would imply.

So what was important there, I thought, was to try to develop some consensus among the board members about what skill sets we had on the board and what skill sets we might wish to identify.

Joe: [00:18:31] So don’t you think that is the charge of a nom gov committee in any event – that is looking at the board, always looking at the board and always thinking about. What is the board? What is the company doing? What it’s plan looks for in the future, and do we have the skills and expertise to really drive that plan?

Yvonne: [00:18:50] In my view, absolutely. It wasn’t a fully built out governance function, at least that’s my understanding, in the years, previous to my joining. So that became an exciting opportunity.

It helped me to get to know my fellow board members because we had quite a number of conversations where they expressed their views of board roles, board contributions, their own contributions, and those of prior members.

Raza: [00:19:19] And how did the process go? Did you then end up doing soul searching or…

Yvonne: [00:19:25] I just did conventional things.

. Nothing revolutionary. So I engaged in purposeful conversations with each board member, with the CEO, with the CFO, with general counsel outside counsel, and then came up with a board matrix based on that. And then had that discussed and slowly refined, not only what skillsets we believe we have on the board in terms of everyone’s own self evaluation,  but also what we believed we needed for the next three to five years. And then ultimately we conducted on the nom gov committee, as newly constituted,  we had a new board charter, a new committee charter, excuse me. And we conducted a board search and brought on, what has proven to be a very successful new board member.

Joe: [00:20:09] Well, I love that process that you went through. It’s unfortunate that more nom gov committees don’t do that because I think that really keeps a board live and vibrant,  so it must be that management was totally open to this process .

Yvonne: [00:20:24] Pretty much everyone welcomed the opportunity to talk about how the board had functioned and how it might, beneficially for the company function slightly differently in the future. I’m not saying it wasn’t a successful board. I believe it was, but I believe people were – my experience was they were receptive to having these conversations.

Joe: [00:20:46] Did you end up asking folks that had been on the board to offboard, and if so, how did that process go?

Yvonne: [00:20:54] We had two gentlemen who stepped off the board as I was joining, so I wasn’t involved in those  conversations. so no, we’ve not in my time asked anyone to step off the board. And I think we’ve been successful in developing cohesion, but also really getting to know, which I think is the exciting part, getting to know what the difference in contributions that we each can make given our, our different backgrounds.

I’ve been very impressed by my fellow board members.

Joe: [00:21:23] That’s fantastic. Really is. And, how did you, how did you, make the decision about. , who the new chair should be.

Yvonne: [00:21:30] So we’ve done some interim work and we’ve appointed a lead independent instead of a new chair and, and perhaps we’ll have a new chair as well, but we’re taking it step by step.

And we had some very good conversations on the committee and in the board as a whole about why we might want to choose to go that route first. And those conversations, I believe were also very helpful actually, because we now have a group idea and consensus on what contributions we’d like the lead independent to make.

Joe: [00:22:04] So have you been involved, you know, we like to talk here about when boards really do a great job, but, you know, Raza and I have talked about the fact that sometimes you can learn more about a board that maybe doesn’t do a great job at all because you know, we all can learn from, maybe we’re a board doesn’t step up where it needed to and I’m curious if there are any situations that you’ve been involved with when maybe the board could have done something better, if you’re willing to share that with us.

Yvonne: [00:22:31] There is in my career, a case where I had an inside view of a board I wasn’t actually serving on, but which I ended up attending special committee meetings of, and ultimately had a  fair amount of insight in into, and this was a global 500. Company board, with absolutely excellent people. The CEO, it was his first CEO ship,  someone  who had been in politics in that country and highly experienced, again, very sophisticated person. But he was leading a company , that covered three different industries, and the risk profile of these three industries were quite distinctive.

So there was one particular parcel or industry segment that was at a much higher risk profile than the other two, and the company was contemplating a transaction in that particular industry. We ran into one of the behemoths in that space globally, in an adversarial way. And my view is that sort of spooked the CEO, I don’t think he was quite used to having to face off in that way.

In any case, ultimately, we successfully navigated, against our opposite or a competitor. But, a year or so later, the company took an abrupt exit from that industry sector in a way that hadn’t been planned, or hadn’t, hadn’t been forecast as the means  the strategic means of exiting that sector.

And I,  believe there, there was an extra board meeting called, there were some things done on the board and some things that failed to be done, which in my view were regrettable. I would’ve liked to have seen the board have an advisor for the alternate strategy as well as for the one that had been earlier sanctioned and blessed by the board, an independent advisor.

I would have liked to have seen, both of the potential deals, the one that was ultimately chosen and the one that was passed by priced out. And. fairness opinions for the board on,  both alternates. I would have liked to have seen retention plans and severance arrangements for the 20,000 employees globally who were offloaded in the transaction that ultimately took place.

And none of those three things happened, and I could probably add a few more things, which in terms of a really positive impact of, board consideration. I would have liked to have seen happen in that case, which didn’t happen.

Joe: [00:25:06] Did the board feel pressure to act quickly? Was the chair of

Yvonne: [00:25:11] the board felt pressure to act quickly because transaction one was running and was almost complete and in my view, failed to take a few more than a few steps that would have made that transaction, ultimately, a more measured and palatable one.

Joe: [00:25:32] So what about board leadership, either the chair or just, board members who could have stood and kind of, you know, evidenced some leadership? Did that just not happen or was the CEO pushing this forward. I mean why didn’t someone on the board or some group on the board at some point say, Hey, let’s bring in an outside advisor? Cause I think in a situation like that, that was one of the things

Yvonne: [00:25:56] mentioned one outside advisor all along for transaction one. And, and I remember when I asked this question, I wasn’t in the room for that last board meeting, but when I asked the question of who was the advisor for alternate to, which was the transaction that ultimately was decided on.

That I was told, well, we had someone from XYZ investment bank from a different floor of their office at Canary Wharf in London. And I thought, okay, well that is not the measure of independence that I would like to see. So I say that with a bit of humor. I do have sympathy, of course, for the board. The CEO, they were, they were running with some, you know, big competitors and they needed to move quickly.

Joe: [00:26:42] Isn’t it one of the most important jobs of the board to assure that major decisions are thought very carefully, that, that precipitous action is not taken. I mean, that is part of what governance at its best is supposed to be.

Yvonne: [00:26:57] Joe, I completely agree with you.

The notion of the board being the backstop for a deliberative and disciplined decision making process is something I very much hold with, so I agree with you.

Joe: [00:27:11] okay.

Yvonne: [00:27:12] That’s what we should strive for.

Raza: [00:27:13] So, Yvonne, we wanted to ask you, what are the challenges that boards face currently regarding what you’re most concerned with?

Yvonne: [00:27:23] One we’ve touched on already, but I do have another one, and that was that most boards , would be well served to spend more time on strategy, which is really where they can make the best contribution.

But leaving that aside, because we’ve touched upon that earlier, another area that concerns me is something I’ve seen referred to as, choice, supportive bias.

 So what is that?

That’s the tendency we all have to defend a choice we’ve taken in the past. And that applies equally to boards of highly experienced, highly competent, highly successful individuals, perhaps even more so, to groups of highly experienced, competent, and extremely successful individuals because the board is likely to want to defend itself even vis-a-vis itself and those who sit in on board meetings or come in as advisors and those who are looking in from the outside -shareholders, analysts, and so forth – with respect to decisions that the board has already taken. So you decide, just to take an easy example, you decide as a board to embark on an acquisition campaign in your midstream.

You may realize or have reason to realize that that one or several key assumptions that underpinned that decision have not proven out in the good work that the management team has done, that the M & A team have done ,in understanding the acquisition campaign and potential targets.

Of course, they’d been working away.  They know more now than they did six months ago. So you would think that a choice supportive bias would not apply because the board now confronted with new, fresh, absolutely relevant information should feel supported in reversing course and deciding perhaps maybe this acquisition campaign is something we want to put off, but in fact, the way it often operates  – and a danger for boards – is that they will persist in the earlier decision because they have taken it.

Raza: [00:29:31] So what’s the solution for that? Is it a more board education about biases?

Yvonne: [00:29:38] Well I, I’m not sure that would necessarily work. We are after all, talking about people who are used to making decisions and even taking decisions in a group.

But I do think it’s a reminder, at least a reminder to me for my own board work that there are some tendencies we have to sort of fight against or be aware of. And again, I would come back to what Joe and I discussed a moment ago, which is the baseline for good board practice is to ensure as best as you can as a board member that your board undertakes decision making in a deliberative prudential, and reasoned way.

And that would also fight against this, choice, supportive bias.

Raza: [00:30:24] All right. Yvonne, one thing that we’d like to know from our guests, how did it all start for you? How did you get to be on a board for the first time? And, a related question of, what would you advise people who want to be on boards and do board service? C

Yvonne: [00:30:41] Oh, sure. So my first board came about in the private equity space at our group  fund, in London, which invested in both US and European Life Science companies had invested in some. Of my earlier clients knew about the firm I had been at in Boston, knew about a pharma company. I’d been general counsel of a global pharma company based in the Netherlands.

They just sort of understood, at least a chunk of my background, and I was introduced to them by a friend. Ultimately, they asked me to join as an independent, one of their portfolio company boards. So this is a wholly owned, at that point, a private equity company, portfolio company board.

I did that. I took on a roll on that board. and then within a period of months, I was asked, when that company did a merger with a listed European company to join the public company board. So that’s sort of how that evolved.

 It was fascinating, but I had to remember while I was on the private equity company board, that it wasn’t intentional that I is the only independent outside director sometimes was first learning about things on a board call or at a board meeting because of course, the other members of that board were all fund, portfolio fund, either operating partners or fund partners. So they were speaking to one another in between meetings on other business.

Joe: [00:32:21] Did that put you at a disadvantage?

Yvonne: [00:32:24] It did, but again, it’s, it was 100% owned by this, fund by the investor groups, so it was a question of getting myself up to speed and working against that tendency, but it’s also something that I very much understood that it wasn’t an effort to keep me from having information.

It was simply a natural outgrowth of the work that everyone else was doing with one another, in the course of their every day.

Joe: [00:32:50] As someone that helps companies build boards, I think looking at your background, what you’ve just said really makes sense because the, the work that you did prior to the first board and all along the way would, along with many other things, make you, I would say, an excellent board member. It’s not true for every kind of background, but you had so much experience in some of the things that would matter on a board that it’s not surprising that you’ve served on so many and a, I’m sure have brought excellence to what you’ve done.

Yvonne: [00:33:19] It was very gracious of you. Thank you. Thank you, Raza.

Joe: [00:33:22] Very welcome.

Yvonne it has been great speaking with you today. Thanks for joining us.

And thank you all for listening to onboards with our special guest Yvonne Schlaeppi.

Take care Raza.

Raza: [00:33:35] You too, Joe.

Bye bye now.