Board Meeting “Surgical Theater”
Justin Custer, a close friend of mine (with whom I’ve invested in companies such as Artium, in whose company, ChatLingual, I’ve invested, and who’s invested in Fernish since the first SAFE note) asked if he could attend Fernish’s quarterly board meeting this past week. Given our mutual/bi-lateral investment, why wouldn’t we want the opportunity for management to fly-on-the-wall observe each other’s respective board meetings?*
Applying mental models, honing heuristics, and developing “habits” requires exposure in any use case. Most management board participants often only ever serve on one board — maybe two or three max if they don’t go the investing route themselves. Given the lack of breadth of board participation (i.e. sitting on only 1–2 boards), and considering that most boards only meet quarterly (4x annually), and considering the decay curve associated with the lifecycle of most startups, your average management board director isn’t getting but sub-20 board meetings over the course of a single company — maybe double that if they sit on an additional board as an observer or are in a company with a longer life cycle. (This isn’t exact math/distribution, and most of my data is anecdotal, but I’m confident it’s directionally accurate for our purposes.)
In terms of being able to distinguish signal from noise to identity valid “best practices”, 16–20 data points is a fairly insignificant volume of data. And that’s only referencing instance counts and not also the “weight” of the instances. Depth and reach of content associated with a given business in their respective board meetings varies widely from session to session. You might schedule four hours for a meeting, but only use two for the first of the year and go over and use five hours the second meeting of the year. Or you might have one board session that is used as a more “rote update” session (whether intentionally or otherwise) than a means to pressure test strategic decisions and solicit input from your (ideally) sage board members.
This is my very long-winded way of saying: that’s really not enough data from which to draw any insights about optimal board composition (members of the board or board meeting attendees); the best distribution of topics covered in a typical session; how much time to spend on numbers/financials and how much to spend on strategic questions; how much is an ideal amount of feedback to be solicited from investor directors and independent directors vs. presentation to this audience to be digested and maybe investigated in a follow-up conversation? Should we move from static quarterly meetings to “early and often” via ad hoc sessions between structurally required scheduled sessions? And on and on.
Investors often have the advantage of sitting on many boards concurrently in a formal fashion and might even sit in on a partners’ portfolio company board in a relevant meeting. For example, a GP with heavy logistics & supply chain might have attended a board session during any quarter of the pandemic on behalf of any portfolio company operating in retail, ecomm, DTC, CPG, etc. Or a second example, also common, where a principal/associate/etc. Sits in board sessions for startups for which they performed diligence, or sourced the deal, or other support scenarios, and then this principal’s responsibilities grow in turn to include investment responsibilities for which they have more formal board responsibilities. And investors do this over a longer career as board participant vs. most managers, and with a higher density of data points within each year therein. Investors get way more volume from which to start deriving heuristics (or at least expanding the surface area of possibilities and scenarios that might impact their own company).
Investors prove alpha for their LPs by leveraging high volumes of experiential data that’s largely unavailable to the rest of the market. This isn’t an us vs. them (with my founder hat on here) dichotomy I’m suggesting, so much as a product sum-centric application of the same value investors pull from more frequent board participation.
I’d advocate there is likely significant upside in management attending more board sessions as (silent?) observers in one another’s boards at a higher frequency than happens today. Their prep obligations are minimal as they’re not active participants, so it’s not a major opportunity cost time-wise (vs. prepping for their own board meetings or those others where they have real responsibilities as a formal participant).
This is a case of “rising tide floats all boats” or collective improvement as the C-suite across the industry more rapidly bootstraps their experience/expertise/knowledge associated with one of the more opaque (and sometimes esoteric) parts of running a company with a formal board. The output here behooves all participants in the industry. This is a matter of leverage.
One might object to the exposure of sensitive data in this proposed process. However, if you institute similar safeguards for observer-managers already faced by formal board directors and observers, such as those around minimizing possible conflicts of interest (i.e. don’t attend the board meeting of direct competitors, or even those that hint of competition), or implementing/respecting standard NDA agreements.
How might we? How might more cross-board participation (or witnessing, rather) be encouraged and propagated? Why wouldn’t we push for more management cross-board participation?
Food for thought. What do y’all think?
(FWIW, Justin and I opted not to posit this particular question this time around to my Fernish co-founder, Michael, and the rest of the board given the short turnaround between Justin’s request and the actual meeting.)
