Did Your Board Order a Proposal or a Discussion?

[Restructured.  See notes.]

I think board meetings should have more discussions and fewer proposals.  Why?

• The hardest questions often don’t lend themselves well to proposals. Think:  global warming, cultural divisiveness.  Or, in business:  investor alignment, exit strategy, or a flawed corporate strategy.  You’re not going to solve those issues in 45 minutes by quickly reviewing three options.

• Proposals can result in a myopic focus on approval.  Approving an operating plan can be a strategic exercise where a strategy is proposed and translated into an organizational structure and expense budget.  But it’s too often an 11th-hour exercise driven by financial constraints where everybody just wants approval.

• Proposals usually feature limited discussion.  Both because of the format and the approval focus, discussions during proposal sessions tend to be hasty and shallow.  If everyone knows they need to leave at 5pm and that three other items are slated before the end of the meeting, you’re strongly disincenting discussion.

• Boards know less about your business than you think. Management spends 60 hours a week at the company, while board members might spend 60 hours a year.  If you want to leverage your board’s knowledge, first spend 20 minutes simply baselining them.  It’s a great introduction to a discussion and only rarely happens in proposals.  The more they know, the more they can help.

• Sometimes, people just need to talk.  Think of recent hard times, like the start of Covid.  Just talking about the problem with the board leveraged the knowledge of those in the room (e.g., if only to know what other companies were doing), made everyone feel better, and helped the board determine if management were taking the situation seriously and asking the right questions — even if nobody had all the answers.  The board getting together to “just talk” isn’t just a touchy-feely concept; it’s a legal one, too [1].

For clarity’s sake, I think board meeting sessions fall into one of three types:

• A review (or, “deep dive”) where, e.g., the CRO reviews the previous quarter’s results, metrics, win/loss, lessons learned, and plans to address to key issues.  Or maybe it’s a review of the partner program.  Or the product roadmap.  The goal is deep inspection and learning.

• A proposal, where, e.g., the CEO and CFO present next year’s operating plan, seeking board approval at the end of the session.  Or a stock option refresh.  Or executive compensation.  Management presents either one or three options and seeks an approval of their choice. Usually there is some discussion, but the goal is ultimately procedural:  getting formal approval on a proposed decision.

• A discussion, where, e.g., the CEO leads a discussion on strategy, the CRO a discussion on sales models, or the CFO a discussion on an upcoming new financial standard.  The purpose of a discussion is educational:  to leverage the knowledge of everyone in the room so they all leave smarter on the issue than when they came in.  Discussions are also useful for consensus building.

So my advice is to look at your last few board agendas, classify the session topics by type, and analyze your mix.  Odds are, you’re having lots of reviews and proposals, but few or no discussions.  I’d say everyone would be better off if you changed that going forward.

For example, here’s a hard problem that many startups face today:

How are we going to make our cash last, while growing fast enough, so that — despite multiple compression — our next round will be an up-round?

Sure, you can run a proposal session on this topic.  You can build a spreadsheet to model a few macro scenarios (e.g., mild vs. modest recession), financing options (e.g., extension round, venture debt), and cost-cutting options (e.g., a 10% RIF).  You can make a decision on what, if anything, to do right now.  But, invariably, there will remain a ton of, “we’ll have to wait and see how things develop going forward.”

In this case, especially if no immediate actions are indicated, a discussion might be much more effective than a proposal.  I think what most boards care about right now are the answers to questions like these:

• Is the CEO in touch or in denial when it comes to the changing business reality?
• Does the CEO understand the new fundraising environment (e.g., multiples, constraints)?
• Is the CEO too optimistic or pessimistic about the expected fundraising environment in 18-24 months?  What future environment assumptions are driving their point of view?
• Is the CFO on top of cash planning and forecasting?
• Is the CEO ready and willing to make cuts if indicated by the needs of the business?
• Does the company have good leading indicators and are they tracking them so they can act early, if indicated?
• What do my fellow board members think and what are they seeing in the market and with their other companies?

I think most boards would instinctively order a proposal, added to the next board meeting’s agenda.  I think smart CEOs might well convince them to order a discussion, instead.

# # #

Notes
I had planned to restructure this post in response to feedback on the draft, but failed to do so before it auto-posted earlier today.  Hence, I’ve restructured it largely in accordance with a rule from my grandmother, a high school english teacher:  most essays are improved by simply deleting the first paragraph.  I did a bit more than that, but the world’s most Irish grandmother (Margaret Mary Magadalene O’Keefe Downing Gardiner) was proven right yet again.

[1] If you ever wondered why unanimous written consent resolutions needed to be unanimous:  the idea is that if there is any dissent (i.e., if even one director opposes a motion), that the board must convene to discuss it.