Friday, July 25, 2008

Inside Leadership

Clear communication key for execs and board

By Dann Anthony Maurno, Special to Mass High Tech

So it was a bad quarter, bad year or maybe a bad decision by the CEO, who now needs to spring the news to the board of directors. What’s at stake?

“The ultimate consequence is, you can get fired,” says Suzanne Bates, CEO of Bates Communications in Wellesley and author of Speak like a CEO. “But CEOs don’t get fired just because they made bad decision, it’s because people lack confidence in them,” she added. A board needs confidence in a CEO, particularly in tough times; the challenge to a CEO is to communicate disappointing news while retaining that confidence.

Bring solutions, not bombshells
“If you have bad news you need to get it out there,” says Bates. “It’s going to hurt you, anyway. It should be a rare occasion when a CEO goes in front of a board and drops a bombshell.” Bates has coached execs at Dow Chemical Co., Raytheon Co., EMC Corp. and The North Face. CEOs ask for changed expectations all the time, she observes, but effective CEOs lay the groundwork outside of board meetings.

A second element of keeping confidence is tempering bad news with solutions. “So you’re off track from the plan, the reasons are whatever they are — what are you doing about it?” asks Peter Gyenes. “You want to have the solution well thought out. That demonstrates to the board that you’re still in control.” Gyenes has been on both sides of the table, as a CEO and a board member of numerous public and privately held tech companies; as non-executive chairman of security software provider Sophos PLC of Boston; and as an investor in technology companies. He agrees with Bates that “It comes back to preparing the individuals, then gathering the board for an appropriate discussion. I think a CEO has a responsibility to help the board stay up to date in a way each member can work with.”

Own up, don’t “go to battle”
“You want a board to question strategic-level decisions because ultimately, you’ll have a better company,” said Bates. It is easy to be antagonized by a group that questions your decisions, but defensiveness erodes their confidence further. “It seems simple, but you’re dealing with human relationships. When those relationships get tripped up, people get resentful or fearful of particular board members,” said Bates.

Regardless of fault, someone has to defuse a bad situation, and it behooves the CEO to do that.

CEOs do, of course, make mistakes, particularly in young, aggressive companies. “In those cases, people with the best intentions get tripped up by their optimism,” says Peter Miller, COO of Genomic Healthcare in Charlestown, and an entrepreneur and consultant who has helped to build several companies. “I think the board expects that and tries to help avoid it.” Miller began his career at MIT in the late ’60s as one of the young founders of APT Associates of Cambridge. As Miller observes, enthusiasm is more forgivable than incompetence — or obfuscation.

Speak their language
Aside from exaggeration or outright lying, the greatest source of obfuscation is data, for which boards have little patience. As Bates describes, CFOs and COOs are inclined to bring slide decks and “plod through the numbers,” that is, organizing the presentation around what they want to tell, not what the board will ask.

“If you’ve done your homework properly, 98 or 99 percent of the time you can anticipate 98 or 99 percent of the questions (especially) ‘what went wrong?’ and ‘how are you gonna fix it?’” This is what Bates describes as the “Quick Prep Method,” aimed at fast answers under pressure, but is particularly effective in dealing with a board of directors.

“Instead of a slide deck, what you want is a board-focused presentation. The level of preparation has a direct and powerful impact with board members, whoever they are. If you don’t do the prep they’ll be blindsided, and what that does is to erode their confidence in you.”

Entrepreneurial personality
The boards at entrepreneurial tech companies are like entrepreneurial tech people; enthusiastic, intelligent, and likely, eager for short-term gains. Both the CEO and the board might be early in their careers and learning on the fly; or might have been selected more for contacts than competence.

“Lots of times,” says Miller, “You start a company out with people who come from the same background — four people who spun out of the same lab or were in school together. So you may see a board made up of founders with similar strengths and weaknesses.” The ideal board balances those focused strengths with broader experience — but, that broader experience might have to come from the CEO. 

“To run a company well, you really need to take the longer-term view,” says Bates. “So you have to balance the short term with articulation of the long-term strategy.” It becomes a CEO’s challenge to behave like a board member, and introduce a longer-term vision to a board that may not have one.

 

The board has its own role in good corporate communications

While a CEO who drops negative surprises on the board of directors may be putting the company at risk or their job on the line, the burden for solid communications also falls on the shoulders of the board.

Addressing the role of the board, Elaine Eisenman, dean of the Babson College Executive Education Program and author of the book I Didn’t See it Coming, said, “Boards can avoid being blindsided. You have to demand answers to the questions that you have. Rather than being reactive, you have to be proactive.”

Boards should have a transparent relationship with executive management, according to Eisenman, who said, “The best boards serve as outside objective advisers for management teams. They can see things that insiders can’t. The role of the board is to pull management out of the trenches and think more broadly: What are the consequences of actions? What are the broader issues?” Executive management has to prepare for board meetings by anticipating the questions board members will ask, she said.

Eisenman recommends that board members always be prepared to ask management to identify the worst thing that can stem from a corporate decision, and urges CEOs and CFOs to “wave the flag as soon as they see trouble coming, rather than trying to fix it (on their own).”

One reason boards shouldn’t be hit with surprises, Eisenman said, is that bad news typically will be discovered during committee meetings, such as the audit meeting, well before the full board assembles. That is where issues in areas such as monthly financial results should be addressed first.

The role of board members is shifting, according to Eisenman, who noted that board members today can be held legally responsible in ways they never were before, As a result, they are more likely to use the web to stay on top of news relating to the companies they serve, long before a board meeting occurs. In addition, board members such as venture capitalists are most active because “they have more skin in the game,” she said. So, there are more ad hoc meetings, conference calls and e-mails among board members and the CEO and CFO than in the past.

Board members want CEOs and CFOs to prepare contingency plans for when business could go bad. “You want an executive team that is constantly looking around the corner and prepared for what could happen,” said Eisenman.
What the executive team should not do is oversell the good news, however.

“If they haven’t managed the board’s expectations when they think the world is terrific, it’s very hard to hear that things didn’t go well. Bad news always looks worse when you have been pumped up by good news,” said Eisenman.

— James M. Connolly, jconnolly@masshightech.com

Dann Anthony Maurno is a freelance writer in Salem. He can be reached at dmaurno@comcast.net.