Building from the Bottom Up: A New Take on Developing and Managing Your Board

The past few years were filled with horror stories in the boardroom. From Adam Neumann of Wework to Sam Altman of OpenAI, the drama between executives and their directors created major headlines across the world.

To better understand what goes wrong (and right) behind the closed doors of the boardroom, we spoke to Dr. Sabine Dembkowski, Managing Partner and CEO of Better Boards. Sabine has evaluated the boards of hundreds of the top around the world. Based on her first-hand knowledge, Sabine has developed a completely new strategy for evaluating boards and making them more effective. For the first time, she’s agreed to share her tips gleaned from Europe’s top executives.

“Your research totally turns the world of board effectiveness evaluations upside down. What was the first indicator you picked up on that led you to understand that boards needed a change?”

One of the things I’ve constantly seen in board evaluations is that advisors try to ask “interesting questions,” rather than focus on variables that are linked to proven effectiveness. That’s a huge contributor as to why boards resist engaging in their effectiveness evaluations. This pattern struck me as backwards, and led me and my team to start researching the origins of these questions. After reviewing the academic literature and conducting more than 100 interviews with chairs, members of boards, and operating partners of private equity firms, the “7 Hallmarks of Effective Boards” was born, guiding the way we conduct our board evaluations.

“You’ve worked with some of the top companies in the world, and have seen the ups and downs that boards face throughout the business cycle. What do you think some boards are set up for success, while others are bound to fail?”

Rather than focusing on what isn’t working for the board, it is far more effective to focus on what is working. That is exactly where we start in our board effectiveness evaluations, engaging board members by talking to them about their collective and individual strengths. For an effective board, it is vital that members understand what their strengths are in the specific context and how members can best leverage each other’s strengths.

In today’s reality, there are not many situations where board members can get to know each other and identify each other’s strengths and know-how. The days of elaborate board dinners with flowing alcohol and getting to know you conversations are long gone. The pandemic years did not help.

New members who came on board may not even have had a chance to meet face-to-face. While board members may have become used to the Zoom conference room, it comes at a price. Members of boards don’t know each other well, or understand how they can best leverage each other’s strengths. It’s key to lay down that foundation before moving forward.

According to Startup Snapshot’s report on the boardroom of private tech startups, we found that 43% of startups reported they have a difficult director on their board. Why do you think that is?

The research you conducted points to the same phenomenon we see. Management teams are much more skeptical about the performance of their board than the boards themselves. It looks good and is highly desirable to be part of a Tech startup board but not everyone understands what it really really means to manage a Tech startup. The questions and suggestions of directors often do not square up with the realities of the CEO and management team.

Furthermore, it is not uncommon for an Investment Manager of a VC firm to be assigned to 10-15 portfolio companies. They are overstretched and yet hold seats on the boards. They are under pressure to make the investment work and exercise their rights, often through passing pressure on or even vetoes. I faced similar issues on our board and sympathize with CEOs and management teams.

From your experience, how do you recommend boards navigate those potential clashes?

As with every group of more than 2 people, it’s important to make sure everyone knows their roles and responsibilities. If a VC is on board I would recommend to have a good conversation with the Investment Partner at the outset. Clarify the context in which he operates, clarify expectations, and set some ground rules. It will not prevent clashes but it creates a more solid foundation for a good working relationship. If the Director is an Executive in another, often larger firm, understand that the transition from an executive to a non-executive career is not easy; for some, it can take years to fully adjust to their role on a board. Often there’s a fair amount of pressure that comes with this shift, but that makes it more likely for the lines between executives and non-executives to get blurred, causing conflicts to arise.

Once you have responsibilities doled out, what’s the best way to keep everyone on track towards the same goal?

Two words: shared vision. The vision for a company is often one of the most hotly debated topics on any board. Are all members aligned? Does everyone around the table have the same understanding of the vision? Does everyone interpret the words in the same way?

It can be easy for individual board members to get sidetracked based on their personal understanding of the vision. We often see that, although lip service is often paid to a vision, there are different opinions around the table about what the vision means in practice, the goals, and the focus areas of the company. But once a vision is set, all board members must act as a unified front. They need to share the same understanding of the vision, speak with one voice, and agree on the goals and focus.

Similarly, it’s key to maintain structure within the work of the board. We’ve found that companies that employ a secretary, or who have some support structure in play, have a higher level of organization, and facilitate a much smoother interplay between the chair and the CEO. We found that private equity-backed, young, and growth companies often struggle with properly organizing the work. These issues are even more pronounced in venture capital-backed firms.

What do you think is the most important takeaway from this research?

I’ll leave you with three main tips for increasing effectiveness:

Make it a habit to connect outside of the office’s four walls. Real relationships within the board can make a big difference when evaluating how the board works together, and the benefits significantly outweigh the negligible costs for making it a good time.
Tailor your questions to fit the leader. Executives play a vastly different role from non-executive directors on a board. By personalizing the process and specifying the context can help you troubleshoot better.
Start creating individualized reports. They provide personal benefits and ensure that directors are fully engaged in the process.

As pressure increases on boards to learn, adapt, and become effective, so does the pressure on those conducting these evaluations. The “7 Hallmarks of Effective Boards” provide a sound framework for increasing board performance – and I think it’s imperative we start considering them when conducting board effectiveness evaluations.