A Boardroom Spoiler Upends the Conventional Wisdom of Advice and Consent

Babson College’s Les Charm, serial board member of a diverse group of companies, says that when it comes to lower-middle-market firms, there’s no shame in recruiting family and friends to serve as board members. In fact, he would advise many CEOs to do just that. And as for championing good governance in the boardroom, Charm bristles at the very thought.

MME: What are some of the common mistakes that you see boards making repeatedly?

Charm: One common mistake that CEOs make in lower-middle-market companies is that they think of the board meeting as a dog-and-pony show rather than an advice platform. When the CEO shows up with 120 PowerPoint slides for a 2-hour board meeting, you know that he or she has no intention of having a dialog. The other big mistake is not having board members really connect with one another — this makes the conversation far more stilted, and they are not into sharing ideas with each other, never mind sharing something with the CEO. One other mistake from the board’s point of view is that boards spend too much time examining financials — in other words, looking backwards.

MME: You believe the board’s discussion should be largely forward-looking?

Charm: Yes, well, I’m talking mostly about smaller middle-market companies — not publicly held firms —— but a board member’s job is really to look forward 3 to 6 months in one set of buckets and a year to a year and half inside another set of buckets. The problem is that most boards spend probably an hour on a whole series of questions concerning P&L stuff that could have been asked and answered online prior to the meeting. This is because everybody has their own series of questions that they’re thinking about; meanwhile, too many companies don’t have a commonly accepted dashboard that would make everything a lot faster.

MME: What is the fundamental role of a board member inside lower-middle-market companies?

Charm: My disagreement with people who write about governance is that they often say that boards are about advice and consent. My point of view is that boards are about advice — and this is a fundamental difference of opinion as far as what makes good governance goes. … I believe that all of these people who are writing about governance have made a major mistake. This governance discussion came about largely due to Sarbanes-Oxley. When it comes to lower-middle-market companies, this is entirely the wrong direction, because then it’s about committees and subcommittees. To me, when you’re dealing with companies anywhere from $100 million to $50 million and down to companies of just a few million dollars, the word “governance” is outrageous. In smaller middle-market companies, these discussions must be about giving the CEO the experience and the vision to make the company a success because most of the time — take VC-backed boards, for instance — they are backing the CEO, until one day they don’t. … In middle market companies where the owner owns 100 percent of the company, it’s not about consent anyway, because if you continue to go against what the CEO says, he or she changes the board — and that’s why a lot of companies don’t even have boards. The word “governance” is horrific for lower-middle-market companies, whether they’re ventured backed or not.

MME: Where should CEOs seek out board members? What skills should CEOs look for?

Charm: Interestingly, those are two very different questions. For CEOs who are just starting a board, I believe that educated friends are really very good. Now, there are many authors who say, “Oh, not friends! They will be on the side of the CEO.” Wrong! If your board is about advice and not consent — then the CEO and their friends can listen and not feel threatened. My second point would be that the skills that a company should value most in a board member are those skills that are connected to the company’s current stage of growth. I am entirely against some of these people who have served on a board 8 or 9 years, including myself, for example. Because what’s important for these companies has changed, so they don’t need a CFO on an early-stage board. It’s not where I’d spend the time and money to get a board member We’re basically looking for someone who has the skills that the company will need 1 year from today. I need people who are going to be in demand a year and half from now, because we have to start planning today.

MME: What about having family members on the board?

Charm: I have spent half my life on family boards. And I’m totally against this notion that you don’t want family members on boards. Where you don’t have ego problems, family members are just fine, and that goes with smart friends as well. Because if you have ego problems with your smart friends, that’s not going to serve you well. Here’s why it’s got to be about advice, and not advice and consent: Consent yields control, and therefore ego tends to come out. And this brings us back to why I am so strong-minded on this differential as far as to what a board’s responsibility must be. … One venture capitalist put it this way: “Anytime the CEO believes that a board meeting is a report card, or when the board members think that it’s a report card, it never works.” His point was that if you think you’re getting a report guard every time there’s a discussion, it’s not an open dialog but a controlled discussion.

MME: We’ve been told that successful boards achieve a certain chemistry. For instance, each member brings something a little different — one member’s biggest contribution even might be keeping the discussion on track …

Charm: Well, that really should be the CEO’s role, because they know what they want to accomplish at the board meeting. The CEO knows that they will have the board’s attention only for 2 or 3 hours. Sometimes there are 4 hours if the strategy discussion gets rolling, but minus cell phone calls and everything else, the CEO just gets 2 to 3 hours. So the CEO has to be aware of their desired endpoint and know what needs to get discussed. If chemistry means having certain members keep others in check or calm the others down, then maybe you have some board member issues. I’ve seen the issue, but not very often.

MME: You mentioned how the P&L discussion can bog down a meeting. How long should the financials discussion be?

Charm: If you have 3 hours, the financials discussion should not be more than 30 minutes, and that 30 minutes should include the forward-looking dashboard. That’s my rule of thumb. I believe that most questions concerning financials should be dealt with by email prior to the meeting. When the person in charge of the numbers finds that they are getting asked the same questions two or three times, that is likely something that should be addressed at the meeting as part of those 30 minutes.