Board games

I talked earlier about changing the CEO in startups. The board in any company really has two main functions. One is to advise the CEO since the board often has complementary experience. For example, older venture capital investors have probably seen before something very similar to any problem that may come up,  or board members with industry experience may have a more “realistic” view on how taking a product to market is likely to turn out than the spreadsheets describing the company’s business plan.

The second, and most important, job of the board is to decide when and whether to change the CEO. In one way of looking at things, this is really the only function of the board. The CEO can get advice from anywhere, not just the board. But only the board can decide that the company leadership needs to change. It is the rare CEO that falls on his own sword, and even then it is the board that decides who the new CEO is going to be.

Usually there is some controversy that brings a crisis to a head. The CEO wants to do one thing. There is some camp, perhaps in the company, or perhaps outside observers, or perhaps on the board itself, that thinks that something else should be done. The issues may be horribly complicated. But in the end the board has a binary choice. It can either support the CEO 100%, or it can change the CEO. It can’t half-heartedly support the CEO (“go ahead, but we don’t think you should do it”). It can’t vote against the CEO on important issues (“let’s vote down making that investment you proposed as essential for the future”).

I was involved in one board level fight. I was about to be fired as a vice-president even though the board supported my view of what the company needed to do and told me that they wouldn’t let the CEO fire me. But in the end, they only had those two choices: support the CEO, or fire the CEO. The third choice, don’t fire the CEO but don’t let him fire me, didn’t actually exist. So I was gone. And the new CEO search started that day and the old CEO was gone within the year.

Boards don’t always get things right, of course. I don’t know all the details, but there is certainly one view of the Carly Fiorina to Mark Hurd transition at H-P that Carly was right, and Mark has managed to look good since all he had to do was manage with a light hand on the wheel as Carly’s difficult decisions (in particular the Compaq merger) started to bear fruit. If she had been allowed to stay, she’d have got the glory in this view.

Almost certainly, Yahoo’s board got things wrong with the Microsoft acquisition offer. Jerry Yang wanted (and did) refuse it. The board supported him. Their only other choice was to find a new CEO, which they eventually did.

When Apple’s board fired Gil Amelio and brought Steve Jobs back, hindsight has shown that it was a brilliant decision. But in fact it was extraordinarily risky. There are very few second acts in business, where CEOs have left a company (and remember, an earlier Apple board had stripped Steve Jobs of all operational responsibility effectively driving him out of the company) and then returned to run them successfully later. Much more common is the situation at Dell or Starbucks, where the CEO returns when the company is struggling and the company continues to struggle.

This entry was posted in management. Bookmark the permalink.

Comments are closed.