I had two similar experiences last week where I heard from employees of two different companies that I’m on the board of. In each case, a senior exec said something like “I heard the board wants us to do blah.”

I was in each board meeting and the board most definitely did not say “we want the company to do blah.” Rather, in each case there was a discussion about the topic in question. In one of the cases consensus was reached quickly; in the other there was a robust discussion since two of the board members disagreed and the CEO wasn’t sure what he wanted to do. Ultimately in that case as well there was consensus.

In each case I asked the executive what he’d heard back from the CEO. I got two versions of “the board had a discussion, there was a lot of disagreement, but the board wanted us to do blah.” I then asked, as non-politically as I could, “Do you think CEO wants to do that?” In both cases, the answer was “I’m not sure, but he knows the board wants that.”

I think this is a brutal communication mistake on the part of each of the CEOs. I’ve seen this many times over the past sixteen years since I stopped being a CEO and started being a board member. In each case the CEO is abdicating some responsibility for the decision. In the worst situation, the CEO is blaming the board for a decision and ultimately setting up a very negative context if the decision is an incorrect one – as in “see – I didn’t want to do this but the board did – so it’s not my fault.”

I’ve come to believe that the only real operating decision that a board makes is to fire the CEO. Sure, the board – and individual board members – are often involved in many operational decisions, but the ultimate decision is (and should be) the CEO’s. If the CEO is not in a position to be the ultimate decision maker, he shouldn’t be the CEO. And if board members don’t trust the CEO to make the decision, they should take one of two actions available to them – leave the board or replace the CEO.

In one of the cases, I asked the executive “if I told you the CEO was strongly in favor of the decision, would that impact you.” The response was a simple one: “yes – I’d be much more motivated to make sure we did it right.” I smiled and reinforced that the CEO was in fact supportive, which I think was a relief (and motivator) to this particular executive.

In my leadership experience, people really value when a leader takes responsibility for a decision, even if it turns out to be an incorrect one. CEO’s – don’t be the guy who says “the board made me do it.”

I find three hour “reporting board meetings” where everyone sits around and goes through a 50 page PowerPoint deck to be tedious. When I first started investing in 1994, this was the norm. I put up with it even though it wasn’t my style because (a) I didn’t know better and (b) I didn’t have any better ideas.

27,351 board meetings later, I know there is a better way. I’ve encouraged everyone I work with to try different approaches. I’ve written about some of my favorites in the past, such as doing an entire board meeting off of one slide with a list of “top of mind” items that the CEO has (this assumes that all the board material – appropriate data about the business, financials, and any department updates, have been previously circulated and consumed by all board members.)

Another one of my favorites is to start a board meeting off with a demo. Today, we had the Orbotix board meeting at our office. We spend the first 15 minutes playing with Sphero, the robotic ball that is Orbotix first product (and available for pre-order now.) We then spent the rest of the board meeting talking about the key issues. Paul Berberian, the CEO, had an agenda which we generally covered, but we were able to have real discussions about real things, rather than just a bunch of “arm crossed people starting at a PowerPoint presentation on the wall.”

This stood out in contrast to another board meeting I had later in the day. I attended this one by phone. It was for a company that is doing superbly, but was a very old school style meeting. 54 slides later the meeting ended. There was plenty of information covered and the management team presented everything really well (as usual – it’s a gang that has their act together), but there were only a few parts of the meeting where we had space jams (think of the Grateful Dead on a 25 minute riff that is the best part of the concert.)

Yup – there are plenty of different ways to skin a cat. Or play with a robotic smart ball. If you are a CEO, don’t be afraid to try different things. And, if you want to see who the real fan of a robotic smart ball is, take a look at the video below (and if you like it, vote it up on LOLDogs.)

My amazing day at the Supreme Court continued to bounce around in the back of my mind all day yesterday.  I was at a board meeting for a company that I’ve been on the board of for almost a decade – it was the best (as in most productive) board meeting we’ve had in a long time. 

I’ve written about The Best Board Meetings in the past.  One element of the best board meetings is a prepared mind. This is the powerful lesson from the Supreme Court. On Monday (at the Supreme Court), I saw eleven very smart people participate in a very complex discussion that they were extremely prepared for.  In one hour they covered an amazing amount of ground.  I attribute this to the work they did in advance of the meeting.

In many board meetings, the material shows up at the meeting, or the board members haven’t read the material in advance, or the board material is not very detailed, or the board material is too detailed.  Basically, either the board members don’t have the material to have a prepared mind in advance of the meeting, or they don’t take the time to do the work to be prepared.

Then, unlike the Supreme Court session where you can dive into substance immediately, the board members and management spend a long portion of the meeting “getting up to speed”.  That’s a total waste of time for everyone in the room.

In my strong board meeting yesterday, everyone was prepared.  The board material was comprehensive, but not overly so.  It came in advance of the meeting (only 24 hours, but still enough time for everyone to read it).  And, rather than go through the material page by page, we picked a handful of key themes and discussed them.  For several hours.  In detail, but at a level that resulted in clarity for the board members and management.

The other key lesson from the Supreme Court is paying attention.  I’ve written about this also in VC Behavior in Board Meetings.  I continue to fall victim to the blackberry checking syndrome.  In the Supreme Court, phones, computers, and PDA’s weren’t allow.  So I paid attention.  And as a result I really followed what was going on and processed almost all of the information.  Even in yesterday’s board meeting I found myself drifting a little and pulling out my iPhone – bad Brad.  It detracted a little from the meeting (my fault), but most importantly it caused me to likely miss a few things I shouldn’t have missed.

I’m at Defrag all day today and am going to try to pay attention.

There was plenty of chatter about my post The Best Board Meetings.  One idea popped up a few times and was well articulated by John Boyd in his post What Makes a Good Board Meeting?  In it he talks about what is expected from a VC in a board meeting, rather than just from the CEO / entrepreneur.

“So one thing I would add is nothing is worse than a board member that just gives "good body temperature". i.e. I think it’s important for investors to have well articulated views and data to support their advice on strategic choices the company faces. I think it’s also important that when a CEO asks for investor help on an issue, it’s incumbent on the investor to tap his/her own extended network to get the best help possible.  My point is, while a lot is expected of the CEO, the VC board members need to step up too and a lot of times they don’t.”

I love the phrase “gives good body temperature” – that captures the behavior of so many VC attendees at board meetings (including partners, not just associates.)

Worse, though, is the endless addiction to a blackberry / iPhone or laptop during a board meeting.  I long ago stopped taking my laptop to board meetings because I knew I had no ability to ignore it.  I still find myself regularly taking out my iPhone during board meetings.  I don’t do anything on paper so I’m often taking my iPhone out just to write notes to myself for tasks to do, but I always end up scanning my email due to “poor impulse control.”  While it’s rude to everyone in the room, it’s even worse because no matter how good I think I am at listening while reading my email, I’m not.  And I’m certainly not participating.

Yesterday, during a board meeting, I tried something different. I put a piece of paper and a pen in front of me and whenever I had a thought I wrote it down.  When I reflect on the meeting from yesterday, my level of engagement (which I like to think is usually high) was as complete as it gets – I was “in the board meeting” for the entire board meeting, except for the two minutes when I took a call from Amy (which will always supersede whatever I’m doing, except sex, but since I only have sex with Amy, this won’t be an issue.)

So – starting now, I’m going to banish my iPhone from board meetings.  I encourage my VC colleagues to give this a try.

Over the past 15 years I’ve been to thousands of board meetings.  Last week I had four; this week I have two.  I’ve spent a lot of time – often during board meetings – thinking about how to make them better and more effective.

Yesterday, Fred Wilson (who was at the Return Path board meeting in Boulder with me) wrote a great post titled Face To Face Board Meetings.  Fred and I have been on a number of boards of the years and I strongly agree with his post.  To be effective, board meetings need to be (a) in person and (b) there is immense value in a board dinner the night before a board meeting (maybe not every meeting, but at least once a quarter).

While board meetings have a different tempo at different stages of the life of a company, I’ve developed the point of view that the vast majority of the board meeting should be “forward looking.”  Ironically (and frustratingly), the general culture of many VC-based boards – especially larger ones – is “backward looking”.

What I mean by this is that most board meetings are 80% status updates, 10% strategy / issues, and 10% administration.  I’m fine with the 10% administration, but the 80% / 10% split on status vs. strategy should be reversed.  There are plenty of different ways to organize the “strategy” (I’m using “strategy” as shorthand for “forward looking discussion”) and strategy includes a blend of short, medium, and long term issues, as well as plenty of “tactical stuff” (for those that think “strategy” is too specific a word), but I imagine you get the idea.

My favorite board meetings have the following characteristics.

1. All board material goes out 48 hours in advance, including a detailed financial package and operating review of the business.  This material includes any administrative stuff (draft 409a report, options grants, compensation stuff, audit stuff, prior board meeting minutes.)  Everyone reads this in advance – if the materials go out 48 hours in advance there’s no excuse to have not read it.
2. There is a dinner the night before that is at least the board and the CEO.  Sometimes it includes non-CEO founders; other times it includes various members of the leadership team.  This is a casual dinner (e.g. not expensive or full of pomp and circumstance) – a chance for everyone to catch up with each other.  If the board meeting is an afternoon meeting, sometimes you can pull off a lunch prior to the meeting that acts as a proxy for the dinner, or a dinner after, although I find the dinner after to be much less helpful.
3. The first 30 minutes of the meeting are administrative.  Everyone settles down, you go through any formal board business, discuss it, and get it done.  Often it takes five minutes (which gives you an extra 25 minutes for the strategy stuff); sometimes it takes the full 30 minutes.  I can’t think of a case where it has ever needed to take longer.
4. The CEO then puts up one slide summarizing prior period financial performance and asks if anyone has any questions about the board package.  This discussion takes however long it takes.
5. The CEO then puts up one slide with the issues he’d like to discuss.  These are bullet points that are crisp yet detailed enough to know what the issue is.  This is then the bulk of the meeting.

Some CEOs are capable of running a 2+ hour discussion off of one slide (I love these guys).  Others need slides to prompt them through the setup for each topic (which is fine).  Either way, the setup for each topic should be brief (five minutes at most) and the bulk of the activity should be a discussion.  The CEO and management team is looking for board feedback, input, advice, and guidance.  Ultimately, the CEO has to synthesize this and decide what he wants to do, but by engaging the board in an active discussion, the team will generally get useful input as well as discover where there might be additional domain expertise around the table on the particular issue.

I’ve found that the more time that is spent on #5, the more impactful the meeting is.  Obviously, it’s difficult for people on the phone to engage as effectively, which draws them into physically attending the meeting, or not participating.

I’ve got a lot more thoughts on this, but realize I’ve got to get off my ass, get in the shower, and head over to the Boulder Theater for TechStars Investor / Demo Day.  More on this another time.

At the end of every board meeting I’m a part of we have a closed session.  This is a session that includes only the board members.  All of the boards I’m on include the CEO as a board member so the CEO is part of the closed session.  If there are multiple founder / management board members, they attend.  But – no observers and no members of management that aren’t on the board.

I was on a board call yesterday that was confusing.  The company is doing well, the management team is very solid and stable, and the board packages are comprehensive and transparent.  I’ve worked with the CEO for a long time and we rarely have any misunderstandings (we have plenty of disagreements, but we know how to talk through them.)  The company is mature enough that we’ve shifted into an eight per year board meeting tempo; two meetings a quarter – one in person that is usually deeper and strategic; one by phone that is an update call.

When I got back from vacation on Wednesday, I read the board package.  No surprises.  There are no strategic activities going on for the company (no fundraising, no M&A, nothing "fancy") – just strong and steady execution.  The tempo of the call started off a little odd – the CEO brought up some forward looking concerns of his.  While he was describing them, I was having a hard time connecting what he was saying to the board package I had just read.  As we went through the management team review of the business, I got even more confused as many of the tactical things we had discussed at the previous meeting had been done well and everyone sounded upbeat, although appropriately cautious.  The CEO highlighted a few more concerns of his and then asked an open ended question – something like "what do you guys think?"

We were all on the phone so it was hard to read any nuance.  I expressed my confusion.  I asked a few clarifying questions.  My confusion increased.  Maybe it was jetlag, but my brain was just not connecting the dots.  At some point the CEO took us in a different direction to try to address another issue that he was potentially concerned about.  While the issue he raised had some short term issues, he had extrapolated it as a long term trend.  I didn’t agree that it made sense to extrapolate the trend from one data point, made some suggestions, but felt the awkwardness increasing.

We ended the meeting and went into closed session.  We all took a deep breath.  I told the CEO I was confused.  He was confused.  The other board members on the phone were confused.  If we had a giant time machine we would have gone back 60 minutes and started over.  Instead, we had a great ten minute conversation where we realized that we were just talking past each other.  We hit the giant mental reset button and in a few more minutes had recalibrated.

Even though we usually end after the closed session, this time we decided to bring the management team back in to clarify things.  We realized that when we ended the meeting, we had a leadership team that was likely as confused by the meeting as we were.  I imagine there was sixty seconds of discomfort while everyone gathered where they were wondering what was going to happen next.  We had a short reset of the discussion, clarification of what the CEO was really trying to communicate, and reaffirmation that we were on the right track, even though this was a weird and confusing meeting.

I talked to the CEO today just to check in.  We had a good call and we both reaffirmed that all was cool.  He said he’d learned something important – that if he was just going to "think out loud" during a board meeting that he should preface this with a statement indicating this.  I agreed that this was the right conclusion – that I’d much rather he "think out loud" vs. feel compelled to figure it out all.  I also suggested to him that if he thought I was lost in space, he should just hit me over the head with a brick.

I’m really glad we had the institution of the closed session firmly in place for this board.  It gave us room to figure out what was going on, where the miscommunication was, and reset the discussion.  Without it I expect everyone would have scattered to go back to work with their confusion firmly intact.

Jack and Suzy Welch have a great article in this week’s BusinessWeek titled Directors Who Don’t Deliver.  I’ve served on many boards and written plenty of board of directors, including my personal favorite board of director post titled Boards That Are Not Bored.

The Welch’s describe five types of dysfunctional board members: the do-nothing, the white flag, the cabalist, the meddler, and the pontificator.  If you’ve ever served on a board, you probably know at least one of these dudes.  Hopefully, you (and me) haven’t been one of them.

On Saturday, I called a director at a company I’m on the board of to get a reality check on something that is going on.  Ten minutes on the phone solved three things: (1) I was able to road test my idea with someone I respect and (2) I incorporated his feedback into my idea, and (3) we were calibrated.

While this may seem obvious, I’ve never hesitated to call another director on any issue concerning a company I am involved in.  While board meetings are logical check in points, they are not the only ones and, in many cases, are not the most important ones.

I know some directors (and CEOs) who are uncomfortable talking with other directors outside the context of board meetings.  I’ve never understood this.  Pascal Levensohn has a nice post up about this titled Don’t Assume That You Have Consensus on Your Board– Make Sure You Do.  His simple message is “communicate.”

Reflecting on it, my hierarchy of daily communication is Amy, my partners, CEOs of companies I’m an investor in, and then directors / co-investors of companies I’m an investor in.  Ok – I suppose my mom is in there somewhere also.

My partner Chris Wand is finally blogging (even though he’ll deny it) over at AsktheVC – he’s writing a series on what should be in a “board reporting package.”  My long-time friend Will Herman – who happens to be hanging out in Boulder this week making the rounds (and getting his bike fitted – whatever that means) – inadvertantly contributed with his post titled Communicating with Your Board: Sales Numbers.  Will’s post covers some good ground – I can’t tell you the number of times a clear sales report is missing from a board package.  It’s even worse when there is a sales report, but given the fact that I attend N board meetings a year (where N is a large number) the CEO doesn’t create any linkage to historical performance, current expectations or the plan.  Great stuff.

Paul Kedrosky has a superb post up today titled Building the Perfect Board Package.  The entire post is worth a slow and careful read as it’s “guidance on the subject from a sales-guru colleague to a company’s management on whose board he sits.”

Buried deep near the end is the real gem – metrics for a “perfect enterprise software company” that would trade at 3x revenue (or significantly higher if a SaaS model).

Revenue (License / Service) 55/45
License to Service Gross Margin 75%
License GM 94%
Service GM 55%
Operating Costs 60%
Sales 29%
Marketing 8%
R&D 9%
G&A 8%
Operating Margin 15%
S&M Costs as a percent of Rev 68%

If you run an enterprise software company and need something to benchmark to in your “stable state” (after you’ve become profitable and are growing at a nice clip), here’s a model.