Board Members come and go, but navigating a working relationship with board members good and bad is a constant.
In this Tough Things First Podcast, Ray Zinn, who has experienced everything when it comes to boards, provides some profitable insights.
Rob Artigo: Rob Artigo here, your guest host for another edition of the Tough Things First podcast with Ray Zinn. I’m a writer and entrepreneur in California being invited back. Always a pleasure, Ray. How are you?
Ray Zinn: Doing great, Rob, good to be with you again.
Rob Artigo: I think I have a good subject here, something that you are definitely familiar with, and that is a board of directors that you might have for your corporation, your company. In business, we have these board members that tend to come and go. I mean, they don’t stick around forever. If you’re fortunate enough to be like you, running Micrel and being around almost four decades… And so you have a board that, I’m assuming, was fluid. It changed over that time, because that’s just the nature of these boards. But sometimes you have people who leave, and you don’t really necessarily want them to leave, because you appreciate their input, advice, and their professionalism on the board. But then they go on and do something else, and they’ve got another board they join, or they just get tired, or they retire, because it’s just that time. They just leave the board.
Sometimes, you have other board members who are a thorn in your side. I’m assuming you’ve had that experience, where you’ve had board members who you kind of wish they weren’t around the board anymore, but yet they never go away. Give me some thoughts to start off here about your experience with boards, whether you’re sitting on a board or whether you’re dealing with it as a CEO of a company. Dealing with board members, because not all personalities are going to gel well together. And some people, they find out that they’re maybe not meant to be a board member in the first place.
Ray Zinn: Well, there are boards, and there are boards. I mean, a rose by any other name is still a rose. It depends upon how your board is formed. If you’re a private company and you have control of the company because of your shareholder capability or majority, you can get rid of a board member very easily. You just fire them, because you’re a majority shareholder. If however you’re a minority shareholder, whether you’re public or private, then you have to get the agreement of the majority shareholders to dispose of a board member. Now, in the case of a public company, there are elections that are done periodically, depending upon the bylaws of the company, and you get to put your slate of shareholders up for vote. And so if you have a shareholder that is not performing well, you can only do it at a specific time when that election takes place, but you can change your board of directors base.
And so it’s not a forever thing, but during that period when they were elected, you did hire them, then they can be a pain in the neck. But it’s like hiring good employees. You want to make sure you hire good board members. If you inherited a particular board, then of course you have to do the weeding out process and get rid of the board members that don’t get along with each other, or don’t get along with management. So you can tell if you have a good board by how well they work together and how involved they are in the success of the company. It’s difficult, especially if you’re a public company and you only elect boards every year or two. Then you’re kind of stuck with those guys until the next election comes up.
Rob Artigo: Tell us a little bit about what you expect board members to do. What should I expect as an entrepreneur from those board members, and what should I expect them to do? And what makes a good board member?
Ray Zinn: That’s a good point, and a very good question. The board needs to be supportive, and that includes… The management needs to be supportive of the board. And so if you look at the responsibilities, if they’re well-defined… In other words, if you have a board and everybody has a well-defined responsibility, then you can measure them against what they were responsible to do. And in a public company, you divide up the responsibility, corporate governance, accounting, financials, organization, reorganization, hiring CEOs. So the board is usually divided up to responsibilities, usually have a committee that you form to take care of these different aspects. And then you look for the experience that the particular board member has in those particular areas, so that you get the best results.
Most boards are not that involved. I mean, all they do is they come to the board meeting and agree or disagree on certain aspects of what the board has to do as part of their board responsibilities. Very seldom do they do anything outside of that, other than monthly or quarterly board meetings, or annual board meetings, depending upon what the bylaws of the company require. But boards are like employees. They are often paid, they do get stock, and so they are to be treated like people who have to perform their particular function. And if they’re not performing their function, you get the rest of the board to agree to dismiss them, because a board can, at appropriate election time, dismiss that particular board member, depending upon whether you’re private or public or whatever.
Oftentimes, if the board is not liking the way management’s running the company, they’ll actually bring in another board member who maybe has some expertise in that area. They’ll be sitting right on the head of the management, micromanaging the company. So boards can be either very helpful or very deleterious. I very seldom see them… They’re either very helpful, or they’re deleterious. It’s like progressing or retrogressing. You’re either moving forward, or you’re moving backward. You’re not just standing still. So if the board is a do-nothing board, that’s deleterious. Even though maybe they’re not causing any waves, they’re still not… They’re getting paid and getting stock, and they’re not really doing anything, so that’s deleterious.
And then there of course activist boards, maybe if you’re a public company, and the shareholders bring in an activist to be on your board. They can be a real pain in the neck. As I said, there are only two kinds of boards. Those are the ones that are very helpful, and those who are not helpful. What you want is you want a board that’s helpful.
Rob Artigo: If you have the ability, I suppose, to maintain a majority shareholder status, then you’re in a position of strength in terms of your ability to work with the board and exercise some influence, but as that erodes, you end up losing some of that power and the ability to deal with the board. Is that accurate?
Ray Zinn: That’s good news, bad news. That’s true. So if you got a management that has control of the board, but they’re not very good management, then of course the board will support the bad management and you don’t have any successful outcome. On the other hand, if the board is not working well with management, it could be that they change management or they can make some modifications to the structure of the company. So boards can be under the thumb as you would of management, which is not a good thing, because then if the management is not doing that good a job, then the board who represent the stakeholders or shareholders is not being… They’re not serving well to the shareholders of the company. It all depends upon on how well a company is doing. If the company is doing extremely well, the board has little impact or little effect. If the company’s not doing well, the board can have a big impact.
Rob Artigo: If you have the deleterious board, is this where you get into situations of hostile takeovers, or is that just strictly a stock thing? I mean, I really don’t know, and that’s why I’m asking.
Ray Zinn: Well, it depends. I mean, a hostile takeover can happen if you have a great board, even. So the hostile takeover occurs when they get the shareholders to all agree to sell the company or dispose of the company. The board doesn’t necessarily do that. The board can force a hostile by virtue of just going out and soliciting… Shouldn’t say soliciting, but trying to get companies to come in and buy the company. So hostile is really where the company is being attacked as you would… Or to be acquired, even if the board supports management. So hostile just means where you don’t have agreement with the board to sell the company.
Rob Artigo: Yeah. It’s the outside source coming in and saying maybe there’s an offer on the table that is something friendly, but then they decide to decline the sale, and somebody goes, “Well, then we’re going to take the company anyway,” type of scenario. Yeah. All right, well, I learned a lot about boards and board members in this podcast. And as usual, Ray, wealth of information, and I appreciate it. Join the conversation at toughthingsfirst.com Questions, comments are always welcome. You can go there. You can ask Ray directly. He’ll answer your questions. You can also follow Ray at Twitter, Facebook, and LinkedIn. And don’t forget, wherever books are sold, you can get the Zen of Zinn, and of course Tough Things First, two books with much more knowledge that can help expand your horizons each day. So get those books if you can. Thanks again, Ray.
Ray Zinn: Thanks, Rob, appreciate you being here.