The critical difference between Governance and Management when you are on a board

This question comes up a lot when teaching wannabe directors. And it comes up with employees who are under the mistaken belief that their board actually manages the company. So let me demystify it now. We don’t manage. At all.

The critical difference is that the board is in place to provide oversight, not to make decisions. Oversight to ensure shareholders are well served. Oversight to ensure the law is followed. That, over time, the decisions the leadership team makes are good ones. Oversight to ensure the company is not damaged by a series of bad decisions. But none of these are the same thing as making decisions.

The CEO and his/her team’s responsibility is to make decisions that move the company forward. And they are the only people that can. They are the people closest to reality with real data about what’s happening on the ground. The board is simply not close enough to the day-to-day to make operating decisions.

Now it’s not so black and white that the board makes no decisions at all. But there are very few such as:

  • hiring (or firing) the CEO – this is always a hard one and usually takes boards too long to realize they have the wrong CEO and yet it is the most important decision a board ever makes.
  • the makeup of the board itself, and the committee structure – yet another decision that in the past boards did not spend enough time on and cronyism prevailed but now, with the emphasis on diversity at the board level, is finally getting enough attention.
  • CEO and pay structure – how much is cash, time based or performance based and is it passing the say-on-pay tests with ISS?
  • major financing or M&A events – clearly big decisions that the board must weigh in on, although in the end it is the conviction of the CEO that must carry the day.
  • response to activists – and this is one place where the board must actively engage, understand the activists position and determine how and whether to respond.

But even all these types, and similar, decisions are made through a process of discussion, consensus and then a vote rather than one person making a decision.

Otherwise, the boards job is to provide oversight and the most effective way to do that is to learn the art of questioning. This can be hard if you have been a CEO or an executive and you are used to making decisions and leading. It can take time to learn how to sit quietly listening, and then think about what question can you ask that will either improve your understanding or help the CEO make a better decision. You’re not paid to talk on a board. You’re paid to be thinking, deliberating and advising. Often less is more.

I heard a great question last week from a panelist on just this issue of how to learn how to question. We were discussing how to help a leadership team review their strategy which can sometimes be contentious because teams do get wedded to their strategies. And yet, you want to help them think through where they may be missing something, or making a mistake. The question this panelist suggested was “What would have to be true for you to be wrong?”. A great question which requires serious thinking about what assumptions the CEO may have that may not be true in the future, but without challenging that the strategy itself is wrong. And the oversight comes as you watch the leadership team respond to the questions, and make their final decisions. You judge on the quality of the decisions over time.

So next time you look at a board and think they are powerful think again. They are, but in a very narrow and yet important way for the health of the company and its shareholders.

Photo: Arches National Park © 2020 Penny Herscher


How boards must change

“The full weight of responsibility for change rests with those who control the institutions” – White Fragility:Why it’s so hard for white people to talk about Racism by Robin DiAngelo

Our institutions in the US are led predominantly by men. Women would simply not have the rights we cherish today, such as the right to vote, if the majority of men in power had not supported them. 

Companies have been paying attention to gender diversity among employees for some years now. It’s been talked about at length but it was not until California mandated that boards include women, and major investors like Blackrock began to use their weight to require female directors, that many companies have moved quickly to bring one, or more than one, woman onto the board. Finally, when faced with a potential fine or a “no” vote from a major shareholder, boards listen. European boards would not be 40% female unless it was the law. Setting, and meeting, serious targets works to bring about change.

But our institutions are also led by people who are predominantly White, or if you are in technology, White or Asian. Which means we, the leaders, carry the responsibility to create the change needed to make our workforces, our leadership teams and our boards racially diverse. It’s both the right thing to do, and we now know diversity creates better decisions and better results so there is no business reason to object.

As Omar Johnson says in his compelling Open Letter to White corporate America “Inside your company walls, you need to hire more Black people. Period.” 

I am horrified by the recent murders in the Black community. The human and social cost of systemic racism in the US is sickening. I am humbled by my ignorance and committed to getting better educated and taking action. I must do better. Our companies must do better.  

The way I, and my fellow directors, can effect change is to be committed, supported by action, to helping our companies become truly diverse at all levels. Racially diverse and gender diverse. It will take time but boards and governance committees are responsible for reviewing our ESG programs–Environment, Social and Governance–and to show progress. This was a growing area of focus which is now in the bright spotlight of current news. Several large institutional investors had started to demand diversity at the board and executive levels, which will add fuel to drive change.

As directors we must ask the questions and require the metrics which will drive meaningful, ongoing improvement to racial diversity in our companies. It’s past time.

Photo: The Alhambra Spain © 2018 Penny Herscher


Women Board Directors and Chairs – Why do the numbers remain so low and how we can change them!

I was recently honored to be named board chair at Lumentum, a terrific public company in the technology space. As I thought about my new responsibility, I became curious as to how many other companies have women board chairs and unfortunately what I found was not good.  

First, for context, consider the number of women on boards in the US. While the number of women directors has increased marginally in the last few years, women still make up less than 23% of the S&P 500 directors**.

The situation is no better as you go down the market to smaller companies.  Women only just achieved 20% of director seats in the Russell 3000 halfway through this year (up from 16.4% in 2018). Additionally, while all S&P 500 companies have at least one women director (the last holdout added a woman earlier this year), a staggering 10.8% of the companies in the Russell 3000 still do not have a single woman director.  

Companies in the information technology industry are even worse—woman comprise less than 15% of the board members in this sector (perhaps the only “good” news is that the energy sector is even worse, with women comprising only 11% of the board members).    

And remember, just one woman on a board isn’t enough. We now know that more than one woman in the room changes the dynamic to enable the women to be more likely to be heard and not interrupted and/or talked over, as well as often providing greater representation of the customer base. It’s good to see Blackrock will vote against boards who do not have two women on the board in 2019 and Vanguard and State Street will now vote against boards with no women. Investors can definitely put social pressure on this issue. 

But while we chip away at simply getting to a reasonable percentage of women onto boards, the number for the chair position remains abysmal. Only just over 4% of the S&P 500 or of the Russell 3000 had a female board chair in 2018. While we strive to get greater gender equality on boards, we must also recognize that leadership positions on boards should also be open to women.  

We know it’s time to change. The research is now conclusive – diversity in all its forms makes business sense at every level. 

At the top, California is forcing a change with its new, controversial law to mandate the number of women on boards; other states such as New Jersey are considering following California which will increase the number of boards affected. We see that larger companies, typically under more public scrutiny, are ahead in fixing the problem. Companies with < $1B revenue had 12.8% female directors in 2018 whereas companies with > $20B revenue had almost twice as many at 24.1%. 

Having diversity at the top can also help mitigate risk in the #metoo era. I have observed firsthand that women in leadership positions are able to see and identify problematic behavior very quickly (not that men can’t but many women, including me, have been the subject of the inappropriate behavior and so they know immediately the impact of the problem). Sexual harassment incidents can cause material reputational, and hence valuation, damage in today’s social media era and boards need to be both sensitive on this issue and vigilant. 

I have served on public company boards since 2006. For many years I was the only woman on the boards I served on and even today I am the only woman on one of my four public boards. I’ve learned a lot about where the resistance to change comes from and how powerful it is when a board decides to diversify.  While the law can push change, change can be even more powerful and beneficial when the benefits of diversity are recognized within the boardroom.  

So how do we make change happen so that boards become more diverse, including offering greater leadership opportunities for women at the board level?

First, we must recognize the benefits that come from board refreshment.  In my experience part of a good board evaluation process is recognizing that there should be reasonable board turnover on a regular basis. Over 50% of the Russell 3000 companies made no changes at the board level in 2018. When you think about how fast the world of business is changing this slow rate of change at the board is surprising. 

There are a number of steps related to board refreshment that boards can take to encourage greater diversity at the board level.  These steps can include the following: 

  • Reviewing the skills and experience truly needed by the company and then taking a hard look at whether all directors still belong on the board through that lens. This requires board members to engage in a real board assessment process, assessing each individual director (not a check-the-box process) and can lead to a difficult conversation with a long serving director but it’s necessary to ensure the company has the best possible board in place.
  • Recognizing the potential loss of independence for long-term directors. This one is controversial in the US where the average tenure of a director is greater than 11 years, and in 25% of cases is greater than 15 years. Europe is different. I serve on the board of Faurecia, a publicly traded >15B euro global company headquartered in Paris. In the EU a director is not considered independent after 12 years and so directors will typically be asked to serve only two 4 year terms and this is made clear to a new Faurecia director up front. While most US companies do not have term limits, in my experience there is a basis for the belief that very long-serving directors (however that is defined) can become more closely aligned with management and less independent.  
  • Putting age limits in place. Again, this one is controversial since age diversity, both young and old, can add to the richness of the discussion in the board room.  Further, and as with term limits, hard rules make for hard cases.  I know this personally, as one of the greatest directors I have ever served with was 80 years old and an active chair when he passed away this year but if a director is snoozing in the meeting or out of touch with the industry then s/he should probably be aged out.

Second, boards must be willing to elect first time board directors. And yet of the <50% of companies who did elect a new director in 2018 less than 25% hired directors with no previous experience (although again large companies were twice as likely to do so as small companies). I’ve heard the objection too many times – “we don’t want to have to work with a new director, it’s too disruptive”. Well guess what? You need to in order to bring diversity and fresh talent into the director pool. I’ve been involved in doing this several times now and so long as a member of the board signs up to mentor, and the candidate signs up for director training, you can absolutely find a rich pool of highly experienced executives who are ready to work hard to learn how to be a great director. 

Third, boards must have a transparent recruiting process. The days where a board hires their golfing buddies need to be over (yes, I’ve seen this behavior). The governance committee needs to be clear and open with the whole board about the specification, the process and the recruiter. Since the majority of directors are still male it is very reasonable to need to hire a recruiter to bring candidates to your attention whom you would not normally meet.

But finally I want to tackle the elephant in the room – the directors who just don’t think diversity is important. Its old school thinking, and time will age these directors out, but in the meantime it’s important for the directors who do believe in the power of diversity to speak up. Male or female, directors should insist that the boards they sit on diversify and insist that board searches target the group that is being sought for the board – be it gender or race diversity – because unless a search targets a diverse candidate the probability is the next hire will likely be a white male who is known to the board. Having led this effort myself, I know great women can be found, although the recruiters have to work harder, and the new director may be a first-time director.

Again, the law can be used to force change. In France 40% of the directors must be female and my experience of the women I serve on the Faurecia board with is that they are smart, engaged and steeped in the industry and markets Faurecia serves. But the bias runs deep. When I was joining the French board a US director I served with had the nerve to tell me that this had led to weaker boards with unqualified female directors. He stunned me with his claim that forcing diversity reduces quality. This is simple bias without any basis in fact or research.  Unfortunately, I know such statements continue to be made behind closed doors—an all too difficult reality to recognize—but I admit I was still stunned to have my fellow director make such a statement. 

So what’s the answer?  Unfortunately there is no single answer.  Instead, it requires a broad attack on a number of issues.  But for my $0.02, the critical first step is recognizing the importance and benefits of diversity at every level and setting determined goals to change the numbers, especially in the board room and including within the leadership of the board room.  

** Statistics from the Corporate Board Practices in the Russell 3000 and S&P 500: 2019 Edition which asks the question Why Aren’t Boards Diversifying Faster?


It’s time for Tone at the Top on Diversity – or Why Uber is Yet Another Wakeup Call for Boards and CEOs in Tech

 Uber is just the latest company caught in the act of discriminating against women in it’s workforce. Sadly for many minorities in tech this is an old story.

As Ellen Pao writes in today’s Time article it is an indication of “tech’s existential rot”. In a world that “started off seemingly harmlessly by white men funding white men with few exceptions. When only white men were given opportunities, only white men were successful. White men went on hiring only white men, because it seemed to be a common trait of successful employees. Then investors who were white men decided only white men could be successful and doubled down on white men. White men who succeeded in the system decided it worked and saw no need for change. Fifty years later investors can’t break out of that pattern.”

But it is time for the pattern to break for many reasons. There is mounting evidence that diverse teams build better products – they are more likely to understand the buying behavior of their customers if they reflect the customer. There is also growing research that companies with diverse boards and management teams produce better returns for investors -so now some investors are encouraging boards to take on diverse board members.

But more importantly it is no longer acceptable for companies to allow employee harassment to continue while HR departments stand by or worse become part of the problem, as Uber is finding out to it’s detriment. The #deleteuber campaign has been due for a while and will hurt. (note, I switched to Lyft a year ago after reading about the leadership culture at Uber.)

So if it is no longer acceptable at the board level, in the executive team, and in the engineering ranks what can we do to make change happen faster?

I have worked in the “bro” culture of tech in Silicon Valley for more than 30 years. I have repeatedly experienced unconscious bias (sometimes not so unconscious ), being underestimated, being dismissed, being propositioned etc. and I have worked hard to over come it as I became a CEO who grew my company through a successful IPO and acquisition. And as I have done so I have been open and public about my wish to be a role model to other women that you can be technical, and be in a leadership role, and have a family in the technology industry. It’s possible to do and be happy.

I was conscious of the challenge I was facing from day one when I was one of only a handful (I think 5) women majoring in math at Cambridge in my year, out of about 300. And so, to be a role model, I have always tried to hold a leadership position in any situation I am in, especially if everyone else in the room is male.

It is so clear to me now that the problem we have in tech is not a pipeline problem. Yes, we need more little girls to like computers, and more little african american boys to believe they can be Mark Zuckerberg, but we have plenty already who enter the tech world. But the women leave in droves within 10 years because the environment is hostile. Our problem is keeping women in an industry that makes life difficult for them.

It is time to set the tone at the top. To insist that boards have at least 2 or 3 women on them (not just none, or the “we have one so we’re done” you see on so many boards). There are now several recruiters who specialize in finding qualified women with the right experience for boards. For example Beth Stewart of Trewstar would tell you there is no shortage of qualified women to serve, but a shortage of boards who think this is an important issue.

It is also time for boards to insist that the CEO builds a diverse leadership team. This takes real work to find diverse, qualified executives but it can be done in most fields. Uber is just one of many examples where a mostly male leadership team is simply deaf and blind to the issues facing their female employees.

“Tone at the top” is an expression used by boards when reviewing the results of the annual audit. They discuss whether the management team is committed to honest, ethical behavior and whether they operate with integrity. The discussion is important to sign off the financials – after all what audit committee chair would want to sign off the financial filings if he did not believe the CEO and CFO had integrity with the numbers?

It’s time for companies to embrace a “tone at the top” discussion around equal opportunity for all employees. It is time for every board to pay attention to the diversity statistics within their companies. How many women are employed at every level, has the company done an audit of pay across gender to check that women are not paid less than men for the same job? Are the percentages of women in leadership growing or shrinking? It is just not hard for HR to run reports and track progress over time – but it takes a serious discussion on the importance of diversity from the board down to build a world class company in the 21st century.

I am hoping this is what Eric Holder and my friend Arianna Huffington will now do for Uber.

Boards, Career Advice

So you want to join a board: Advice to help you prepare

 If you want to join a board, you are not alone. Some people want to find a board in the middle of their career because they like the idea of learning about board life, or for the status of it; some people are looking for board work towards the end of their career because they want to stay engaged and give back. Either way it’s a common, serious interest for many people.
But what does it take – how do you prepare yourself to be qualified?

First off, determine why you want it – and be able to articulate that. Are you looking for income or interest? Be clear about this because there is a huge difference between the two. Non-profit boards typically don’t pay, in fact they expect you to give money. For-profit private company boards may pay cash, or they may only pay in stock (which may, or may not, ever be worth anything) and for-profit public company boards pay, but the pay varies widely depending on the size, industry and country of the company.

Once you can clearly state what you want and why, the next step is for you to determine what value you are going to bring – what is your value proposition? What experience do you bring, how will you be helpful, why should a board want you on it? I had never done this formally until a few weeks ago when I was on a panel and the moderator asked us panelists to write down our value propositions. This is what I came up with (late at night in a hotel room!):

As someone who has 20 years as a high tech CEO, has been through an IPO and many M&A deals  and who is very technical, I bring experience in what it takes to create the strategy, execution plans and leadership teams necessary to drive growth. As a compensation committee chair on two public boards I team with the CEO to create the right incentives to execute the operational plans and create shareholder value. I tend to be the voice in the room focused on strategy and the needs of the leadership team in a rapidly changing world.

Try writing yours – what would you say?

Another way to approach this is to inventory your skills. Make a list of what you’re good at – what makes you unique. This is your experience – what types of jobs you’ve had – PLUS what is it about your intellect and personality that will be helpful? Are you good under pressure, are you energized by solving hard problems, are you good at negotiation, are you natural coach, do you have strong P&L management experience? These are skills that are often not on your resume, but when a recruiter asks you what you would bring to a board it’s good to be able to confidently state the top 3 or 4 skills that you would bring.

The next challenge is that while  you may feel you are ready to contribute on a board, many boards will not want to hire someone with no previous experience. This is one of the top objections that prevents boards diversifying – boards tend to hire people they know, who are like them, who have served on boards before. It’s less work than hiring someone who is different and needs training. But as the trend towards building more diverse boards continues, nomination committees are coming to terms with hiring board members without previous experience.

One of the ways you can prepare yourself is to go and take training. I am a member of the volunteer faculty at a two day intensive training course – the NextGen Directors Academy – designed to take a small group of diverse, aspiring future board members through the nuts and bolts of being on a board. We cover the basic responsibilities, what each committee is responsible for, what your institutional investors care about and case studies of boards who got off track with activists. It’s an interactive, peer to peer format, and there are no stupid questions. There are several courses around like this, but not all have deep, intense content so make sure you talk with previous attendees before you sign up.

Another way you can prepare is to make sure you have the business basics covered. Most of the top business schools run executive training classes, from a few days to several weeks, ranging from general management preparation to specialized skills like cyber security. Once you have inventoried your own skills and experience, think about whether you have a gap you need to fill with some training, or whether you want to develop a skill that is currently in high demand for board members.

One of the ephemeral requirements of many boards is “fit”. Boards are expected to be collegiate, to get along, to voice difference but in the end come together on decisions. (I could write a tome on whether this is healthy for the shareholders or not, but not here). If you want to get onto a company board, but have no experience to point to, try joining a non-profit board first. Pick one that is a decent size (>$500k a year in budget), that has a real board that meets 2-4 times a year and that is run by an experienced chairperson. Reading the prep materials, listening to the management team, sitting in the meetings contributing to the discussion in a balanced, collegiate way will bring you confidence and experience that you can then refer to when you discuss your first for-profit board.

Make sure you have the time to be an effective board member. Being on a board carries status with it, it sounds important, and it may pay well. And many boards have 4-5 meetings a year so it doesn’t sound like much. But actually board work can take a huge amount of time. On a regular basis you need to put the time aside to read, to prepare and to attend the meetings. But in addition you will have countless phone calls and phone meetings outside of the regular meetings. You will need to meet with the CEO and members of the executive team and if the board needs to find a new CEO (for whatever reason) expect to spend days and days, over a series of months, meeting candidates and discussing them with the other board members. So before you pour time into preparing yourself to sit on a board make sure your day job allows you enough time to truly contribute.

And finally, don’t be shy. If you want to get on a board say so. Tell everyone you talk with about boards that you are, yourself, looking for a board seat. Network with recruiters who specialize, and stay in touch with them so you are current in their minds. Talk to people who are already on boards. Finding the right board is a pretty random process and so getting the word out will help the right board find you.

Boards, Leadership

Why you need a CEO on your board when you are the CEO

One of the first decisions an entrepreneur needs to make once she has raised money for her great new idea is to build a board.

This is a conscious act. Yes, your investors probably have board seats, at least the lead investor will. If your investors are angels maybe 2 or 3 of them have demanded to be on your board. But beyond this crew you owe it to yourself to step back and think about who do you want on your board to help you build your company.

It is entirely reasonable for you to put one outside director on your board, and it’s an unusual set of investors that will not allow you to bring one new director on. And when you do, you want to bring on a current/former CEO.

Why a CEO? Why not a technologist, or a family friend, or your cofounder? Fundamentally, a current/former CEO is going to have seen your movie before and will bring a wealth of unexpected advantages to your board and your company.

Your board has a duty to represent all your shareholders, but more than that they have a responsibility to care for the company first. For your employees, your reputation, your probability of success. Having a board member who is truly independent of the investors can help bring a broader perspective to the board discussions. I have seen investors who are so focused on their own issues they lose sight of what’s best for the company. An independent director can take her role – as the one person who is not worried about the timing and size of liquidity but is instead worried about the long term success of the company – very seriously.

I met with a big time PE partner (let’s call him Adam – not his name) recently, who is sitting on a private technology board. As we talked he told me the CEO was dealing with the issue that he, and the other big time PE firm on the board have different agendas. One is a long term investor, one is interested in liquidity sooner, and the difference is a strategy problem for the CEO. The investors are balanced in ownership and the CEO is caught in the middle. I asked Adam “Why is this the CEO’s problem? Surely the CEO’s responsibility is to grow a great company and create the greatest value he can, not worry about negotiating between the two of you on the timing of an exit. It’s a ridiculous waste of his time”. Adam (figuratively) took a step back and agreed. I’m not on this board, but I can still make the case for the CEO not being distracted!

You’re going to need advice as you build your company, great advice. Yes your investors may know a few people, but you want to be referred to people who are not looking to your investors for future referrals, again who are truly independent. You’ll need lawyers (you want a pit bull in your corner unless you have truly world-class VCs), recruiters, marketing consultants etc. etc. And when you hire them you want to know they are loyal to you, not back channeling to your investors. An independent CEO should have a quality network for you to tap into.

Working for you
There will be times when you need to get something done but you are out of time and need some sleep. You can use your CEO/director to give you capacity. Maybe you need her to build a model for you, maybe you don’t know how to present an issue to your board and your director can build a sample presentation for you to help you frame the issue. At a minimum your director can do deep reviews for you of your own presentations, legal agreements, offer letters, compensation plans… with the eye of someone who has done it before.

Role experience
A high quality former CEO will bring experience of what the job really entails. What are you truly responsible for vs what decisions your board can make (which is very few in reality)? What does it take to build a world class team? What does it take to close your first few big deals? How to focus. Only someone who has done the job for many years really knows what it takes, and there are many investors out there who like to give you advice, but have never been in the role. Your director can be a sounding board for you in the role of CEO.

Being the bad guy
Your CEO director is not your friend, and sometimes she may feel like your enemy, but because her only reason to be there is to help the company, you can trust her even when you hate her. I’ve always had a former CEO on my boards, and sometimes it’s been absolutely maddening.

For example, the time my director attacked me in a board meeting and took me to pieces for a plan I proposed. Afterwards I asked him what the hell was he thinking coming after me in a board meeting? He humbled me by telling me he could see my main investor was winding up to attack and so he decided to attack me first so I did not get into a fight with my investor. He knew me well enough to know that if attacked I would attack back, and hard, and that could damage my relationship with my investor.

And for example, the time my director had a one-on-one with me and decimated my forecast. Destroyed my faith in every deal. Ripped every one of my sales campaigns to shreds. His motivation? To wring every piece of optimism out of my forecast so I knew the worst case and could then focus on what needed to be done to bring the probability up on each campaign.

Daily coaching
There are times when things go well, and then there are times which are rough. Raising money can be one of those times. Having someone you can call every day to review how things are going is so very helpful, and you cannot be calling your investors. You need a safe place to call. Someone who has no other agenda but to help you and the company succeed. And someone who has been there. That is a current/former CEO.

You may be thinking “well that’s self-serving of her given she’s a former CEO who sits on boards”. Yes, probably right, but right now I am meeting with many, many interesting entrepreneurs and I am hearing too many worrying stories of entrepreneurs who need better board advice and support.

Photo:  © 2016 Penny Herscher and from Buzzfeed


Why shareholder activists are now the long term holders

Activists have been on the rise over the last few years and it depends who you ask whether they are agents of the devil or the good guys just driving boards to create higher returns.

Some activists are now very high profile as the whole area of shareholder activism grows. You’ve got the attention getters like Dan Loeb of Third Point. His signature is pithy, hyper critical public letters to boards eviscerating management and often demanding a change, as he did at Yahoo. You’ve got the old salts like Carl Icahn who invests his own money and has been at the aggressive game of taking on companies for 30 years. And because the technique and approach is growing you’ve got any number of small firms getting into the game.

Activists are basically trying to accelerate a return from an investment strategy by engaging (forcing) the company into a discussion of what they should be doing that they are not doing. Replace the CEO, spin off a division, shut down a piece of the business, buy back stock – whatever the strategy is that they think management and the board are not doing but should be doing. They can be tough to take because the best ones do extensive research, they are experienced smart investors, and they are probably right more often than they are wrong. The board and management may even know it and agree, but the activist is forcing the timing of the discussion.

And because they are often driving for a different use of capital (such as buying back stock or selling the company rather than investing in more speculative, long term R&D) and they are typically aggressive (in your face) and gutsy (they buy at least 5% of the company’s stock), and they are trying to make things happen on a faster timeline (than is natural for management) they have a reputation of being short timers.

But when you look at the data of who’s holding the stock that is not necessarily the case.

I had the pleasure of being on a panel titled Shareholder Activism: The Good, The Bad or Just Ugly at Stanford Law School last week. The panel was moderated by David Berger who is a litigator at WSGR, and the other two panelists with me were Steven Davidoff Solomon who is a professor of law at U C Berkeley and writes a column for the New York Times and Jesse Cohn from Elliott Management. Jesse is another very high profile activist known for disrupting companies like Riverbed, EMC and Citrix – and it was fascinating to listen to his side of the world and how he views companies and their boards.

The panel was held by SVDX and so the general content is not to be discussed outside the room – but a fact came up that challenged everyone’s assumption that activists are operating on a short time frame. The fact is that the average hold time of Elliott’s positions is 2.5 years. It takes time to get into a company, and to drive the change they want. But, in contrast, the average holding period for a mutual fund is now 270 days. 270 days! That means most mutual funds are holding a stock for less than a year, and quite a bit less time than the activist who is trying to get the company to take action.

Also, once the activist holds more than 5% it is public knowledge – they have to file their position and typically when they do they are open about what they think needs to change. So while they may disagree with the company on strategy, at that point their financial objective is the same as management – increase the value of the stock.

There’s no question the rise of activism increases the stakes for boards and management, and it has good and bad actors, and good and bad strategies. But it’s no more short term than your granny’s mutual fund is, and it’s here to stay.


Boards, Equality

Why the Debate About Twitter’s Board and Women at the Top in Silicon Valley Is a Healthy One

Posted in the Huffington Post today

Is the fact that Twitter has filed for its IPO with no women on the board,
and only one (new) woman in management a question of supply or demand?
Is it the “arrogance of the Silicon Valley mafia,” as Vivek Wadhwa believes,
or “difficult” due to a lack of qualified candidates as Twitter
insiders have implied, or just competing priorities while managing a
rapidly growing company?

This is a critical debate, one that has been growing since Lean In was released and a debate that is good for technology companies. We now know that having diverse product design teams creates better products. We also now know that having women on boards makes companies more competitive. So why would a company build its management team and board entirely from men?

Some would argue it’s a priority issue and the debate Vivek and Twitter’s CEO, Dick Costolo,
sparked on Twitter gets us thinking about the priorities. When you’re
building a company, especially one as visible and ground-breaking as
Twitter, it can be hard to do anything that takes extra effort. It’s all
you can do to keep up with the demands of the voracious needs of your
company and a second-level issue, like diversity, probably does not feel
urgent. It takes time and effort to build a diverse team because to do
so you have to demand that your recruiters do the extra work to provide
you with diverse, qualified candidates.

The trustees at the Anita Borg Institute from Women in Technology,
where I have served on the board for the last ten years, know this
firsthand. ABI is funded by companies like Google, Intel, Microsoft,
IBM, Facebook, Amazon, HP… the board is made up of both men and women,
executives who believe growing women in technology is important and the
way to change the numbers is to make diversity a priority. To focus at
both the college level and in the workforce — to focus on solutions
that keep women in technical roles, that reduce the isolation many women
feel in tech, and that teach the skills necessary to get ahead in a
male dominated world.

Some would argue it’s a supply issue – that there are just not very
many women in tech to chose from so finding qualified ones is hard.
It’s true, there are not as many of us as there should be, but there are enough that boards can find one, or two, women to help them diversify their ranks. It’s a question of good governance in the end. Catalyst research has shown women on boards increases the rate of return to shareholders over time which is one of the reasons the EU is moving to quotas of female directors, and why the UK has a percentage target
of female directors for the FTSE by 2015. But in the fast pace of
private Silicon Valley companies few VCs would tell you having women on
their boards matters because it’s all about rate of growth, and when
you’re moving fast you hire who you know, or people who’ve done it
before, which is most likely men like you. My experience over the last
twenty years is that the bias in neither conscious, nor intentional.

So yes, women on boards is not usually a priority to young tech
companies, but Silicon Valley is not ” virtually closed to women,” as
the NYT
claimed on Sunday. There are plenty of us here running companies,
building products and building companies that we believe will change the
world. For the first time we have women at the top of several high
profile technology companies — all at once! We have the glamorous
Marissa Mayer at Yahoo and Sheryl Sandberg at Facebook; we have the
intensely focused Meg Whitman at HP and Ginny Rometty at IBM; we have
high-growth, smaller company leaders like Amy Pressman at Medallia and
Christy Wyatt at Good Technology and we would all tell you that while
we’re not done, the environment is so much better for women now than it
has ever been.

But in the end, the debate itself if the best thing that’s happening.
Sheryl’s making people talk about how to encourage women in the
workplace with Lean In, ABI is challenging leaders to measure the
quality of their company by what kind of company it is for technical
women to work in (Intel was the most recent winner),
and Twitter’s IPO gives us another chance to look at the statistics,
take a deep breath, and once again set out to change them. As Dick Costolo’s final tweet last night said, “The issues are much bigger than checking any 1 box.” It’s time to address them.

Boards, Equality

Public companies should report on Diversity to their shareholders

There is enough evidence of the value of diversity on corporate boards now to do something truly visible about it. We deal with Say-on-Pay every year now at the public board level, so why not Report-on-Diversity?Say-on-Pay is a result of the Dodd-Frank Act. It says that the shareholders get to vote on whether they approve executive pay or not. It’s non-binding – ie. “advisory” but boards take it very seriously. They have to. Executive pay is a contentious issue, highly paid consulting firms like ISS and Glass-Lewis opine on whether the shareholders should vote for or against the executive pay packages, and the compensation committee members (like me) work hard to try to both be competitive with the CEO’s pay and take the input of the shareholders into account in the design of the pay packages.

It’s an imperfect process, and the consultants are very mixed in the quality of their analysis, but it throws attention and light onto the right issue: over time is executive compensation lining up with company performance?

So why Diversity? Because we now know that having a diverse board improves company performance. Consider:

– ION’s research that companies gain a competitive edge with more women on the board
– Catalyst’s extensive research that having women on boards improves financial performance
– University of Wisconsin-Milwaukee research that boards with a woman on them are 40% less likely to have a financial restatement

but the numbers of women on boards are not changing. As Ilene H. Lang, president and CEO of Catalyst and a member of the
WCD Global Nominating Commission, said: “Despite heightened conversation
globally around women’s representation on corporate boards, the 2012
Catalyst Census once again showed no change for the seventh consecutive year – and the challenge is not lack of qualified women.”

The reality is white men still dominate the board room.

Fran Maier of TRUSTe calls the low number of women on boards “despicable” and attributes the issue to low turnover of boards, lack of term limits, and most of all due to male board members recruiting people like them. She and Catalyst are right, it’s just not a lack of qualified candidates.

And yet today only 16% of US public company board seats are held by women, 29% of companies have no women on the board, and while 91% of the Fortune 500 have one women director, only 60% of the Technology 200 have one director — technology is significantly lagging!

I think the answer lies in transparency. I don’t think it lies in quotas as the EU is pursuing. Their notion that 40% of directors should be women by 2020 or the company faces sanctions will create a negative backlash and will not lead to the best candidates being hired. Quotas are in place in several European countries, and they certainly
make change happen fast, but I believe it diminishes the impact a woman
can have on a company if she’s known to be there because they need a
human without a Y chromosome to fulfill a quota.

But we can tackle this issue, and make change happen, if companies have to report on their diversity and the process to improve their diversity to the shareholders. The British, who like the Germans are at the bottom in the rankings of women on boards and in management, have introduced voluntary measures where companies report on their diversity and their targets.

The statistics will change if companies are required to report on the diversity statistics of their upper management and board, and present them in the MD&A. It would improve if they were required to report on the change over time and describe their diversity programs to bring more women on the board and into senior management. Even more revealing would be to require them to disclose how many diverse candidates they interviewed in the CEO and Director recruiting process. I’ve been in the room – it’s shockingly low (and I have to be very careful about when and whether I point that out since I am still always the only woman in the room – as I was years ago when this photo was taken).

Most boards want to do a good job. Most want their companies to do well and to provide good governance and oversight. Faced with the growing body of research that diversity improves financial performance, most would engage and try to improve things. Some are tone-deaf to the issue (which never fails to surprise me, even now) but educating boards and causing them to publicly report on the their diversity, their programs and their improvement over time would make change happen, and improve financial performance at the same time.

And my board at FirstRain? 50% women of course.

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