Boards are the most lasting and important avenue to the real change we need in capitalism. So let’s make them better.
The Information is a subscriber only publication, so I don’t often link to it here. However, its package today (this link is open if you share your email) on private company boards is fundamentally important, and offers key insights into the state of our most vaunted business fantasy: That of the tech-driven startup on the verge of a world-beating IPO.
Regular readers (well, OK, yesterday’s readers) will recall that I recently wrote about Etsy, which was pilloried over the weekend by a Times profile that laid out a too-neat narrative about a fanciful “do-gooder” company forced to heel by the unforgiving demands of short-term Wall Street investors. My point in yesterday’s column was that it was far better to see Etsy chart its own course through those perilous waters than to capitulate fully and become a forgotten footnote of the tech oligarchy. The fact that the company managed to remain independent — even if it had to reform some of its more celebrated attributes — is a testament to its board. And if you look at that board, you will see a lot of diversity — plenty of independents, a strong governance philosophy, and a healthy percentage of women.
Unfortunately, that’s not what you see when you look at The Information’s reporting on the majority of the boards of private unicorns. Sure, private companies have fewer regulatory demands shaping their boards than do public companies, but if you’re going to be a strong public company some day, it’s just good governance to build a board capable of resiliency and independence early in a company’s life. And what The Information’s research reveals is troubling: When it comes to building truly lasting companies, the Valley is failing.
“Despite their enormous size and influence,” the report concludes, “the biggest privately held technology companies eschew some basic corporate governance standards, blocking outside voices, limiting decision making to small groups of mostly white men and holding back on public disclosures.”
I’ve been on private company boards for two decades, but I’ve only got five years of public company board experience under my belt. I serve on the board of Acxiom, a data services business that’s been around for forty years. I’ve learned more serving on that public board than at any private company — including chairing the boards at my own startups. The single most important thing I’ve learned is this: When it comes to effecting change in business, the highest point of leverage is the corporate board. When the sh*t hits the fan, it’s the board that determines a company’s ultimate fate.
That’s why I agree with Sukhinder Singh Cassidy’s conclusions in her Op-Ed accompanying The Information’s package. The most important conversations in capitalism happen around the board table, and if that table is filled with founders’ proxies and wealthy investors, the decisions taken by a board will suffer, as will our overall innovation economy. Often the first step to diversity is to place a woman on the board. But it can’t stop there. The most important aspect of diversity is a diversity of experience and point of view.
“While getting the first independent female director onto tech boards represents progress,” Cassidy writes, “the real opportunity for every board is to create a richer level of discussion, debate and perspective each and every time they come together. This only happens when no one in the boardroom feels marginalized or has to fight to be heard, and everyone feels like they are in an environment where the ideas and conversation flow freely.” I’ve been on boards where that doesn’t happen, and believe me, the decisions we’ve taken proved lethal. But when a board is willing to have the hard conversations where all points of view are honored and considered, that company has a far greater chance to thrive.
So why does this all matter? Because, as I’ve argued endlessly, business is the single most important agent of change in our society, and right now, our society desperately needs fundamental change. Our half-century run of Milton Friedman-driven “profits at all costs” capitalism is coming to a close, and we need new solutions to our systemic crises of economic sustainability. These solutions won’t come from some magical, top-down governmental edict. They’ll come instead from hundreds of thousands of decisions taken, one by one, in board rooms around the world. And if those board rooms are filled with diverse, thoughtful, independent minds, a new, more sustainable approach to business will emerge.
It all starts with the Board.