Boardroom Best Practices
💡JC's Newsletter #71
Dear friends,
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In JC’s Newsletter, I share the articles, documentaries and books that I enjoyed the most in the last week, including a must-read.
Let’s talk about this together on LinkedIn or on Twitter. Enjoy!
💡Must-read
👉 Boardroom Best Practice: for larger companies (Spencer Stuart)
Board Size & composition:
The ideal board size is eight to 12 members
Independent outside directors should always comprise a majority on the board.
Most governance codes recommend that a minimum of 50 per cent of board members should be independent from management and shareholders, with no conflict of interest. In our judgement this is truly a minimum requirement.
Gender quota in France: 40%. It applies to all listed companies and non-listed companies with at least 500 workers and with revenues over €50 million. If companies do not comply their board elections may be nullified.
As of today, our board is 5 board members + 1 observer. We are going to be soon 40% women for board members.
Frequency:
To be effective, boards should meet at least six times a year and outside directors should be prepared to devote 20–30 days to the business and sometimes more.
We have one scheduled board meeting per quarter, and ad hoc discussions with board members when necessary.
Onboarding:
All boards should operate a tailored induction programme for all directors, whether first-timers or not.
Continuing education for directors is essential to ensure they are aware of business, legal and operational changes and the impact on their responsibilities.
Directors should be given every opportunity to see the operations at first hand to support their understanding of the business.
That is super important whatever the size of the company. Making sure that your board members understand your business and your operations really make a difference. Don’t take it for granted.
Committees:
Delegation of activities to committees does not excuse the board from collective responsibility for the committees’ actions; all directors should have the right to attend all committee meetings.
The majority of audit committee members should be independent and all should have an understanding of financial matters.
Risk management must always remain an executive responsibility
The board should be careful about increasing the number of committees
Audit committee. The committee’s priority is to ensure that the nature of the relationships between the auditor and the company around the preparation of the accounts is rigorous, objective and not in any way compromised.
The remit of the remuneration committee is simple: to set remuneration levels for executive directors and to approve the remuneration policies of the company.
The properly advised remuneration committee would normally be attended by the human resources director and/or the head of remuneration.
Strategy:
In a two-tier board system, the authorship of the strategy is clearly the responsibility of the executive. The role of the supervisory board is to provide constructive challenge and support and to monitor successful implementation of the strategy.
In the unitary board system, there is a clear expectation among non-executive directors that they will be closely engaged in the strategic-thinking process.
Defining exactly what is the role of the board and what it is not makes a huge difference in the quality of discussions. It also starts with how you prepare your board meetings.
Board meeting dynamics:
Sufficient time must be allocated to debate. Frequently, presentations by executives take too much time and repeat what is in board materials, with the result that discussion is not focused on the pressing issues.
Presentations may be important for educating the board about complex business matters, but they should avoid repeating what is in the board papers.
There is an increasing demand for more concise board papers, executive summaries and presentations. Too much detail in board papers can lead to a lower quality of debate, because directors end up spending too much time examining the detail and not enough considering the bigger picture.
Second, papers are often marked “for information”, “for discussion” or “for decision” or similar.
Spending too much time discussing metrics that have been shared before is not very helpful. We prefer to focus on the important topics for discussions (variance between objectives and budgets and digging deep on the why and what we can do, strategic discussions). Limiting the number of topics is also very important to select what really matters.
Annual assessment:
An annual board assessment plays a critical role in ensuring that any problems in how the board functions are brought to light and addressed in a discreet and timely manner.
These annual evaluations are frequently self-assessments, often conducted by questionnaire under the direction of the deputy chairman, senior independent director, or often the company secretary.
Is the board working well as a group? Is each individual board member fully effective?
Is there trust and collegiality among directors and between the board and the management team?
The individual performance of outside directors has become the subject of regular evaluation in some countries. These often take the form of peer reviews.
I really liked that notion of assessing every board member on a yearly basis.
Fees:
Fees should be commensurate with the time directors are required to devote and the scale and impact of the business. However, the overriding requirement is that outside directors should remain independent of the organisation on whose board they serve.
The issue of rewarding non-executive directors with shares provokes strong opinion. Some investment institutions oppose this practice on the grounds that it may lead to the directors adopting short-term views.
On the other hand, proponents claim they are only aligning their own rewards with those of the shareholders themselves.
An acceptable measure of alignment is best achieved by requiring each director to purchase shares to a value of at least their annual fee.
It does not apply when your board is mostly investor-based, but as you grow finding the right incentives for your board member seems to be very important and hard to solve.
🏯 Building a company
In addition to selected articles, I share one of Alan's leadership principles every week - the same one that I share internally and with our investors every Wednesday.
👉 We support failure at Alan (Healthy Business)
As an Alaner you won't have problems because it fails. We have no problem with that, you made a bet, you had the gut to defend it, we really respect that more than anything.
As a crew, we will review the scope and the approach if we get stuck.
As long as the learnings from those failures make our beliefs evolve, we are patient to achieve our objectives.
👉Group Chat: The Best Way to Totally Stress Out Your Team (basecamp.com)
Over-informing everyone in real-time: Might it be better to summarize sales once a day so you don’t interrupt people by incrementing an unread counter on everyone in the company a dozen times a day?
Problem is that chat window is a black hole for your attention — constantly pulling your gaze, constantly chipping away at your focus.
Real-time sometimes, asynchronous most of the time.
Stop expecting everyone to be in chat all day long. Don’t set an expectation that people should have a chat window open all day. Make chat something you bounce into and out of purposefully, not stick around all day.
If it’s important, slow down. If it’s an important conversation, it shouldn’t happen in the chat room.
Announcements aren’t chats. Related to the point above, if you have to make a company/group-wide announcement you need to make sure everyone sees, don’t post it in the chat room. Send it asynchronously (via something like Basecamp or email or whatever you use that provides asynchronous communication options).
Summarize rather than drip information. Rather than pipe in every single occurrence of something the moment it happens, consider summarizing once or twice a day. It’ll help cut down on distractions.
Give people long uninterrupted stretches to get work done.
👉 About the relevance of past patterns (The Knowledge of Future, Howard Marks)
In our world of investing (i) there are few if any facts regarding the future (ii) the vast majority of our theorizing about the future consists of extrapolating from past patterns, and (ii) a lost of that extrapolation consists of what Lipsitch calls opinion or speculation and what I call guesswork.
But build faith in the relevance of past patterns makes no more sense than completely ignoring them.
“An ignorant mind is precisely not a spotless, empty vessel, but one that’s filled with the clutter of irrelevant or misleading life experiences, theories, facts, intuitions, strategies, algorithmes, heuristics, metaphors, and haunches that regrettably have the look and feel of useful and accurate knowledge.” (David Dunning, University of Michigan)
🗞In the news
📱Technology
👉 Apple's antitrust problems keep getting bigger (Platformer)
United Kingdom’s Competition and Markets Authority opened a new probe
The Competition and Markets Authority said it will focus on how Apple forces customers to use its own payment system for in-app purchases and will weigh the company’s potentially “dominant” position in the supply of apps on iPhones and iPads.
The European Union may soon escalate its probe into how Apple Inc. allegedly squeezes rival music-streaming service Spotify Technology SA, according to three people with knowledge of the case.
👉Email from Jeff Bezos to employees (Amazon)
How did [our success] happen? Invention. Invention is the root of our success. We’ve done crazy things together, and then made them normal. If you get it right, a few years after a surprising invention, the new thing has become normal.
If an Amazonian’s idea requires yet another new institutional skill, we’re exible enough and patient enough to learn it. Keep inventing, and don’t despair when at first the idea looks crazy. Remember to wander. Let curiosity be your compass.
🏥 Healthcare
👉 The New Tech Stack for Virtual-First Care (a16z)
The true promise of digital health is the delivery of high-quality care at a fraction of the cost, and at dramatically higher scale than incumbents.
We’re now at a tipping point where the digital health market is large enough, and growing quickly enough, to drive demand for companies that serve as the “new tech stack for virtual-first care”. In the same way that Plaid abstracted out entire layers of infrastructure to dramatically reduce the cost and and time to stand up a new fintech business, these healthtech companies are allowing digital health startups to accelerate their time-to-market, and shift their focus on building core infrastructure to delivering game-changing care to patients.
Digital health companies have infrastructure needs in the following areas:
Care delivery services: e.g. clinical operations, virtual consults, ancillary services (e.g. labs, pharmacy)
Back office administration: e.g. revenue cycle, credentialing, supply chain management
Front office administration: e.g. scheduling, registration, payments and e-commerce, customer engagement
High-volume areas of transactions to engender stickiness. Example: Ribbon focuses on the billions of financial, administrative, and referral transactions that occur every year amongst virtual-first care companies that require some piece of data about physicians.
Connecting multiple stakeholders where integration is non-trivially challenging. It’s the intersections between stakeholders in healthcare that are often the most challenging to build against.
👉Happify Health raises $73M to expand its digital therapeutic care delivery capabilities (mobihealthnews)
Founded in 2012, Happify is best known for digital programs that provide automated self-guided support across various areas of mental health and wellness, such as stress management for employees or health plan members. Should the user need additional support, the platform can also facilitate a referral to third-party coaching, therapy, telemedicine or other available resources.
It's also available globally, with programs available in 10 different languages, including the most recent addition of Italian and Castilian Spanish
"Today, our platform covers more than 20 million lives, with more than 5 million individuals having received care through our platform," said Tomer Ben-Kiki, cofounder and CEO of Happify, in a statement.
💚 Alan
👉 Cultivating the principles of a company’s culture (Financial Times). Very happy to have discussed with Tim Bradshaw some of our leadership principles.
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Let’s talk about this together on LinkedIn or on Twitter. Have a good week!