This may be news, but boards of directors can offer bad advice. A typical board is composed of five persons in a company that has received outside funds from professional investors. Two members usually represent the founders or management, two are from the investors, and one is often elected by the four to represent the industry in which the company works.
The financial investors typically have deep experience running companies, often in other industries. The fifth board member often is an expert, but not an executive with operational experience. Realizing that this description is a generalization that fits some, but not all, growing firms, the dynamics of the board are a key component in the effectiveness of advice and leadership given by the board.
It is not uncommon for the founders or executives on a board to defer to the three outside board members, responding to questions and defending previous actions. All this is proper to the extent that the two founders or executives do not leave their brains at the door when attending a board meeting, acceding to the suggestions of board members as if each were a direction or order.
I still recall vividly the board of a young company that was composed of the entrepreneur and four investors, each of whom had differing thoughts on how to use resources to grow the company, giving mixed signals to the entrepreneur who wanted greatly to please each and all. That company embarked upon an expansion drive before perfecting the operation in its first city, as a result of the board’s direction to the entrepreneur, which was against his better judgment although he remained relatively quiet and certainly compliant. “The board knows best” is not always true. And in this case, the company over-expanded, did not have the resources to fix problems at its new remote offices, and died a slow death from issues of control and quality, all of which might have been mitigated had the company spent more time debugging the first-city operation.
Dave Berkus is a noted speaker, author and early stage private equity investor. He is acknowledged as one of the most active angel investors in the country, having made and actively participated in over 70 technology investments during the past decade. He currently manages two angel VC funds (Berkus Technology Ventures, LLC and Kodiak Ventures, L.P.), is a partner in Trenchant Ventures, LLC. Dave is past Chairman of the Tech Coast Angels, one of the largest angel networks in the United States. You can read more of his blog posts at Berkonomics.com, where this was originally posted.