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- [00:03]
Lindsay Jordan
I think everyone wants to think their board is the gold standard. So I think there's a few things.
- [00:08]
Kathryn Williams
And this is why they call you though, right?
- [00:10]
Lindsay Jordan
That's why we have a job. So when I think about how the board operates, I'd say clarity. Are we clear with what we're doing, why we're here? And everyone that's in this meeting, what is their role?
- [00:27]
Kathryn Williams
Hi, everyone. This is Kathryn Williams. I am head of Practice management here at Dimensional Fund Advisors. And today we are going to talk about board of directors, should you have one? If you do, what should you be looking for? What's the purpose of a board? All things that you've ever, probably more than you ever wanted to know about having a board of directors. But it is a question that comes up for many of the clients that we work with, and particularly if they're thinking about that next evolution of their business. Maybe there's some M and A activity potentially involved. What can be driving the need to have and the benefits of having a board of directors. To join me in this conversation today, it's my pleasure to introduce you to Lindsay Jordan. Lindsay is the senior manager with the corporate Governance Advisory practice at Ernst and Young. Lindsay, it's great to have you with us.
- [01:14]
Lindsay Jordan
Thanks, Katherine. Great to be here.
- [01:15]
Kathryn Williams
It's quite a title. I was trying to make sure we got all that. Got all that fit in there. So in case you're wondering what Lindsay does, it's an incredible title. And for those of you that may not be familiar with this area of Ernst and Young and the work that Lindsay does in particular, first of all, I love fact that in your bio you're referred to as the governance evangelist, which I think is really fantastic, and we should talk about that. But Lindsay has worked on over 100 capital market transactions, including IPOs, mergers and spinoffs. She's frequently collaborating with the US center for Board Matters, which is an incredible resource that provides data and help for directors really, with particularly in complex or strategic challenges around a board of directors. So that's a little bit of Lindsay's background. We're in great hands, everyone today with the conversation we're going to have. But, Lindsay, I'd love to start with a question that I often ask many of my guests because we sort of don't arrive at where we are today overnight. But what brought you to this particular space and working with the kinds of clients that you get to work with.
- [02:14]
Lindsay Jordan
Yeah, thanks, Katherine. And thank you for the gracious introduction. I certainly don't view myself as extremely supportive of A very long title, but appreciate you giving me the credentials there. So when you think about how I arrived at corporate governance, I guess it depends on how far you want to look. Back before EY, I was in restaurants and hotels for about 10 years. So I am probably the only chef turned CPA turned governance evangelist that you will ever meet in your travels. But particularly within ey, my background has kind of run the gamut as you'd typically expect of a Big four as well as a consulting firm as well is I supported external audits, a lot of technical accounting, advisory, transaction advisory. You mentioned my work in the capital markets space. I'd say it spent most of my time over the past 12 years as an SMR helping companies go public, navigate more of the kind of controversial or provocative SEC and reporting concepts. Things like segments, non GAAP measures, a lot of the disclosures that become really important as companies go from private to public operations. And a lot of the decision making around operationally how they structure some of those key strategic decisions on what goes in a filing, what stays out and how do you frame that not just from an investor perspective, but obviously from an SEC compliant one as well. So how I landed in this space is I clearly enjoy the nexus and oftentimes ambiguity of operational decision making. Kind of that position right between the board and management, one of oversight of the board and you know, getting the work done. That is management's responsibility as well as legal, finance and critical communications to the investor and regulatory stakeholder. So that's kind of how I arrived at where I am. What I'd say is our corporate governance advisory practice. You make it sound very big and grandiose. It's a really small SWAT team within our large 400,000 person organization. So it's just myself and I have about four people on my team and we work very tactically with all of our IPO clients as well as non IPO clients as well on topics such as board effectiveness, board evaluations, insights when there's a potential governance issue, governance dynamic, right. That a company is navigating. You mentioned M and A. Maybe it's a merger of equals and they are bringing together a team of C suite that's never worked together or a board that has two different factions and two different perspectives. When I think about governance structures, operating models and you know, the decisioning that happens at the strategic level, there's no one size fits all. I find that incredibly interesting and a really fun place to work. From a perspective of your job in question is never the same. There is Never one right answer. Kind of a gritty, innovative, founder led tech business is going to operate and look very differently than a large, global, complex, PE sponsored and controlled organization. Whether they're going public or they're navigating private or public company life cycle decisions. Right. Their board will look different, their management team will look different. The concepts that come across their plate will look very different based on their maturity and where they sit on that life cycle. So it's just a really interesting place to constantly figure out problems and help. I'd say my clients work through iteratively, you know, what's the right decision for them to support, where they're trying to go and what they're trying to achieve in terms of their objectives.
- [05:59]
Kathryn Williams
What I appreciate about what you just described too is this idea that what, you know, we're going to focus most of our conversation today around that body that is that that board of directors, but that doesn't happen in a vacuum, so to speak, that it's. It's one part of a. And depending on the size, shape or form of the business can be a very complex environment that that board is operating in and serving the different needs of the business. So it seems like you absolutely have to be okay with a little bit of ambiguity if you're going to do this job.
- [06:28]
Lindsay Jordan
Absolutely. It's funny anecdotally, I received a call this week on navigating when a CEO and a COO or a CEO and a board chair are married. When you have a dynamic of people are people. Right. When the people that are running organizations fundamentally we're not robots. Not yet. Right. AI hasn't taken a. Taken us over at this stage, but everything has a business as well as a human element to what we do. And so there are conflicts of interest that arise that are just normal part of operating any type of organization. There are related party transactions that are inherent in any sort of business cycle. These things happen. It's just around how do you make decisions and then how do you communicate those decisions transparently and effectively and obviously within the regulatory framework that you have to follow that are aligned to what an organization has said they want to do. So if you have made it very clear in the public space that this is something that came up a lot around ESG is, if you've said ESG targets are incredibly important to our organization and we have made financial commitments in order to help us get there. But then operationally that day to day there's a misalignment between the public statements and the financial commitments that are made. That's when dysfunction begins to be highlighted, is when there's not a cohesion between what is our organization trying to accomplish in the public markets or in our industry or in our sector, how have we made commitments to our investor group and our other stakeholders to get there and then what are we actually doing on a day to day basis to make sure we are communicating effectively.
- [08:17]
Kathryn Williams
So I'm curious, certainly for the clients that we work with, they're sitting more, they're sitting in the private space, the RIAs and investment organizations, but still have stakeholders, still have the structure, still have the decision makers and decisions. Regulated environment and an extremely regulated environment. So I'm curious, are there one or two questions or areas that when you're asked to engage and begin, you know, evaluating or assessing a business, where do you start? Because I, I mean you, as we've talked about this can get complex very quickly and your ability to really get
- [08:55]
Lindsay Jordan
in there and understand you can boil the ocean very quickly.
- [08:58]
Kathryn Williams
Yeah, yeah, that's a phrase I say all the time. Absolutely.
- [09:02]
Lindsay Jordan
Where do you start? So my first question is always, particularly if you are looking to start a board or considering maybe a reconstitution or of your current board or structure roles in remit and so forth, my first question is what are your objectives? And it's really just kind of pressure testing what's under the hood? What, what are you really trying to achieve with this decision? So as an example, if you think that a board structure, whether it's an advisory board or fiduciary board, they're different. If you think a board structure might, may be beneficial, what's the reason? So as an example, we may go into a consult where they say I think I want a fiduciary board. And then I start explaining to them the differences between those two kind of archetypes. And they may say, well, I really just want people to pressure test my strategy, people to perhaps be kind of an executive coach to my newer growing C suite team. And perhaps I just want doors to be open so I want to use those directors or kind of members, if you're like an advisory council, if I want to use their network in Rolodex to open doors for my business and support my growth strategy, that to me sounds a little bit more of an advisory board that's more of less legal, regulatory, kind of compliance and oversight, more of insight advice, a little bit softer from a board decision making matrix. So when you think of public companies, all public companies in the US are required to have a board with certain committees. So there's a lot of formality around a fiduciary board in the public space. Again, there's have different sizes, different structure of committees where certain areas are covered. From an oversight perspective may be different things like cyber as an example. Oftentimes it's covered. If it's material, it's covered at the full board. If it's risks related to the financial statement disclosures, it's maybe covered under the audit committee. If it's maybe something to do with employee data is leaked, maybe that's a compensation committee or non gov committee matter. So it really just depends on how you framework every single decision from a private company lens. It really depends. Right. There's a lot more flexibility on how companies can structure their boards. Do they want committees at all? Do they find it helpful? I call myself a governance evangelist partially because it's slightly silly and funny, but also because governance is not one size fits all over. Governance is often just as bad as under governance. Right. So you don't want to necessarily create, whether it's in the boardroom or in the organization, unnecessary structures that aren't helpful, that aren't accretive to the organization. So if you have these meetings and these bodies and these people and the structure in this formality that doesn't work for the organization, that's just as much as an operational risk as when you have absolutely zero formality and the CEO is making every single decision. So it really is about making sure there's clarity on what is the organization trying to achieve with a potential board structure or potential change in the board and is it aligned with your strategic objectives? That's kind of my second question is, is what are you trying to achieve as an organization? Right. So great example is if an organization is trying to grow through inorganic growth, meaning M and A transactions, maybe we're looking for corporate development, acquisitions and so forth. If there's not a ton of M and A competency internally in the organization, and maybe, you know, your external advisors are clearly very embedded in their own perspective of what's going to help them, you may want to bring on kind of an independent voice by way an advisor or a board structure to pressure test your M and A strategies, to kind of be the independent voice in those conversations to support you on making the best choices for your business, to support what you've stated that you want your objectives to be.
- [13:06]
Kathryn Williams
So a couple questions that we often get when we're asked about should I have a board or if I have one, you know, as you touched on a moment ago. Maybe there's an opportunity or a need to reconstitute. I mean, I guess maybe a first question I'll ask you is do you see as a business grows, gets more complex even, or just changes and evolves, that you'll also see that happen with why you have a board and with the purpose that that board serves. Is that fair to say that that is an evolutionary process as well too?
- [13:35]
Lindsay Jordan
That's absolutely fair. If you just look at the public company stats. Because again, public companies, it's a lot easier to view them by proxy because there's disclosures, right? There's reporting. So it's easy to have insight into their board practices, right? Public companies have to file a thing annually called a proxy. If you're a US public company, in that proxy statement, you will have all sorts of disclosures around board composition, their structure, individual director skills and experience. Because really what that document is, is fundamentally a marketing tool to the investor base to say, please reappoint the directors that we have that are within our board. Here's why we think they're the best people to support us to the promised land.
- [14:22]
Kathryn Williams
Right?
- [14:23]
Lindsay Jordan
That's fundamentally, it's not the only reason, but that's one of the reasons why they're many governance and board disclosures in a proxy is so that investors that are voting on reappointing or appointing new board members, it's a communication tool the organization uses with their investor base in that manner.
- [14:41]
Kathryn Williams
Does that play out differently if it's actually a private company?
- [14:44]
Lindsay Jordan
We get a lot of questions from private companies and it's because of this exact reason, there's a streamlined mechanism to understand private company board structure, board size, committee composition, percentage of independents, there's no required disclosures. So all of it is either anecdotal or maybe survey based. So when a private client comes to us and they ask us about should I start a board, we kind of go down the decision tree. Is it fiduciary? Is it advisory? What's your size? What do you want their roles of responsibility to be? Do you want them to sign an agreement? What's contained within that agreement? Do you want the position to be compensated? If so, how much? If so, cash or equity? Do you want it to be retainer based? Do you want it to be meeting number? Right. There's a lot of decisions that go around that. And so what we often do is look to the closest public company peer because there's no way, unless we specifically have worked on a private company in that sector industry that we would have access to that information. So we use public company as the proxy. And what you see when you asked about the kind of the maturity is public company boards, just as an example, one data point are between seven and nine people. So companies going public are generally seven to nine. Let's say S&P 500 are 11 to 13.
- [16:12]
Kathryn Williams
Yeah.
- [16:13]
Lindsay Jordan
So that may not seem like a huge difference, but it is if you're looking at the lower end of the range to the higher end of the range. Okay. And I, I've worked on several IPO boards that are five people. That's pretty lean. And generally those it's five for a reason because it's maybe pre revenue, maybe they are a smaller company in terms of market capitalization, employee base.
- [16:37]
Kathryn Williams
What's the risk if the board is too small?
- [16:39]
Lindsay Jordan
The risk is if the board is too small, there's not enough competency to provide the right oversight of what the organization's trying to do. Said differently is if you have five people on a board, let's say maybe only one or two people actually have public company board experience and understand SEC disclosures and understand the audit committee cycle and what's required in terms of potential risks that the company should be thinking about. They may be fantastic executives or individuals, maybe like with really deep sector expertise and experience or again like maybe like M and A depending upon what they're trying to do. But if they have no public or limited public company expertise and experience, they don't know what good looks like. They don't know the questions. Right. They just haven't been exposed. So that's really the risk on when you, when you're establishing a board going public, if you're looking at a oh I just want to meet the bare minimum requirements, it's a risk. And that's what we advise companies is you can do that. Right. You can select a smaller board. Literally just look at the regulatory environment as a checklist and select the bare minimum. But what you'll see is almost universally no company does that. There are companies that do it. But that's why is okay, I've seen companies that are five person boarded ipo. The vast majority is seven to nine. Why are they seven to nine? Because of what I just mentioned. Additionally, I talked about the proxy. So the predominant disclosure mechanism for an IPO is a registration statement. Registration statement, amongst other things, is also a marketing document to investors. Here's what I want you to invest in our company. The board is not just one of compliance and oversight, but it's also of marketing. Here's why you should invest in our company because we have the best of the best people in the boardroom pressure testing our strategies.
- [18:37]
Kathryn Williams
It's a great point.
- [18:38]
Lindsay Jordan
Yeah. Said differently is, let's say if you have a CEO who is amazing, intellectual, super innovative, very good at what they do, but is a little bit of a hothead, you want a great board who knows their value, knows their worth, lets them do what they do to be successful in delivering the products. But you're going to want a really strong board who aren't just. Yes, check the box compliance exercise. Who really.
- [19:09]
Kathryn Williams
They're going to help help anchor that.
- [19:11]
Lindsay Jordan
Yeah, exactly. Who Challenge. Who provide different and opposing views. It's strong directors that I've worked with critically challenge in a productive way. What's being said in the room, what is the strategy? We've put in a document that we're mapping out for the next five years that that's their role. Their role is to challenge is to ask questions. Have we thought of this? I've maybe seen this in my other board seat. Have we thought about how that could potentially apply here? That's really what a good board member does, is productively and from a place of kind of supporting challenge is bring up things that are potentially controversial and in conflict of what is happening now. You don't want to go down this quagmire of being unproductive because that also happens. And then when you see public company boards that are larger, you know, S&P 500 or complicated, highly regulated environments, things like regulated banks or maybe government contractors, those organizations will have 12 to 15 person boards. Fifteen's pretty aggressive. And then when you think about the same question, what's the risk of a big board? Well, the risk is maybe it's difficult to find consensus and it's harder to manage a bunch of people. So that's when they say, like, what's kind of the sweet spot? It really depends on the organization, size, complexity, what's going on, what are the objectives. If we wanted to give it a specific data point, I'd say 9 to 12. 9 to 12 is kind of like what you should consider. If you're private, it should be smaller because your regulatory environment's different. You don't have quarterly reporting to a regulator into your public investor group. Again, if you have one controlling shareholder that's making all the decisions, maybe you don't need a board at all. Maybe that's just something where it's like ultimately you have one singular shareholder or one controlling shareholder. A board is nice, but at the end of the day you have one person that makes all decisions, so it doesn't matter.
- [21:13]
Kathryn Williams
So let's say I'm the registered investment advisory firm. I've decided I need to have a board. I want to have a board and maybe I'm targeting 7 to 9 range. How do you think about the mix between what we often refer to as internal versus external board members? So people that are, you know, in the business on a day to day basis versus not. Do you have a thought process on how you kind of get to a mix, if you will? Yep.
- [21:39]
Lindsay Jordan
And I know you asked for private, but I will just give you again, public proxy is.
- [21:43]
Kathryn Williams
Yeah, yeah.
- [21:44]
Lindsay Jordan
Public companies in the US are required to have a majority independent board. Now there's IPO transitions, there's also control to company accommodations where you don't necessarily have to follow every single governance requirement. But in general that's why you see a lot of public company boards having outsiders having non employee directors. That's why you see it is because it's a requirement. Also in terms of the compliance versus the marketing lens from an investor marketing lens is there is a fundamental concept with investors that independence is a good thing. Independence. Right in this, that's kind of the sanity check oversight perspective. Let's be the devil's advocate, let's challenge what's happening. Let's not be the yes man. Right. There's a fundamental construct that investors believe the higher the independence in the boardroom, the better the result. Come with the expectation that if you're establishing a board, there's shareholder primacy, fundamentally, which is investors are the most important stakeholder within an organization because it's their money. Right. That's that is title. It tied into the organization. Oftentimes with private companies, shareholders come with a board seat. So said differently, if you're a private equity firm, if you're a VC organization, right. You will have, let's say I'm going to invest $5 billion into a company, I'm also going to want to have two board seats or five board seats, whatever it is. So a lot of times the organization itself doesn't have control over what the composition of that board looks like. So if you're a private organization, investment comes with board seats. It's just part and parcel to the way that structure works. And it makes sense because they want to make sure that they have a seat at the table and all the strategic decisions, they want to make sure that they are reported to on a timely basis.
- [23:34]
Kathryn Williams
Quick question for you on that. Then you mentioned this. You know, do they want one seat, two seats, five seats on the board? What often dictates how many seats a private equity or private partner might want?
- [23:43]
Lindsay Jordan
The amount of money. The amount of money, okay, the amount of money that they're contributing based on the equity value of the company. So got it right. It's not. 5 billion doll dollars may seem like a lot of money. It is a lot of money. But if your company is, you know, the crazy valuations that are happening now in certain sectors, $400 billion, okay, maybe it's not. Whereas if your organization is valued at 9,5 billion is a significant amount. And probably if you have a board of six, you know, $5 billion investors going to have seven board seats in order to control all the decisions of the board. So let's say hypothetically though, Catherine, like there's not a investor base or a shareholder structure dictating the creation of a board and it's just something the organization wants to navigate. There's a lot more flexibility, size, skillset, competency, formality. I then go back to the initial question is what is the driver behind it? If the driver is pressure testing strategy, the types of skills and competencies I would expect to see are people that can do that. Right. Not someone that's going to be maybe a little, a little bit of a wallflower maybe. Maybe someone who's fantastic at like you mentioned, in the business, out of the business. Maybe someone that's fantastic at being in the business.
- [25:02]
Kathryn Williams
Right.
- [25:03]
Lindsay Jordan
But is great at their business only not seeing things through a broader lens or understanding the competitive landscape or understanding emerging risks that could be coming up. So oftentimes not one person in a boardroom is going to have all the skills and competencies of everything. We generally refer to kind of a board skills enabler template. It's kind of a multi pronged tool that helps with a variety of things. It helps with director secession, it helps with board structure and planning. It helps with determining director education needs. You have a board of directors, you should upskill what they know based on what's going on in the organization. Don't just report to them on, here's the historical financials, here's where we stand on, you know, achieving our objectives. It's oh great. I also want to bring in maybe someone on AI. Let's bring in a third party to discuss trends in our sector or we're maybe contemplating growing internationally. Let's bring in really intelligent people to discuss that. Whether it's lawyers, advisors or other people that could bring in interesting insights. That is a great exercise is to have that kind of third party education piece be baked into to quarterly annual board reporting. Don't just do it when you need to do it as a proactive tool to improve your board effectiveness. And so that skill matrix will have the skills you think are important, will have the maybe percentage independence that you think is important for your organization. Whether it's may, maybe it's one person, right? Maybe it's 20%, maybe it's less than 50, but maybe it's above 50. Well, okay, great. Then when you look at potential candidates, if you have a board now, you can very clearly see, okay, what are the competency skill gaps and independence gaps that we need to solve for in the next cycle. And so again if it's a competency thing, it depends on what you're looking for. I'm not saying that education is going to replace at all someone who's deep in a particular topic. Right. If you're a CTO at a AI native organization, that's a different, like you're not going to be able to train someone else up like someone like myself, right. Is, is a, like I'm not going to be able to be an AI expert in six months and but it's one of those things where you can at least get your board more comfortable and confident on a topic, on a potentially an emerging risk. And it's, it's a great way to do that. And then you say okay, where's the gaps on the skill sets that I, I have noticed? And then let me go out and look for those qualified candidates. And again, if it's not an independence thing you' looking for, it may be an employee, it may be maybe even a competitor's employee. Right. So it could be someone in the same or similar or adjacent sectors. But maybe there, if you're looking for as an example, a technology expert, you may look to bring in a cto, maybe not of a direct competitor, but someone that's close enough that could bring in beneficial perspectives and kind of look behind the veil of someone that is a competitor ish of the industry.
- [28:23]
Kathryn Williams
I think what you're describing is so compelling because we are often talking with advisory businesses, especially ones that have been around 10, 15, 20, 30 years at this point. You know, we get oftentimes in the business we get anchored around sort of a person, we evolve a role around a person, whether they've been there for a long time, whatever it might be, versus what are the roles that the organization needs in order to succeed. And then you put your people into the roles that the organization needs. And so what you're describing around the board structure, I think is very much like that and compelling thinking about what do you need, what's the representation, the expertise, the knowledge, the characteristics that you need of this board and then start putting the people in. Because certainly I know for a fact several people listening today have a board of directors that either. It's like these were the, you know, we sometimes joke they didn't back out of the room fast enough. So that's who got picked. But oftentimes it's, you know, these were my buddies. We created this. And certainly if you're a shareholder, have an equity stake in the business, that's a driver as well. But what does each board member able to contribute to what you're ultimately trying to achieve and really anchoring to that. I think that's incredibly compelling in my opinion.
- [29:35]
Lindsay Jordan
It's like starting with the end in mind. Right? Like so I love the fact that you framed it on we as an organ, as a industry. We structure a lot and put a lot of focus and attention on an individual, which is fantastic. But when you think about the board space and, and, and it happens all the time, particularly in private companies. But right. Friends, associates. Right again, investments, things of that nature, where even though they're not an employee, there's a lot of affiliation involved. So they're not really true independent directors. They're just not employee directors. There's a big difference. So when you have that structure, that may be fine. That may work for plenty of organizations. But to the extent that you start seeing dysfunctions or to the extent that, you know, the, either the shareholders or the executives start saying, I don't think the board is maybe focused on what we want them to be focused on. Maybe they're too in the details, too in the weeds. Maybe they're not asking enough questions. They're more like zombie directors and they're dialed out. They're not asking the questions. That happens. So it's like the complete opposite sides of the spectrum could exist. Maybe they're fantastic, but they're not the type of, of Persona you're looking for, for the needs of your organization. All of those kind of elements could and do all the time contribute to board dysfunction. And there's a concept that it's required in public companies is to. For the committees and the board itself to evaluate themselves annually. Now most of the organizations, there's no requirement on how it's done. Most organizations will do Self assessments. And I always say that if I were to give myself a self assessment, I would be paying me significantly more money and I would get an A plus. I think most people would feel that way. And so there is value attorneys. Our company does this, all of the big four. It's a very disparate, disaggregated landscape. A lot of people do board evaluations. It's great to get a third party to come in. Whether they do it from soup to nuts, whether they just support kind of high level conversations or maybe one on one interviews with the directors and key members of management. A board evaluation that's beneficial is very helpful. Now whether organizations use it to actually drive change, that's another concept. It's almost like if you think about, if you sue someone and you are granted some sort of award, great, you won the award, but are you ever actually going to, you know, recoup the funds? That's a different story. It's like almost you think those two things should be aligned, but they're not often. And so a board evaluation and it, let's say hypothetically there's, you know, 15 to 25 improvements or enhancement opportunities that are identified during that board evaluation doesn't necessarily mean the board's going to do it or the organization is going to institute it. So there is a little bit of a disconnection between that. But nonetheless, an evaluation is a good exercise to do, whether it's annually, whether it's once every three years through, through an independent party. Because it, a lot of times it puts on paper the open secrets that people already know. And it aligns around, okay, we knew this director or this dynamic or this structure was slightly provocative or not helpful for what we're trying to achieve. Now we have it on paper. Again, there's some differences on how that's articulated, how it's structured, particularly in the public markets. There's a lot of sensitivity around privileged information. And if you say maybe a director or a structure isn't working well and it's not changed, and then somehow that's also part of discovery. That's right, a litigation risk. So there is a lot of sensitivity, as you would imagine, around CEO evaluation, around board evaluation, but there's not a one size fits all. There's not a exact steps plan on how those things should be dealt with, on what is the right structure and approach. But even if informally, for a private company, if you don't have the formality of a third party or maybe the budget of a third party evaluator at Least just pressure testing every year. Do we have the right board? So to answer your question, do we have the right board structure to try to achieve what we're going to achieve? And just maybe bringing in a couple folks to have that conversation. Right. It's almost like a 360 evaluation whether it's management or the shareholders is do we have the right people in the right seat to support what we're trying
- [34:06]
Kathryn Williams
to achieve and revisiting the charter.
- [34:09]
Lindsay Jordan
That's right.
- [34:10]
Kathryn Williams
Sort of why do we exist? What are we trying to accomplish? Do we have gaps in that? I think really at the heart of what you're saying is like build the discipline of doing it. Whether you do something about what you discover could be maybe a different conversation.
- [34:22]
Lindsay Jordan
But that's right.
- [34:23]
Kathryn Williams
I think, you know, and that's an, that's the question we get frequently too specifically around this idea of, you know, is there an ideal tenure to think about for members of the board? And I give a very consulting response which is it depends. It depends, you know, and so, but, but I think it gets, that's essentially at the heart of that is, is the board functioning? Is it, is everyone functioning? You know, are you stress testing your beliefs and, and how the, you know, the, the role of that board on a regular basis of some kind?
- [34:48]
Lindsay Jordan
So that's exactly right. I mean obviously the, the more regulated for public companies it. There needs to be a little bit of formality behind it for, but for private companies it doesn't need to be an overly disciplined formal experience. It can be a simple conversation of let's just make sure what we're doing. From a governance model, from an OPS model, from a board structure and composition, from a manage, you know, a C suite management composition, do we have the right people in the seats to support what we're trying to accomplish? It's a simple question, maybe not a simple answer. At least annually evaluate or in the the construct of the potentially creating a new board is is it the time in our maturity to start a board? And if so again going back to where we started. What are our objectives of creating this potential board? And let's make sure we're clear.
- [35:46]
Kathryn Williams
When you have engaged with high functioning boards and board of directors, are there any particular characteristics or things that you observe that you know, help indicate why they're. They are truly functioning at the highest level for the best purposes?
- [36:03]
Lindsay Jordan
I've come across boards that are, I'd say more so trying to be aspirational I think to qualify a board as incredibly high functioning that is truly Gold standard. I think everyone wants to think their board is the gold standard. So I think there's a few things.
- [36:22]
Kathryn Williams
And this is why they call you though, right?
- [36:24]
Lindsay Jordan
That's why we have a job. So when I think about how the board operates, I'd say clarity. Are we clear with what we're doing, why we're here and everyone that's in this meeting, what is their role? I'll give you a great example. Obviously not naming this specific organization, but I attended an audit committee presented on a certain topic and there were so many people in the room, but it was a well oiled machine. The timing, the agenda, right? The chair, the secretary, the presenters, people would come in, have the slides that were not viewed on the screen. They would speak to an executive summary. So having protocol and discipline around how things are presented in a boardroom, sticking to an agenda is very helpful. Not going off script and not doing side quests and taking up all the room, then you're not actually able to really talk about why you're really there. So I'd say a board that operates effectively, it's almost like an intrinsic thing. You can feel where you're like, wow, this is impressive. Almost like when you go to a manufacturing plant and you're like, wow, they're putting together a car and everything is seamlessly moving and operating at the same time. And there is clarity and no dysfunction in the processes. If something is there, there is a purpose and we understand what the purpose is. Super high functioning directors, I would say they have a deep competency in whatever skill set they bring. And that skill set may be a generalist. And I don't mean that in a pejorative way. Maybe they're just really great at connecting and pressure testing things and asking critical questions and making connections. That to me is a skill set in and of itself. But again, if they're a CTO or if they're audit committee qualified financial expert, they should have deep competency in something and then the other skill sets are around. Some of the things I talked about is can they listen to different points of view, Are they clear on the direction of the organization? Meaning are they not going to steer the company in a way that hasn't been agreed upon? Right. If you've agreed upon, let's say five strategic objectives for the next two years, can you continuously anchor around those five things? If you keep bringing up something that's not mission critical, that's not helpful, you may sound very intense, intelligent, but it's not helpful and it's a drain of resources, a drain of time. So someone that can bring their skills and expertise to life by anchoring at the organizational's kind of defined strategies and listening and this sounds really simple, but listening and asking questions now it's not asking questions.
- [39:15]
Kathryn Williams
Those are the hardest things to do.
- [39:17]
Lindsay Jordan
It's funny because it's not asking questions just to get your voice heard. Right.
- [39:22]
Kathryn Williams
Right.
- [39:22]
Lindsay Jordan
Especially in the boardroom. It should not be a question of fact, it shouldn't be a. Explain to me how EBITDA is calculated and why this adjustment is presented here. If you don't know that as a director, that should be a one on one education session, maybe with your cfo. What you should be asking are things that are critically challenging and helpful in terms of hey, I see that our EBITDA was x. We're maybe 20 points behind guidance. What have we done about like, I know you just walked me through these three things and how we're maybe going to communicate this next earning cycle. Have we considered xyz like okay, great, thank you for that. But then what about this other concept? Or like have you explored, you know, this emerging or, or what are we doing operationally to try to solve? Right. So it's more so of. Let me try to look around the corners and let me ask questions that are additive that maybe you haven't considered. Not a question of fact, not grandstanding for the purposes of getting your voice heard. Meaningful questions that are productive.
- [40:37]
Kathryn Williams
Maybe not even questioning judgment. It's more just have we, have we considered all options? The curiosity of that.
- [40:44]
Lindsay Jordan
Yeah, curious is a great word to describe what I'd see in high functioning directors is productive. Is able to see perspectives from various sides and very curious and not shy to ask questions and questions that maybe potentially seem controversial or provocative. It doesn't have to be be like a kind of easy, low hanging fruit. It could be something of hey, at the risk of being terrifying here, like have we thought of XYZ or I don't know if I really agree with this way forward, like talk to me about how we got here. So I think that's that, you know, intellectual curiosity as well as, you know, potentially more challenging is really necessary sometimes.
- [41:35]
Kathryn Williams
Yeah. Well, I love it when I think about our conversation today. You know, if someone's listening today that does not currently have a board or maybe the business is just getting underway, you know, this idea of how a board can be a really powerful opportunity and vehicle to create structure, bring maybe if you need that governance piece, but also thinking about, you know, what are the stakeholders of the business and how do we potentially use a board to really bring everybody together and drive the business forward. And then if you're listening today and you've had a board of directors for a while or maybe maybe you had one for a little bit and maybe you haven't gotten together in a while, things like that, but a real opportunity to reassess the strategic purpose of that board. Think about leveling up on the structural side, the professionalizing of your board. If that's an opportunity as well, who do you want to have at the table? Then as we've talked about, think more about, you know, what are the topics, skills, areas of professionalism that you need on that board and then go find the people to fill that out. I think, you know, know really powerful opportunities there, especially as your business has gotten bigger, continues to evolve. Lindsay, I have one last question for you.
- [42:40]
Lindsay Jordan
Yeah, yeah, you got it.
- [42:42]
Kathryn Williams
What was the last amazing meal that you chefed your way through that you were like, oh, this is a good one.
- [42:49]
Lindsay Jordan
Well, I was originally thinking it was something that I've prepared. I have been traveling a fair amount, so I have been and I basically not preparing Michelin starred meals like I used to. So. So I will answer it with my most recent enjoyable meal experience which was at Shoto in dc. Okay. This past Saturday and it was my one of my best friend's 50th birthdays and we had a fantastic time, great restaurant in dc. Very sceny, very vibey kind of sushi tasting experience. So, so very, very fun and a great time time.
- [43:27]
Kathryn Williams
I love that, I love that. And happy 50th to the friend that that's a great milestone to celebrate for sure. Lindsay, thank you so much for joining us today. This has been incredibly informational and helpful. As I mentioned, it's a topic that does crop up particularly with a lot of the M and A activity happening, a lot of the just the pace of growth for so many of the businesses that we work with. So thank you for joining us. It's great to have you. Anyone listening can absolutely find Lindsay on LinkedIn and the the usual platforms. And if you'd love to know more about how Dimensional is working with advisors, you can find us on dimensional.com Lindsay great to talk with you and we'll catch everybody next time.
- [44:04]
Podcast Narrator
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