S2-E3 | Understanding Board Dynamics

Transcript

SPEAKER_01 0:02

Hi everyone, I am Joshua Jahani. Welcome to the Technical Founder Advanced Concepts in MA and Investment Banking. We are in episode three of our Power Alignment and Communication series. And today we're talking about understanding board dynamics. This episode comes right after talking about aligning founders, board members, and management. And this episode comes right before managing the executive team and employees. So the goal of this conversation is to double-click on how technical founders should understand board dynamics so that they can make better decisions and ultimately execute a transaction if that's what's in the best interest of the company. Ricardo and I have uh varied perspectives on this. And so I wanted to take a moment to walk you through my perspective as a majority sell side investment banker working with founder-owned companies. We are often bumping into boards when they are advising a slowdown or a caution or a second look in either the transaction itself or the decision to do a transaction. What I would want the technical founder to take away from this episode is that it is very rare and highly unlikely that a board dynamic or a board set of members is going to be more gung ho or more excited about doing something that has any element of risk attached to it. The dynamic between founders and board members that we experience is that founders are let's go, go, go, and board members are like, hold on, let's think about this, let's think about that, let's think about this, which I think there's a lot of value in. And I think that that value should be placed at the correct moments within a transaction. That's certainly something that could be more damaging or more negative towards the end of a transaction and has a better place inside of the contemplation stage of whether or not to even pursue a transaction. Ricardo, when you think about understanding board dynamics for our audience, how would you advise them to frame this?

SPEAKER_00 2:03

This is a the classic situation where I mean one can picture the following image. Two people meet in the ballroom, they feel like dancing, there's an audience watching them, and they start dancing. But one is really keen to dance the tango, the other one is keen on vaults. So you know the synthony in the sync doesn't work so well. Because taking the perspective of the board, uh the role they play is absolutely critical because they behave in differently under transaction pressure. And what works in steady state governance does not always hold an MA. Board carries fiduciary responsibility at the moment of highest consequence during an MA deal. A transaction is not just another strategic decision, it's often irreversible. So the board must validate the process, challenge the assumptions, protect shareholder interests, and ensure that risk is properly understood. And that creates a different dynamic, more scrutiny, more question, more tension. And at the same time, they are under pressure, and rightly so, from the other party, from the other dancer. And the shift in board behavior is quite critical as well. First, the time horizon compresses, discussion becomes more focused, more intense, more frequent. Second, risk sensitivity increases. Board members begin to ask more detailed questions, especially around downside scenarios. Third, individual voices become more pronounced. Directors who are quieter in normal times often become more active. Fourth, alignment is tested. Differences in perspective that were manageable before become more visible. So the whole thing changes, the whole landscape changes, the whole set of dynamics, I mean, collectively and one-on-one change as well. And different directors bring different lenses, some focus on financial returns, some others in strategic fit, some other risk mitigation, some modern governance process, some on reputation, all reflecting the diversity that one expects to find on a board, especially on effective boards. All are valid, but they're not always point in the same direction. And in a transaction, these differences need to be reconciled often under time pressure. And there's another point here about independent directors. They are often the ones who challenge management assumptions, ask them comfortable questions, slow the process already, or accelerate them when they feel necessary, and ensure the decisions are defensible. And from the management perspective, this can feel like friction, but from a government perspective, it's protection. Effective professionals understand distinction is not a problem. It is a safeguard, but it can be tricky somehow. What do you think about that, Joshua?

SPEAKER_01 5:21

It makes me think of terminology that people use when talking about voting populations. They often talk about certain voting segments and they say that they are not a monolith. And I would advise our audience to take that same perspective with the board that they're working with. Each board dynamic is different, they're not monolithic. You will know the players and you'll kind of know what the scripts are that the guys or girls on the board tend to generally follow. What you're looking for is you're looking for general consensus. You're looking to make sure that any of the roadblocks that the board is bringing up are not insurmountable. Things like that would be timing, valuation, uh, you know, uh governance, maybe less so. And then, you know, they they are your board for a reason. And assuming that it's a good reason that you made them your board, you should listen. Um, I think that's ultimately, usually the boards are not the majority shareholders in the transactions that we do. And as Ricardo said, they have a uh a fiduciary obligation to the shareholders. Ricardo, you talked about mapping influence in the first episode when we talked about how influence was not shown on the org chart. And I think that that mapping exercise is really important in board dynamic stages because they can have they're they're more subtle, the personalities and the influence that they have. When you think about takeaways, what are those major takeaways that you'd like our technical founders to have coming out of this episode?

SPEAKER_00 6:49

Going back to the metaphor of the Tango and Waltz dancers, one has to think about the recurring tensions. So they have they want to dance, but they have different rhythms, they have different paces. And one wants speed, the other one wants thoroughness. One wants opportunity, the other side sees risk. Trust versus verification, it's another dilemma. And fatigue versus discipline, another issue. So clarity, transparency, and respect for process can help a lot and can move a great deal in the whole process. So, overall, I hope that this episode teaches how to operate at the governance level. And at the senior level, your effectiveness depends on your ability to communicate clearly under scrutiny, align different perspectives, anticipate questions, and support decision making without overdirecting it. So the takeaways I see for this episode are first, boards become more active when decisions matter most. That's a feature, not a problem. Second, different perspectives are inherited to governance. The goal is alignment, not uniformity. Third, being effective means enabling better decisions under scrutiny, not avoiding it. Because when governance works well, it strengthens the outcome.

SPEAKER_01 8:24

Thank you everyone for listening to our podcast, The Technical Founder Advanced Concepts in MA and Investment Banking. On our next episode, we will discuss managing the executive team and employees.