Episode 54 - Governance without Giving up Control: Byron Loflin, Founder of the Center for Board Excellence
Byron Loflin, founder of the Center for Board Excellence, joins the team this week, helping us get a handle on the importance of good governance within our organizations. He shares with us his views on why governance is core to servant leadership and promotes healthy, humble accountability that provides a stable runway for your organization’s success. Even early stage firms can benefit greatly from a modestly sized board (3 plus the entrepreneur). Thoughts on how unanimous boards may actually be a sign that the board isn’t providing the robust thinking needed, how they should provide credible challenge and constructive dissent are all topics the team works through to help provide a framework on selecting and maintaining a board that will contribute to the success of your business or organization. And yes, we even broach the subject of how this is too often the least favorite part of the entrepreneur’s job with all giving pointers on how to balance the tension between stewardship and control.
A great deal of light is shed on how to take advantage of the very Christian concept of community and fellowship to help provide wise stewardship to an endeavor with this week’s topic of governance. We love to hear about some of your best board and other type governance experiences in the comment section below. Your story helps us in the building of our own!
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EPISODE TRANSCRIPT
*Some listeners have found it helpful to have a transcription of the podcast. Transcription is done by an AI software. While technology is an incredible tool to automate this process, there will be misspellings and typos that might accompany it. Please keep that in mind as you work through it. The FDI movement is a volunteer-led movement, and if you’d like to contribute by editing future transcripts, please email us.
Henry [00:01:59] He is a good friend. Byron is one of the guys I really like hang out with and since moved to California and get a chance to do it as much. But Byron is very much a modern renaissance man. He is a ski racer and a great international traveler. He's taken me as his guest to the International Prayer Breakfast in the U.K. and I've been with him to the one in D.C. And he knows a lot of really, really interesting people, none more interesting than him. I do think of him with that whole DoSAC. His commercial has one of the most interesting men in the world. And yet he has a job in an industry that a lot of us don't think is very interesting. A lot of entrepreneurs don't like talking about governance. If you were to put down a list of one hundred different topics that we might talk about on the podcast, governance may not be at the top of list, but it probably should be. I'll tell you that at band-width we struggled with the question of when do we expand our board? Do we have a board when we have one? What do we do about it? And so as I got a chance to talk more and more with Biron about the success of the Center for Board Excellence, which he leads, I said I'd love for you to join and I'd love for you to share with our audience what it looks like to have a good board and how you think about governance. So, Byron, thank you. Thank you very much for being with us.
Byron [00:03:17] Thank you. That was a little over the top. So I'll come back to Earth a little bit. It was direction.
[00:03:25] I'm trying to be a humble servant out here in the world of promoting good governance. That's Henry, as you and I have shared over the past many years. We love faith driven leadership. And along with that, we if we think back 10 years ago right now, many of us were concerned about what was happening in the economy to the degree that it was at times terrifying, frankly, that I was concerned about different parts of the world, that it could devolve into violence. But I want to emphasize one thing right out of the chute. This whole notion of a board of directors is actually more familiar than many would think. In the same sense that servant leadership is really rooted in the teachings of Jesus Christ. A board of directors is in many ways, I believe, rooted in the Twelve Apostles. And the notion of people working together and being accountable to one another is the core structure of governance. And then along with that is the structure of culture, values, policies, rules that effectuate a smoothly operating business. And I think if you don't do that, your road to success is longer and it's got a lot more potholes in it. And at this time of year, if you're driving on any roads in North America, there's a lot of big potholes from all the crazy weather we've had over the last month or two.
Henry [00:04:51] So tell us more about this concept of accountability. A lot of times an entrepreneur is not looking for accountability because they don't think of it as accountability, which is a kind of a glass half full look. They think of it more like somebody else having control over them. And I think that one of the things that entrepreneurs struggles with is this concept of ownership in storage ship and then also control. And I think in many cases appropriately, nobody knows the business as well as they do. They're worried about something else coming in and messing up with their creative mojo.
Byron [00:05:25] Well, the strategy that was being developed among Jesus and the twelve disciples when we look back at them, was one that was rooted in accountability and accountability to that strategy and that mission. You know, when we look at what we build around strategy, it's vision, mission values and goals often are the things that we develop underneath this umbrella of strategy. And in each one of those, I envision that accountability paralleling with humility. And what I mean by that is using the Jim Collins type of concept around, in order to rise to a Level 5 leader, one has to have strength of will and humility coupled together. And there's a check and balance there.
Rusty [00:06:14] Hey, let me ask you the question from. The perspective of size of company, so I could ask the question all the time, young entrepreneurs in their startup phase, should I have a board? When should I have a board? How big should the board be? Venture capitalists a lot of times are outside money will say, I don't want you having a big board because I don't want you to be distracted because they are another constituency that you have to serve. What's your best advice to a young entrepreneur who's got their company and they're trying to get it off the ground? When and how big?
Byron [00:06:46] Okay. A couple of points on that. Size and market penetration would have an impact on that. So a very small startup oriented business, whereas exactly to the point and I think many of the private equity people have a very good reason for not having distractions. Three people for a period of time. And this gets into more specific discussion with that entrepreneur looking at the size of the business and where that business might go. But three people should be plenty sufficient for that accountability, because what that means is there's four of you. And if four of you are agreeing on something, meaning the entrepreneur and three others. That's a very positive thing. And it's going to take three people to go against the entrepreneur. And I don't necessarily mean that it's not always a full voting. But let's assume it is for a moment.
[00:07:39] If three people are going against me as the entrepreneur, I want to know why I've got something wrong. And if it's two on two, then the two of us need to figure out the other two and listen to their input.
Rusty [00:07:51] Now, remember, caught by his first name, Sloane was the General Motors. Yeah, yeah.
Byron [00:07:57] Yeah, he was. I might keep the score.
Rusty [00:07:59] Right. And he used to make the comment that if his board agreed on everything, he would stop the meeting and say, let's talk about it later, because it means he wasn't pushing. He was pushing hard enough. You know, trying to get unanimous agreement sometimes means that we're taking the easy way out, which I think is a pretty hard and courageous perspective for someone to take, because a lot of times as an entrepreneur or a founder or the CEO, you know, you feel very vulnerable with your board and kind of always trying to live up to their expectations. So to not have them 100 percent aligned all the time can be pretty frightening. But I love the way he always pushed into that because, you know, if you're getting diverse points of view and you've got the best thinking, it doesn't always mean people are going to end up in the same place.
Byron [00:08:47] Agreed. And the other important benefit that a board should supply to an entrepreneur and I said this directly to you, entrepreneurs out there is that they should help challenge you with credible challenge. Constructive dissent and in the end, be people that are building your character as a growing entrepreneur. If any of those three are happening, then the board needs to be changed.
Henry [00:09:15] Byron, and listen to this. And as an investor now and also as a shareholder and co-owner of Bandwidth, I absolutely see the value of accountability. And when a board brings in for optics and for real, forget about the optics for saying interns are really getting the right people around the table, we can help sharpen iron. I do think back, though, through the first 10 years of bandwidth and the entrepreneurial mindset where David and I were the only board members of bandwith for the first dozen years and for us things were in reference to investing and bringing people on board had to do with valuation and control.
[00:09:51] And control was so important. We just didn't want to have anybody messing with our creative mojo, if you will, and didn't want somebody who knew only 10 percent as many of the inputs as we knew to really make decisions in the business, sort to hold us accountable. We just didn't like that dynamic. And I think that's likely something that a lot of our entrepreneurs struggle with. And yet, you know, that eventually you get to this place where the company gets big enough, where you have to have that. But that transition for us was really it was hard for us to have the right framework about which to think about it. How would you address that generally? Conceptually. And then also, are there different mechanisms that can be put in place that gradually increase or gradually introduce the concept of outside governance and yet do so in a way where the entrepreneur doesn't feel like they're really giving up control too early?
Byron [00:10:46] Board member selection has been weak at best over the past 50 years, and I hope I don't get myself into any trouble here. But I went to a well-known, highly decorated academic in the field of corporate governance back in 2010. And I said to him, Where do you think board's rate on a scholastic level? A through F in terms of performance or effectiveness? And he said today. D-plus, C-minus. And I kind of coston and laughed and said, wait at any of the top universities in the world. I don't think you can stay in school with anything less than a C.
[00:11:32] And he smiled and kind of winked at a meaning that we really in 2010, looking back at the crisis, didn't fully understand what a board member is supposed to really be bringing to the table. So directly to your point, Henry. I think these need to be trusted advisers that understand the vision, mission, values and goals of the business and that they are there to counsel and support and only provide a type of critiquing accountability when they're concerned that the entrepreneur is losing direction with their strategy. As long as they're executing on the strategy, I don't think somebody should be imposing their will on an entrepreneur.
William [00:12:18] Now, that's really interesting. And I maybe want to take it back to first principles. I know we've talked here yet about, in your opinion, you've seen this. Do you run a company for this? What is a good board meeting look like? What's shared? What's not shared? What pressures are supposed to be? What is the structure look like? Do you teach that at all? You I hear these three or four things you want to make sure and just kind of take people into the boardroom a little bit of a well running board.
Byron [00:12:44] OK, that's a great question. And it's one we've had some fun with. We have a piece that we did. It's called the Effective and Ineffective Board Member. And we we have two columns and anybody listening, if they send me an email, I can send this to them. It's a great little piece, but I'll start it a fundamental and that is I feel like in their own way. And from their own particular perspective, each board member and each entrepreneur should be thinking in terms of the type of salt and light they're adding. You know, if something's too salty, in other words, somebody wants to hear their voice too much or they want to throw out their opinion too much in the boardroom.
[00:13:31] That's a problem. And if they're not bringing enough light in and we can use that concept of lights and lightness, that when they come in the room, the room doesn't become heavy.
[00:13:43] Nor does it become dark because somebodys countenance brings in a negative kind of vibe. So one born environment should be collaboratives. It shouldn't be overly organized. Sometimes people get way obsessed with the Roberts rules and figure out if it's good to have flow and it's good to make sure that all voices are heard. And that's where the entrepreneur, if he's really acting as the chair and running on a younger company, running the board meeting saying, you know, Susan, Tom, Becky, I want to make sure that all three of you feel like your opinion matters to me. I don't want us to spend all day on it because we want to be fluid and we want to move quickly through our agenda. But at any time, let's stop.
[00:14:31] And I want to hear what's your opinion has to do with complementing the strategy, which includes if the company's got employees and let's say it's got 20, 50 employees that they're fostering and developing culture and those board members are able to test the culture a little bit and bring and provide a safe outside opinion on how the culture is being developed. And most importantly, I think there should be a sounding board. Those early board members or it could be an advisory board, those early board members should be a good sounding board. And the entrepreneur should be able to freely say. What do you think about this sales execution strategy? And those people have an educated opinion to provide back to the entrepreneur. And that's the only part. Henry, that I I failed at doing this years ago. I've succeeded at it more today because I've focused the rest of my business career on this. But I do think that healthy advisors, wise counsel. Is something that we shouldn't overlook, particularly when we're trying to build a business that's going to compliment whatever market place we go into.
Rusty [00:15:42] I'd like to reinforce that point to our listeners, what you just said. I mean, this idea that a board and governance can give you this safe space, I think you've talked before in different talks and things about how it kind of unleashes creativity and it gives you spaces to sort of dream and reach. I think that so many entrepreneurs miss that, like they get lost in the idea of the word governance being an authoritarian word instead of this place of support. But I will also tell you in my own career and boards that I've been on and as a CEO and having a board that, you know, those board meetings, they up your game. And as the CEO, when you're trying to up the game of everyone around you, it's one thing to say, hey, Henry, William, you know, you guys, you know, you should sharpen the pencil and be a little sharper, get the presentation together, and they will. But it's another thing to do it for the board. Right? It just ups the game. And I think it's really valuable.
Byron [00:16:47] Well, that emphasizes your board member selection. I would be very careful to select someone because they have a sick wallet and are willing to invest in you. That could be the most expensive money that you attract. Well said. They want to impose their will on you. So going specifically to your point, Henry, a board that is imposing its will on an entrepreneur is potentially horrible disaster for that entrepreneur. But somebody who comes in and says, I want to help this business thrive. That's what a real board member must say to himself when he enters the boardroom or herself.
Henry [00:17:26] So on that point, I really want encourage our listeners to interview their board member. And I've said it before on a call. But there's something really valuable whenever you're looking to bring on board a senior leader to have them to dinner with their spouse just to see the way that they interact with the people they really care about and the people that they really love. I think is remarkably valuable. Doing the same type of interview process with a board member I think has a lot of value maybe to include their spouses, a little unconventional, but I think that that might be great. But getting on the phone with them and saying, listen, tell me about the boards you've been on before and tell me about some of the boards where you thought they worked really well. And tell me about some of the board's situations. Do you thought didn't work out really well and to get references for them on there as they sat on boards from their good and their bad that you asked for after you ask that question can be really valuable. We've been on many boards through our work and we've seen some folks that have done an incredible job of loving on entrepreneurs and helping them to get better, because that's the type of opportunity that board member has. They've got the entrepreneurs here and we've seen the exact opposite. And I think a lot of those poor selections could have been headed off at the pass.
Rusty [00:18:39] Henry, can you go a little deeper into that, though? Because I want to make sure that everyone's listening, understands that. I think you're not only just talking about independent board members, but you're also talking about the capital that comes into the business. Right. That someone should say, if you're going to fund Sovereign's is going to fund the. As an entrepreneur, before you take that money, you should have that interview. You should check those references. What kind of board member, what kind of investor will they be? Sincerely pray and earnestly pray over that, because there's one person at the table, even though the capital feels like all it's the only capital I can get the wrong person. The table can really be an issue. Is spiral stalling us?
Henry [00:19:20] Yes, absolutely. And this is for presumably when you bring on board an independent director, you have a greater ability to influence who they are and the type of background that they bring. But remarkably important, whether it's independent or in this case, there's somebody that comes in with the money. I cannot tell you how many poor actors I've seen among board members. They could have been sniffed out early on for some simple questions. And also to include the fact is, how do you feel about board seats? Is that part of the job you really like or not? Some number of people who are investors on boards tend to feel like it's a bother to them, and others seem to think it's like a vocational opportunity and almost a ministry stacking the deck in favor of the latter is really important for just your joy.
William [00:20:05] That's a great segway. It isn't that I was wondering Biron, could you let us in? So there's probably some number of people listening who are saying, Wow, this sounds great. I wish I'd heard this podcast about two years ago before I gave up all my board seats and I'm stuck in a tough spot. You know, I know that this is not a well-functioning board right now. I know that I'm scared to go into my meetings. I don't enjoy them and they're not pushing the company forward or whatever it may be. What would your advice be to someone that is stuck? There, how can they move forward? How can they recover, how can they shift things around? What have you seen work from with unfuck ironing board to making one function?
Byron [00:20:41] Well, that person will need an ally or a group of allies on the board that if there is dysfunction, that that is identified usually with discussion. And I would emphasize to be careful to allow this to become some sort of factional war between two sides or three elements of the board, but that you would have at least one person you could trust and start formulating. How can we take the board from troubling state to an improved or functioning state? And that's not going to be done easily, because remember, I mean, as we all know, you're the entrepreneur. They're listening and saying, wait a second, I'm out doing my job every day. And that's good stuff. If it becomes a distraction, that's the tragedy that Henry has talked to me about in terms of this kind of thing and talking about this podcast. What we want to help you do is avoid those tragedies. I think if somebody is in that, I would face it head on now. But do it in a way that is not destructively confronted, that it is diplomatic. And if someone needs to leave the board to do it in a well-governed process, that is the best for the organization of the enterprise at large. And I think that diplomacy would be one of the words that would shine brightly in my hopefully in the back of my head if I'm confronting that kind of situation.
Rusty [00:22:12] How do you feel about board evaluations?
Byron [00:22:17] Is this. Did you put the ball off on a tee for me so I could hit it?
[00:22:22] And full disclosure, my business is heavily focused on board assessments and particularly now we're getting more into and our firm works with some smaller boards. We do it on meeting their specific needs. But as a business, we work with companies. The average size is big. It's like 20 some billion dollars. And we work with companies from around to roughly around 500 billion market cap, mostly public. But we actually want to do more work in the private area because I think then the reasoning to this podcast, we want to help boards with people that are driven for holistic reasons to develop a business like we're discussing today to advance their companies and be able to grow like their public. And if they can avoid being public, that would be a great thing because that's a tough business. But we we feel like broad assessments are invaluable. They bring a lot of value to the table. The way you do it is very important at each to have a quantitative and qualitative analysis element to it where you're measuring different elements of your board and governance at large. Now, as we get into the broad assessment, too, it's really measuring the whole governance. And that means the tone from the top of the leadership. And there should be some sprinkling or all as senior management involved. And we often work where will do this assessment process with, say, the entire board. And that's what, 10 people and seven senior managers. We've received 17 pieces of response data and that provides a great snapshot for governance. Now, if it's small, if it's for you can get the same significance of snapshots of your governance, be able to measure your growth, because the governance of that organization is really what's going to keep it sustainable for a longer period of time. I mean, Henry, you and David created a governance system, and that's why bandwith exists today. And that's why the businesses that we know and adore today, they survive. It's because there's some governance. Whether or not we think it's terrific or not is providing structure like a foundation for the four corners of a building. That's your governance and the things coming out of ground. Is your governance and then the roof as part of your governance. But what happens inside that building? Is more the strategy. And so I think that it's important to get your governance right earlier than later. You will struggle you will certainly struggle more if you're struggling with governance and your third, fourth, fifth year of starting a business. And so the evaluation is meant to be a check. Has the governance come along and we're doing a good job here.
William [00:25:15] That's great. And so we're coming towards the end of our time here. And one of the questions we'd love to ask, just to always point the arrow back to the word of God, which I know we all believe is a foundation of all that we do. Is there Bible verse in your world, in your life right now, maybe over the past weeks, never in the past months that has been coming to life to you in a new way, maybe like to share with our entrepreneurs and to share what gods may be doing through your life, through the word of God,.
Byron [00:25:44] But one that is foundational, a quote that's foundational for me and my businesses is that quote that says Whoever can be trusted with very little can be trusted with much.
[00:25:56] And I feel like that's fundamental, not only to being an entrepreneur that makes a difference in the world, but in my specific business, being an entrepreneurial and having created a business that promotes great governance. I especially have to think in terms of being faithful to the business world, whether or not any of those in our audience are ever a customer. What I want to do is see that they received more of this kind of thing tools. And like I say, if someone sends me an email, be happy to send them. We do lots of research and give away a lot of white papers and things to help governance along the way, particularly for small companies that we don't. There's no charge for any of this kind of thing. So that notion of really being faithful in small things. And then another. This is a quote I love and it's a little less from a very spiritual person where he died in his life. I'm not sure. But this is a great quote. And I think it's certainly got some biblical origins. And that is there's a crack in everything. That's how the light gets in. And that's from a poet singer named Leonard Cohen. But I think that's why we need governance is because there's gonna be cracks and things that you do. And the light comes in. And to have some faithful comrades around you in this adventure called entrepreneurship will help you realize what that light is highlighting in your business.
Henry [00:27:28] Byron, thank you very much for being with us on the podcast. It's been a great treat for me and I know for William and Rusty, too, and I presume also for listeners. Can you just finish out by just some parting thoughts for us entrepreneurs? They're thinking about governance.
Byron [00:27:44] Sure. Thank each of you and I would recommend, as you look at your adventure and entrepreneurship and what's difference. Are you making in your life and the lives of all of your stakeholders? And as you do it, do it as unto the Lord and do it in the sense that you're making a difference in our civilization, what we need. I mean, core to what we're talking about here are people who are faithful to the task of caring for their neighbor. And I believe that if we encourage more entrepreneurship, we expand the economy and we can start to not just dream about, but possibly eradicate poverty in our world or significant elements of poverty. And we can spend another podcast on poverty and all the forms of poverty. But I applaud anyone who's listening. This fight is starting or has a business. Do it with all your heart and get a few around you that will help you look down the road and avoid some of those potholes that could injure the vehicle that you're driving. Call to entrepreneurship.
Henry [00:28:55] Brother, thank you very much. We're gonna do a wrap with William in just a year, but I'm grateful for you. Thank you very much for sharing.
Rusty [00:29:02] Thank you.
Byron [00:29:02] That was for the. Thank you.
Henry [00:29:04] It was. It was. Thank you, brother. Said guys, that was you know, governance is a tough sell. And yet it's so important. I think that one of the things is important is the alri behind it. It's the messaging that goes out if if we're all honest with ourselves as entrepreneurs. Governance and bringing people on our board is the last thing we want to do. We think of it as a necessary evil. And yet it can oftentimes be one of the smartest things we'll ever do. By inviting people in that's different than advisor and advisor is kind of a drive by. They don't have much invested and have less skin in the game. They probably tell you what you want to hear. And yet, if an entrepreneur gets out there and get serious about governance, you get incredible. Rely on it. Oh, yeah.
Rusty [00:29:48] I mean, if you think is you as an investor, right? You're putting your money, your limited partners, money at risk. Don't you want to see that they are surrounded by accountability and they've got people who are going to make them better and they've got good governance, right? I mean, it makes so intuitive sense, but it's so hard to get to it. I remember when we started Glassdoor, we had people saying, why do you have a board that size? Well, Robert Hohman and Rich Barton said, if we start the company with an extremely strong board, we will be noticed by investors as being ahead of the game. Yeah, and I remember a conversation where there was an investor who said, you know, usually there's three things I bring to the business. One is capital. The other two is I can help you build a strong management team to boy, your management teams are really strong where I can help you build a board. But boy, your boards are really strong. This is like a dream for me that I can just bring my capital to you. I don't have to worry about these other two things. And we should think about it in those terms as an entrepreneur.
William [00:30:57] And Byron had a great quote, I think was one of his write-ups that reminds me of we've talked with another guest, Alan Barnhart, about how constraints can actually be freeing. And he talked about it in the sense of his income cap. But I think the Bible is sort of an exercise in that that, you know, people I think maybe early in our walks with God, we think about all the laws God's imposing on us. We can't do this. We can't do that. And I don't know about you guys, but for me, at some point I realized, oh, those are the creator made me and actually his blueprint for how to live my life. These rules are in place so that I can actually thrive. And I feel that Byron's quote, what he said as government is not the enemy, it's your friend. Governance is the structure that should free and unleash creativity. It gives you a safer space to dream and to reach. And I think that's such a great quote that reminds me of just thinking through how structure can promote creativity and flourishing.
Henry [00:31:53] I do, too. And it's something to reflect on. Over the course of the next week until we join you again. But also, I have a feeling this is a podcast is going to unleash a lot of questions. Which brings us back to really wanting to encourage you to weigh in with your questions. What are the topics you want to explore? What about this was clear as mud. What about this? Did you disagree with what are some guests who have phenomenal stories and really great stories that we should all listen to? So let us know those things. Thank you for having joined us. It's a great encouragement for us all is so fun to see the listenership increase. I think you all must be getting out there and telling people that, you know overseas about the podcast because we're starting to get a really great following. And maybe some places you're doing missions, trips. El Salvador seems to really like what we're doing and we don't speak Spanish very well. And Ghana and some other places. So that's a great encouragement to us. Maybe some of those listeners can call in and talk about what it's like to be a faith turned entrepreneur in some of those areas as well. As always, thank you for your time. God bless you.