Directors and Company Founders
The March 13 breakfast meeting at National Association of Corporate Directors (New England) brought together two extremely successful business founders, together with veteran company director Ernie Godshalk, to examine the relationship between boards of directors and founders.
The two founders on the panel are atypical: each has grown multi-billion dollar companies and has survived as both chair of the board and CEO of the enterprise. That doesn’t mean they didn’t add executive strength below; it just means they were able successfully to stay in the saddle and have dynamic success.
Allen McKim is Chair, President and CEO of Clean Harbors, with 500 locations in the United States, Canada, Mexico and Puerto Rico and with international operations in many other places. Josef von Rickenbach is Chairman and CEO of Parexel, a bio pharmaceutical services company. Both companies were founded in the ‘80s and are publicly held. Clean Harbors was founded with a loan against McKim’s house; von Rickenbach started in his basement and now has 12,000 employees.
In terms of corporate governance, their paths were diverse. McKim with Clean Harbors had a close-knit board until the IPO; now there are nine independents and McKim. Von Rickenbach had early VC investment, and said that this created a level of process and formality which stayed with the company.
What they both have in common is an ability to use the board as a tool. Each noted that independent directors create a sounding board, and a learning experience, for the successful entrepreneur.
What circumstances lead to blow-outs between boards and founders? Godshalk noted that the relationship between a founder and an independent board can be tense; the founder may even be asked to exclude himself from certain board discussions, while the founder is used to being on the top of the hierarchy. Also, when a private equity firm becomes involved and gets board seats, the situation can become volatile because of the perhaps shorter patience of the investors.
McKim noted that his company hit a wall at around $90,000,000 in sales, and the board then guided him in finding outside management to grow the enterprise. Von Rickenbach noted that he always treated the board as “his boss” but observed that it is necessary to be a good boss, to show up and to be prepared and to understand that a board is not hands-on with respect to execution.
While each entrepreneur remains as chairman, each board has a lead director in which substantial responsibility resides. Each CEO indicated that he had staffed the board to track the direction of the business. When Waste Management moved focus from the utilities industry to oil and gas, McKim added directors with knowledge in that field, and Parexel (which does a lot of work overseas) moved for geographic diversity.
A discussion of board-building, which actually has application to all boards whether or not the company is founder-run, developed several other themes:
*When asked about diversity generally, the panel noted that diversity of views of business and of science, not just gender or ethnic diversity, was desirable.
*Godshalk noted that building boards around business expertise as a company evolved tracked the desirable approach of building a board through creating a “skills matrix” and then looking for people who can fill those particular slots.
*The panel seemed to like the idea of sending a founder to serve on other boards, perhaps at larger companies, as part of the founder’s educational process.
*Suspicion of age limits and mandatory retirement was expressed; boards should retain people of merit whose board evaluations are strong, regardless of age.
*In conversation after the meeting, it was also noted (Bob Popeo from Mintz Levin) that age limits were on their way out; as companies have soured on the idea of their CEOs sitting on other boards, that role has fallen more and more to CEOs who have retired and therefore are older.