When should a CEO not listen to his/her Board of Directors?

Warning: it is generally not prudent to ignore the counsel and direction of your boss. But, there are times, particularly in early stage companies, when a CEO may need to hold his/her ground and not follow the advice of the Board. Below is a partial list of some of those situations when it is better to “dig in” and fight your Board.

Unethical

If anyone on your Board asks you to do something that conflicts with your conscience or beliefs, you should resist and stand your ground.

I found myself in this situation when I was CEO of an early stage, healthcare technology company listed on the Australian Stock Exchange (ASX). This company was a particularly challenging “turnaround” (more on that later in a future post). During one particularly tense Board meeting (only 5 months into my new CEO job for this company) where we were discussing funding strategies, a Board member (who as a CEO was later fired by his ASX listed company’s BOD for unethical activities) suggested that we raise funds in a secondary offering and use those funds to pump up the share price without delivering on any of the milestones that we had promised during the fundraising roadshow.  

Excuse me?

He suggested that the inflated share price would allow us to raise more funds at a better valuation. When I vigorously disagreed, he simply retorted, “You don’t understand how things are done here. That is what a strong leader would do.”

Incredulously, no other BOD member chimed in to oppose this ridiculous suggestion. I vehemently resisted. I argued as calmly as I could, at first, then more aggressively as that BOD member pressured the rest of us to follow his counsel.  

I left the BOD meeting furious and ready to resign (a very long trip from Australia back to the east cost of the USA). I let my Chairman know that I was not “in a good place” due to this BOD meeting/discussion and needed to think about my future with this company. 

Three days later, the Chairman and another Board member called me separately to let me know that they would back me/support me and push for the resignation of this particular BOD member. We removed that BOD member immediately. Two years later, we had hired a strong BOD replacement, raised $25 million in new funding and driven the company’s market capitalization from $4 million to $250 million prior to launching our first product.

Bad people are bad for business. Dump the bad ones as quickly as you can and stand your ground, regardless of the outcome. Be prepared, though, that sometimes the good guys don’t finish first, and you may lose your job while standing up for your principles.

Illegal

This goes without saying. Never, ever do anything that is illegal. No one ever looks better in stripes vs plain clothes.

Harm to the company

This one can be challenging. Who best to know what is good for the company than the CEO? The BOD’s job, though, is to look out for the best interests of all shareholders. Theoretically, if the BOD suggests a specific direction, then they are acting in the best interests of the shareholders, usually…

At this same ASX listed company, two and a half years into my CEO tenure, I traveled half way around the planet for our annual shareholder’s meeting. This was supposed to be a victory lap for the management team and BOD. We has just finished the year as the #1 company on the ASX with respect to shareholder returns for the past 12 months (22x share price appreciation). It was a very visible and satisfying accomplishment, given the company’s dire prospects 2 ½ years ago. 

At a social event for the BOD and some key investors prior to the BOD meeting, the Chairman and Vice Chairman pulled me aside. They told me that, unbeknownst to me, they have added two new board members.  

Say what?

I was now scheduled to meet with these two BOD additions the next day. They warned me: these new Aussie-centric BOD members will want me to spend more time in Australia, and, they will probably want to be more Aussie focused (vs. USA focused) with respect to the commercialization plan.

Wow.

I had made 13 trips to Australia from the eastern USA over a 2 ½ year period. I was committed to making this turnaround a success. 

Our company’s strategy (with unanimous BOD consent) was to conduct a pilot launch of our first product in Australia in preparation/practice for a future launch in the USA. As a CEO who had invested a significant portion of his personal savings into this company when things looked their bleakest, I was very concerned about the stealth addition of these two new BOD members and the impact of their new strategic focus on the company’s future prospects.

I met with them the next day. The meeting couldn’t have gone any worse. They wanted me to spend most of my time in Australia, stop any focus of my efforts in the USA (e.g. FDA 510k clearances, etc…), and they wanted to completely alter our management team’s long term strategies. I wasted no time. I told my BOD that if they proceeded with adding these two men to the BOD, that I would immediately tender my resignation. I also argued that the addition of these two folks would result in an immediate and significant deterioration in shareholder value.

The entire BOD disagreed with my assessment. I immediately resigned (with a 6 month notice to facilitate the transition to a new CEO). Ironically, these two new BOD members decided NOT to join the BOD after I left. The BOD went through 3 other CEOs in the ensuing 1.5 years after my departure. The market cap of the company fell from $250 million to $20 million (where it is today, nearly 4 years later).

If you think the BOD is making a significant decision that will cause harm to the company, don’t hesitate to resist.  Be specific, confident, and resolute. Outline for them in detail why you think their decision is wrong and what, in your opinion, will occur if they proceed. If all else fails, be prepared to resign. You shouldn’t let your reputation to be tainted with a failure caused by your boss that could have been avoided. 

Don’t forget: you always need to consider if they are right and you are wrong. A good boss is a great asset.

Please share your thoughts in the comments section below.