Board members and CEOs need to keep our eyes open at all times. Some problems happen in a flash, and nobody could have seen them coming. More often, trouble is brewing beneath the surface for a long time, but it is overlooked until it boils over at a critical moment.
Andy Grove of Intel said “Business success contains the seeds of its own destruction. Success breeds complacency. Complacency breeds failure. Only the paranoid survive.” He wanted everyone at Intel to run a little scared and keep looking for the seeds of failure. One of the leading sales training courses teaches enterprise sales people to go ‘looking for trouble.’ An enterprise sale is made to a broad constituency of buyers. If you only focus on the buyers that are positive about what you are selling, you will miss the ones that are going to torpedo your deal. You have to keep vigilant and go looking for trouble. Seek out the person that attends meetings but never says anything. Make sure their silence is not full of objections. Assume somebody does not like your solution, so go find out who and win them over. To quote Joseph Heller “Just because you're paranoid doesn't mean they aren't after you.”
Like the enterprise salesperson, the CEO has to go looking for trouble. I recently wrote about how CEOs face an ‘Optimism Dilemma.’ They need to be the visionary cheerleader, but they also have to stay on the credible side of being overly optimistic. Another layer of the optimism challenge is that looking for trouble requires a healthy level of skepticism. The challenge is to probe and question without being demoralizing to the team. You have to go looking for the bad while projecting the good.
As organizations become larger and deeper, real information is mostly known by the staff on the front line. It tends to be filtered and polished as it gets passed up the corporate ladder. By the time it reaches the CEO, it is a processed food. Processed foods taste good, but are not necessarily good for you. A steady diet of processed information may make the CEO happy, but it is not going to give them the nutrients they need to succeed. CEOs have to go looking for the raw materials, the whole-grains of information to stay on top of what is underlying the corporate results.
For board members, the problem is even more acute. The CEO and CFO typically act as our conduits to what is going on in the company, and they manage the spigot that controls the information flow. CEOs have a natural tendency to want to feed a positive message to the board, so they are often creating their own version of processed food. The difference is that as board members, our ability to dig deep under the covers is much more limited. The healthy separation of roles between the board and the operators makes it inappropriate to just bulldog our way into the business to seek raw information.
As board members, our best tool is to invest our effort to work with the CEO to agree on truly meaningful measures and focus on proven leading indicators (KPIs). Once we know what to look for, we need to watch the trends like a hawk. Trouble typically brews over time, but there are always telltale signs in the KPIs and trends. Small variances can be easily overlooked, but can blossom into wide gaps down the road. Like a rocket headed to the moon, small variances in trajectory at the start will lead to a wide miss the further out the ship travels.
Board members want to believe in the team, but we also need to be looking for trouble. It may be a small miss on bookings, or deals that keep sliding into future quarters, or projects that don’t quite finish on time, or small overages in expense categories, or small declines in NPS scores, or unusually high employee turnover, or any number of small but important variances. In isolation, a small miss here or there may not be a red flag. Businesses are made up of humans, and not everything goes as planned, but trends rarely lie. Minor variations will either work themselves out, or they will start to accumulate over time and manifest as a trend. Spotting the trends that are accumulating, and shining a bright light on the issues can avoid big trouble down the road.
When management delivers performance results to the board, I always ask to see the trends, and not just point-in-time results. My favorite catch-line is “so what?” When presented with a singular fact or result, I want management to answer the ‘so what’ question. How does the fact compare to plan? How does it compare to the trend? Why does it matter to the business? What are the implications of the result? ‘So what’ requires context, and context enables a board member to spot trouble.
‘Only the paranoid survive’ needs to be a guiding principle for CEOs and board members. We all need to go looking for trouble before it finds us. Best case, you will not find any, but if you do spot something, you may be able to address the issue before it flares up into a real problem.