a16z Podcast - a16z Podcast: Boards, from Both Sides of the Table

Episode Date: May 11, 2017

A board veteran who has sat on both sides of the table, CEO of PagerDuty Jennifer Tejada shares what you gain from board membership (vs. being only an operator). How does being a board member change you as a CEO, and vice versa? Recorded as part of our annual Director's College held at Stanford University in April 2017, Tejada (in conversation with a16z operating partner Margit Wennmachers) in this episode of the a16z Podcast offers advice about the importance of diligence on both sides, subject matter expertise, and complex dynamics among fellow board members. Tejada also talks about how to make the best use of your board as a CEO... including what's most important when managing them (hint: no surprises!).

Hello and welcome to the A16Z podcast. In this episode, CEO of PagerDuty Jennifer Tejada talks with A16Z's operating partner, Margett Benmockers, about sitting on both sides of the table as board member and CEO, from how to consider your first board position to board composition to managing a board. This episode was recorded as part of our annual Directors College that took place in April 2017, organized in collaboration with Stanford University Rock Center for corporate governance. At what point in your trajectory did the word board member enter into the equation? Is that something you were actively looking for?

When and how did that happen? Earlier than I planned, to be honest. My father passed away when I was young when I was 24 and we started an endowment for him. And so I chaired the endowment and had to learn very quickly how to run a nonprofit board at the right age of 25. Probably my great learning there was that you gain a lot of insight by not being in the middle of everything. And so being sort of on the fray of how something operates and supporting the operating team is exercise is a very different muscle than being in a central operating role.

And also having control, right? Exactly. There's not, there's only so much control you have. No. And if you've got kind of OCD and are used to having control and having a say and sometimes having the final say, it can be a big transition. Fortunately, my first experience, I was pretty early in my career. So it also gave me a lot of insight into what my management was going through when they would say, oh, we've got to prepare for the board or we need to run this past the board. I actually had a very strong picture of what that probably meant. My first company board role or corporate board role came along sort of opportunistically. I had moved to Australia in the middle

of, you know, the internet bubble bursting and realized, it was great. My timing was excellent and frankly lucky. But it was, it was interesting because I got to Sydney and I thought, Metropolitan Town. Surely there's going to be tons of tech here. Nope. So, what am I going to do with my life? And so I started just talking to a lot of people, networking with people. I even, you know, stoop solo is to network with my husband's friends, try and get to know people in the market. And they'd stay in Australia like, well, you know, what school in Melbourne or Sydney did you go to it? I'm like, what do you mean? I have this global career. I've done these things. I'm like, yeah, but who do you know in Sydney? And I'm like, oh my God, this

a disaster. And I met a private equity executive, a firm actually, that was doing some work looking at purchasing a disposable diapers company. And having been an assistant brand manager of the Pampers brand, I suddenly seemed very useful. And they really just approached me for help. And the great thing about Australia is everything's in like a 10, 15 year time work from the U.S. So what I had done 10 years ago at P&G was totally relevant in Australia at the time. I was not married. had no children, but had, I think, 12 nephews by then. So I kind of knew how diapers worked. And they just asked me for help. And they said, do you want a consulting, you know, gig? I said, no, I just, what do you want to know? I can help you, et cetera. And that turned into

my first board role because I ended up helping them with that acquisition. And we rolled into that acquisition. They wanted a subject matter expert on the board. And I had Procter & Gamble in my name. And they all just pretended to ignore that weird software stuff that I had been doing for the last several years. But the most important thing about that opportunity was the person that I followed onto that board. And I think choosing a board to participate in is a lot like everything else in life. Choose the company you keep wisely. And in this particular case, Bill Ferris led me into that opportunity. He's now the Minister for Innovation in Australia. He's considered the father of private equity in Australia. He launched the first private equity and venture firms in the country.

And how did you meet him? Through a friend of a friend who knew that I had worked at P&G and knew I knew something about Pampers, probably heard something at a barbecue. And one thing kind of led to another. And did you ask to be on the board or did they offer? No, I didn't ask to be on the board. When they asked for help, I dug in as if I was going to buy the company myself. Okay. I had nothing else to do. Right. And to be honest, it's my learning. model is to diligence something almost from the ground up and figure out how I would value that business as opposed to taking somebody else's word for it. And in that process, it was very helpful for them from a due diligence perspective. And I also, I think, was able to

demonstrate a lot of what I call operator empathy. So the CEO of the company we acquired was quite keen to keep me involved because I was the person saying sensible things about the business to the investors around the business. And so, you know, I had fans, I guess, on both sides of that dialogue. And that was how the board seat eventuated. So if you were to extrapolate the lessons, right, be on a board where you actually have subject matter expertise. Absolutely. And then focus on active help rather than not that strategy isn't helpful. But the more helpful you can be quickly, the more value will you become? And you also, if you can find a way to get to know those people in the process before you're

in a room with those people, that is super helpful because there should be diligence on both sides of that equation, not just on their side or on your side. And when you were saying you were analyzing, you were getting deep in the organization, do you have access to everyone in the organization before you even joined the board? Well, the great thing about M&A is if you end up being part of the diligence team, whether you're de facto or casual, et cetera, you get a lot of access, right? But I've been on several other boards since then where there was no transaction going on. And I got very similar access by asking for it. By saying, I'd really like to meet the team.

I'd really like to meet every board member, which may or may not make sense, depending on the size of the board and the pace of whether it's an active search. or not and where you sort of live within the search process. And I was also efficient about it. I would say that to the extent that you don't waste people's time, and in every step of the process, I wanted the other party to feel like they were gaining value, not just getting interviewed, not just getting interrogated. And I do that when I go through a job search. You know, I gave more founders free advice in the last three years in looking at their businesses and looking at their companies probably than any person should. But I figure if they're going to give me all this information, if they're asking for the help, provide some insight and, you know,

maybe shine some light on paths I've seen stumbled, trip down, you know, run through before. And so maybe you can use your next board as an example. I want to sort of figure out as you going through the interviewing process, there is a, there's a dynamic between you as a prospective board member and the CEO and also the other board members, right? So describe that a little bit for us. A great question. So I took that board seat, I think, in 2001, 2001, early 2002. And the members of the board consisted of two investors, another independent who was an audit chair. I was the comp committee chair, which was pretty funny because I didn't even know how to spell comp committee then, the CEO and the founder of the business we required. We're all on the board together. And I found my first year

in that particular experience, I didn't say a lot. Someone gave me some great advice and said, manage your urge and desire to want to add value in the room. Listen carefully, do your homework. When you ask a question, ask a question that is going to help the operating team get to a better answer. And that serves me very well. Sure. We were talking about profit margins and some particular tradeoffs in the development process for this brand they were manufacturing. And those tradeoffs included things like manufacturing offshore in a lower cost location, to using cheaper materials, to buying another company's patents, licensing the patents for certain technology, etc. And I asked the simple question, who is your target consumer? Are we targeting the premium

female head of household first mom? Are we targeting a cost-conscious mother of five kids? Is this going into 7-Eleven equivalents? Are we trying to get into Sam's? And to me, that was a simple question to help me sort of understand how the company was thinking about things. But the CEO came to me afterwards, and he said, oh, my God, that was the right question. And we hadn't really thought of it. And now we're going to go back and work on first principles against who is it we're trying to solve problems for. Who is the core customer?

And therefore, what should our core competency be from a product development strategy, right? That had nothing to do with governance, you know, nothing to do with comp committee or any of the other kind of official responsibilities you have on a board member and everything to do with having insightful dialogue that helps the management team progress their thinking in a in a constructive, productive way. It's super interesting, though, with a conversation with the interviews with the CEO and the other, your partners on the board. Yeah.

And so when you're interviewing with the other board members, you're thinking about what are these people looking for in a partner and where do I fit into the composition of a board? If you Google board composition, there's tons of research on it and what people are looking for, et cetera. And I often find when I talk to people who are looking for board opportunities, they'll say, oh, well, I have all this great experience, et cetera. I'm like, yeah, but how is that experience relevant to this particular company? And so in my interviews with that particular team, all they wanted to talk about was pamper's. And in fact, I almost had the sense that when they came in, they just wanted to suck me dry for information in case they didn't like me.

at least they would have learned everything they needed to know about pamper's, right? Interesting. And so they really wanted the subject matter expertise, but they were also interested in my style, how I would behave. And would I be able to, it came up a couple of times, particularly with the other independent, who had been a sitting CFO and was a retired full-time board member, he really wanted to understand if I would be able to make the transition between being an operator and being a board member.

So he asked me a lot of questions, like, how do you feel when you give some somebody advice and they don't take it. Good one. Right? And I ask that question now. How do you feel? Frequently? You know, it can be frustrating, right? But the thing you have to remember when you're sitting in a boardroom is you know a small fraction of what's actually going on in that business. You do not feel any of the pressure that that management team is feeling from all of the different stakeholders, employees, customers, investors, et cetera. And so you're looking through a very narrow window with a view that in many ways is great because you're at a distance and maybe you can see the forest for the trees a little better. But in other ways, it's really challenging because you're

always going to be making decisions and providing opinions on something that maybe you have 30 or 40 percent less information than you'd feel comfortable with. So you're a board member on a couple of independent boards. You also manage a board. Yes. Talk to us about that. The reason we want you to speak here is because you have you sit on both sides of the table. Yes. And I'll tell you that I sit on both sides of the table on purpose. Being a board member makes me a better CEO. My first board seat was in a consumer products company, and even though I was building a career in enterprise software, it enabled me to flex my consumer marketing muscle, which makes me a better enterprise leader, makes me more empathetic to my end customer, right? And so I've always had my own incentive, my own reason for wanting to join each of the boards that I've joined, and likewise, I think it makes me a better leader to understand, have the empathy for how my board's probably thinking about things when they come in. So now with, you know, 10, 12 years of board experience, I guess more than that, 15 years of board experience, I can walk into a board meeting, and I can kind of predict how my board's going to be thinking about certain things I do.

I probably feel worse than some CEOs that have less board experience when we surprise the board and need a fire drill decision from them on something or when we're disorganized in our, anybody recognizing this? When we're disorganized in our process of getting executive comp approved, or when we, you know, send them 150 pages to review instead of the 10 that matter, right? I mean, these are all things that even though I promised myself as a board member I would never do as a CEO, it still happens sometimes. But I would tell you that managing a board is not the most important thing you do as a CEO, but it is important. And I sort of look at it in a couple of ways. I think about the board in terms of their responsibility from a governance and a fiduciary perspective and trying to make it easy for them to always do the right thing and feel good about the right thing. So in other words, make the decisions easy.

Give them as much information in a succinct way so that when they go to make the decision, they have the facts that they need as opposed to having to interrogate us and line up four or five calls. We don't always get it right. We're getting better. But also figuring out how to leverage each one. of our board members. So today, my board looks like a lot of venture back boards. We have two founders and two investors and me. It has to change because just think of the conflict, right? I just raised around. Everybody on the board was conflicted except me. Right? And you could argue that I have

conflict because I'm a shareholder, but I'm not vested. I'm new. So that was easy one. I would also say that each of those people, even though we can label them as an investor or a founder, they have specific interest, specific, you know, hobbies, specific skills, etc. So John O'Farrell, who's my board member from Andreson, it was a rock star corp dev, biz dev person. And so when I'm negotiating a deal or when we had one customer that basically wanted us to give them the product for free, I call, they do that. They do. I called John, not for permission, but to say, hey, I just want to run this past you. I'm about to set this customer on fire and literally fire them. I want to make sure I'm talking to somebody about this before I do it.

And John's like, you know, we went through it. He asked a lot of really good questions. He's like, yeah, that sounds right. That was like in week three, right? And so the other thing that I'd say is important in managing a board, and I think it comes down to personality, but for me, it's almost impossible for me not to be, is transparency. Right. I'm very transparent with our board.

I tell them in advance I'm going to be. It scares the crap out of some of them because some of them just do not want to know how the sausage is made, right? And sometimes you really shouldn't bother them with the details on how the sausage is made. So being transparent doesn't mean telling your board everything, but it means making sure that there are no surprises. I'm a no surprises person. Even flowers and jewelry I have certain requirements for.

And then the last thing that I look for in board members or that I try and create and board members that don't readily come to the table with it is operator empathy, management empathy. If you have a board that can quit their feet in your shoes. sit in your chair and understand things from your perspective, then even when you don't agree, you'll have a fair and meaty, sometimes hotly contested debate, but you'll walk away partners from that conversation. So everybody at the table has to understand the skin that everybody's got in the game and kind of what you're expecting from them and also what you've committed

to them. And when I let my board down on my commitments, I get them something late or I send them a surprise, I'm apologetic about it. And I, you know, I try and get back. better. We try and get better every time. Well, that way you also unable to board the board to have your back, right? Absolutely. That's just a great social contract to have. We talked about board members and how they have different skills. Are you sharing everything with every board member? Are you going like, okay, so John is my deal guy? So I'm going to get input from him on that. And so, and you look at the board compositions, they're like, okay, what is missing? It's a really good question. I'll start with what is missing. I mean, it would be really nice to have a sitting or retired seat.

at my board. It would be nice to have somebody else in the room that literally has been in my chair, right? When you're having conversations around executive comp or employee stock plans or et cetera, it's really great to have somebody in the room that has been through that process and really understands the tradeoffs. In the way an investor just may not be able to get to. Some investors are awesome because they've got pattern recognition. They've seen it across seven, eight. Or they've been operators. Yeah, or they've been operators. And some investors just don't get it. And frankly, don't care and are interested, right? And so you have to make them interested or you have to help them get to the right decision. So having an independent that, you know, comes to the table

with experience that can serve not just as a mentor, but be another voice in the room that understands, that deeply understands operating challenges. And when we hit bumps or we see challenges, maybe has been through that process before, right? Now, they're not the only person. I have many mentors that I can call. For folks who are trying to get to the invitation, of being on a board. I think one good path is just to be insanely helpful to a set of people that you respect, right? Because that's just, you kind of show the work and action is, I think, maybe a good way to think about it.

I have one other question. When I've been on a board, a lot of it is the board meeting often tends to be this dog and pony show for the team to go. Like, how do you think about that? Because there seems to be something motivating about it, but also nerve-wracking. I'm not sure it's always a good use of time. It's a great question. And something I've grappled with in my last three companies, right,

as to how they get that balance right? Because your management team wants access to the board, right? They want to be a part of the most strategic, highest order conversation. Which, who knows? If the board is that. And many of them think that happens there. And I keep telling them, no, that happens here, right? And that happens here in our management room, not in the board room.

So, but they do want access. And a lot of CEOs, I think, also want to be present. and control that access between board members. As a CEO, I don't want my board members calling everybody in my company all the time, willy-nilly. So we have a principle that if my team talks to the board, they copy me, and if my board talks to the team, they copy me. And then everybody knows what everybody's doing.

It's all beautiful. Right. Now, if I go break the law or do something really terrible and they want to talk to my GC about it, I absolutely expect that to happen. But I would tell you that working in a private equity-backed business is like working for an Olympic fitness trainer, right? They're not your coach. They're the people that are going to beat the crap out of you and make you stronger, faster, smarter, et cetera.

And you want to kill them half the time, but you really love them when you see how much rigor, discipline, et cetera. They've helped me create as a leader. But I would tell you that one of the things I learned from that rigor and that discipline and that process was there's a way to bring your management team into the meeting and there's a way to kick them out. And it's called the ops review. And so you structure the agenda so that you have a private session, you have an operating, review, then you might have a follow-up session. There might be a one to many CEO to board session. They may then kick me out of the room to talk about me, and then they'll bring me back in and tell me what they said, or at least some of it. And that, but you structure it in the

agenda. And you set the expectations. And sometimes the agenda flexes. And I said to my team when I first got there, you won't all always be in the board meeting. It's a waste of time. Also, it can backfire. It can absolutely backfire, although my team are killers. And that's also part of the skill, teaching your management team how to engage with the board, right? Preparing them. And so if you are going to engage them with your board, you should don't send them in alone. Don't send them in without a parachute, right? Make sure they know what they're there for and they also know what they're not there for. Thank you very much.