Serial Board Members: A Threat to Value Creation

Investor Bjørn Kristian Stadheim has worked in finance his entire adult life, first as a broker, then as a full-time investor. He has what he calls 'skin in the game.' He holds a degree in finance with a specialization in innovation and has earned an experience-based MBA in management and entrepreneurship. He is clear that dedication is essential.

– For me, being an investor means you must be willing to devote your time completely to making money on your own investments.

This attitude stands in stark contrast to the reality he has experienced in some Norwegian boardrooms. He compares them to poorly organized coffee meetings rather than what they could be: an invitation to exert active influence. Stadheim points out that his own path has not been a straight line of success; he was a full-time investor at a young age, but the oil crisis forced him to start over. This has given him perspective on dedication and risk.

He is categorical that the board must be better utilized as a body that brings together people with accumulated experience and expertise. Stadheim has seen the difference in professionalism between publicly listed boards and smaller companies.

– In smaller companies, there are often softer reasons why people take on directorships. Maybe they know the founder? Maybe they just like the idea? Or maybe they are just in a position to get a board seat.

He is highly critical of this last point. That is, what is known in plain Norwegian as 'styregrossister' (serial board members).

– I'm allergic to that term, says Stadheim.

– But what is the problem with board members who sit on seven or eight boards at the same time?

– That it's an open question whether your company gets the maximum value out of the board member. They should be dedicated and give their best, but how many places can one do that simultaneously? I myself have three children, am involved in the local football club, and work is full-on. It goes without saying that time quickly becomes the number one scarcity factor.

– And it doesn't help if the board member you've secured is extremely competent. Time is a factor for him or her as well.

Stadheim believes the problem is compounded by the fact that board fees in Norway are low compared to international standards. He argues that a lack of prestige and remuneration in practice means that Norwegian boards are weaker.

– My pet peeve is that I believe this is a point where both founders' and investors' perceptions of what board work is could benefit from being a bit more clarified, he says.

– How do you mean?

– A good, competent board can be a very large and important support for a company, especially a startup. But it is very rarely budgeted for.

He also calls for a broader 'color palette' in board compositions: experienced people who still have ambition, younger people who should get a chance, and a more conscious approach to when different competencies are actually needed.

– Experience is extremely important. At the same time, there are many talented people who should be given the opportunity. I believe in the wisdom of Warren Buffett's partner, Charlie Munger. He said:

“If you show me the incentives, I'll show you the end result.”

The Board Should Be a Thought Partner and Door Opener

The right board member in the right place is much more than a supervisory body. It is an active resource that continuously adds value through networks and strategic thinking. Or - that's how it should be.

For Stadheim, an attractive investment is about more than just numbers, and the board members must be presented in an investor deck with the right expertise. He wants active board members who can be a sparring partner for the management. A board member should contribute to good strategy work, in addition to being a door opener for networks and collaborations. He calls it thinking about the capital strategy: What type of capital is the right one?

– Capital strategy is not least about the people in a company. As a board member, you have to think about such things. You also need to understand the path the company is on. If it's a five-year journey, you can't have board members who want out after one.

He is also critical of the principle of board independence and corporate governance.

– The sharpest business people in Norway, like Fredriksen and Røkke, understand that corporate governance is nonsense. But of course, they can't say it outright, he says.

He points out that it is a way to exercise more owner power when boards are filled with their own people who are defined as independent. Stadheim also believes that the expertise on the board must change in line with the company's life cycle. An IPO expert may not be the most important person to have in a Series A round, but becomes critical as an IPO approaches.

– This will require a great deal of self-reflection at the individual level, and honesty about what one has to contribute. And when it's time to hand over the seat to someone else.

An Investor's Requirements for a Board

Bjørn Kristian Stadheim's investment advice for a modern board.

• Active contribution: Actively exercise the power you have as a board member, don't be a passive participant.
• Critical view of Corporate Governance: Believe in owner interests and 'skin in the game' over the principle of independence.
• Digital readiness: Use technology to ensure orderly control functions and free up time for strategic work.

Ignoring the Digital Setup is a Dereliction of Duty

The chaotic workflow in many boardrooms is a 'time thief' that prevents members from contributing their full experience and expertise.

Stadheim is aware of the classic perception of the board as a supervisory body, meant to ensure compliance with rules and laws - and not least: that the records are in order. He believes tools must be used to simplify reporting so that time can be freed up for strategic discussions.

– The monitoring part is important, because it's important that things are orderly. But it's strategy that brings value to the company, he says.

Stadheim confirms that the chaotic reality with agendas by email, documents on Dropbox, and messages in various channels does its part to squander the value of board meetings. He has experienced this himself in everything from volunteer positions at his local hockey club (where strategy work was lost in competition with everything that had to be done) - to professional boards.

– Then they quickly become mere reporting meetings. I've sat in several board meetings and thought: What have we actually accomplished today? I like the feeling of moving the ball forward. Numbers can be read before the meeting. Then you use the time for comments and choices, not reading aloud. That frees up time for strategy. It's really only then that the board becomes a real support for management.

That's not exactly what happens, Stadheim believes, when a CFO, for example, spends valuable time going through papers from the last meeting to check that everything is up to date and everyone has been informed.

– You mean it becomes stifling?

– It becomes a time thief. It prevents board members from actually contributing their full experience and expertise. It quickly becomes a source of frustration, because the board work becomes very undynamic.

Stadheim advocates for using an intro template for new board members - regardless of whether they come with tons of experience or not. A template that says: 'This is how we use technology here. We use it smartly because then we know we get much more out of you as a resource'.

He has no doubt what it means not to have a conscious approach to technological tools:

– Preparation is not just about reading documents beforehand. The material must also be easy to navigate. A common thread from the previous meeting must be clear. When the history, for example, is scattered, new contributions are also lost in searching through old things.

Stadheim quotes a leader he admires, former Protector CEO Sverre Bjerkeli. His measure of success was that the company he chaired would continue to do well even after he was gone.

– You have to build teams and a culture that carries on. That applies to the board too. It is simply a dereliction of duty not to clarify the working method.