Thursday 13 May 2010

Why Europeans don't get the BoDs?

Know thine..... Sony BMG Music

I want to expose a common problem that happens when first time founders get funding and start running the company for the first time. After initial celebrations, the first board meetings can be painful and unexpected. At least that's my take on it. The main reason is in power distance where investors and founders don't operate as partners. And the cause of it is in cultural differences that we bring to the table.  

First a bit of theory: Governing through Board of Directors is an Anglo-American governance mechanism (single tier model). In continental Europe it's quite usual for the company to be governed by the Management Board and Supervisory Board (two tiers). 

This has some important implications. Primary power distance. In a two tier model managers prepare reports, get approvals and respond to request from Supervisory Boards. They often don't debate strategy or operations with supervisors. In BoD model debate is expected and directors steer the course of the company together. 

Funded startups are almost exclusively run by a BoD model. Why? Because investors are used to run companies through BoDs. 

Operationally that means that European or first time founders are expected to work in a model that is unnatural to them, while investors don't understand what's the problem. And that causes frictions. Founders don't know what to say or not, what is expected from them and what not. Investors become nervous since it looks like founders want to hide things with them and almost never get into debate. 

Founders often just accept whatever "suggestion" is being thrown on the table as a directive for the next month. 

And it takes invaluable few months before the discussion becomes productive and that founders and investors learn to play together in harmony. 

Often a few months too long.

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