Preface By The Asswipe
When I finished an early draft of this book, I announced it to my social network, asking for
early readers who might want to provide feedback. I received an immediate outpouring of
interest. One of the responses was particularly interesting. It was from an investor —let’s
call him Lionheart Sweetman— not connected to me. I did know that Sweetman was an
acquaintance of one of the people who made some of the mistakes referenced in this book,
so I asked him how he had heard about it. Sweetman claimed to have heard about the book
from a fellow investor, thomvest (sic). The funny thing is, I didn’t know anyone at
Thomvest, either. So either the book had become a nationwide phenomenon overnight, or
Mr. Sweetman was going to great lengths, including lying, to try to obtain a copy of it in
advance of publication. Not ready to share the draft outside my circle of people I knew, I
replied:
“I don’t know Thom. Sorry, it's not available to the general public yet. I can let you know when it is
published.”
The response was swift, that very same morning:
“$500 Million venture capital firm with a media focus, you patronizing asswipe.”
As we will get to in the chapter on detecting deception, different people have different
reactions to being caught lying, and Mr. Sweetman chose to externalize his shame as anger.
Yet the short sentence he wrote expressed much of what this book is all about. It showed a
venture capitalist who felt entitled to the fruit of somebody else’s hard work, just because
he was managing someone else’s money.
When you think about it, his description of me was fitting, too. For anyone who pretends to
tell those who fill hallowed board rooms throughout America and the world how to do their
jobs better must surely have some chutzpah. And anyone who cleans up after the shit left
behind by others’ mistakes could properly be called an asswipe.
PROLOGUE
THE MOST VALUABLE OF ALL TALENTS IS THAT OF NEVER USING TWO WORDS WHEN ONE WILL DO.
― THOMAS JEFFERSON
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The corporation is one of the most important inventions in history. Through it, countless
teams have aligned their incentives to achieve what otherwise might well have been
impossible. Thanks to the modern corporation, we have cars, search engines, social
networks (for good or for bad), airlines, refrigerators and microwave ovens, medicine and
plentiful food.
Despite popular perception that it is CEOs that are at the top of the corporate ladder,
corporations are actually ruled by their Boards of Directors. A bad Board of Directors can
easily kill off an otherwise great and successful company, even if it has a great CEO. I have
seen it happen. And yet there are no qualifications required to become a director, nor any
training usually taken. And while there are thick books on the legal duties of a director, I
know of no easy-to-read book that simply tells directors how to do a good job. Or at least
how to not do a terrible one. That is why I wrote this book.
How important is a good Board of Directors? Well, “de muestra sirve un botón”, goes the
Spanish saying: a button is enough for a sample. When Mo and Stefan joined the Board of
Directors of a technology company, the company had enjoyed almost twelve years of
uninterrupted growth, at an average annual growth rate over 55%. It had been named the
best company in its field for the last six consecutive years, and the best in the world for
three of the last four. It enjoyed a revenue retention close to 100%. Its employee quit rate
was 80% lower than the national average. Within less than five months of them joining the
Board, the Board made a series of decisions that led to bookings declining by 48% in dollar
terms and by 79% with regard to plan, net revenue loss increased by 166%, technology
improvement went from 109% improvement in a week to 12% decline in nine months,
employee quit rate increased by over 500%, with most of the management team resigning,
and the company went from a fully financed plan to facing the bleak prospect of bankruptcy,
all within a few short months. In brief, Boards of Directors matter.
This book is a particularly fitting way to begin this series on avoiding mistakes, for the most
salient difference between great directors and not-so-great ones is that the great ones avoid
making as many mistakes, or they correct them promptly when discovered. Being a director
is not often a position in which to excel through extraordinary actions —it is, after all, a
collective body where each director’s influence is typically limited to advice and one vote out
of several. Being a director is primarily about not making too many big mistakes.
Indeed, 3,438 annual observations of 452 of the 500 largest U.S. public corporations
between 1984 and 1991 have shown that the bigger the board of directors, the lower the
value of the corresponding company. Indeed, a larger board of directors leads to a mean
Tobin’s Q (market value over replacement value of assets) that’s half of the value for a
smaller board. Valuation peaks at a board size of 5 . A similar negative correlation between 7
board size and several accounting measures of profitability was reported . Eisenberg, 8
Sundgren, and Wells similarly found a negative correlation between board size and return on
assets and operating margin for a sample of 900 small and mid-sized Finnish firms . And 9
Brown and Maloney found that larger board size predicts lower stock price returns to
acquiring firms in takeovers . This is consistent with the idea that every additional director 10
adds to the number of mistakes a board can make that can harm the company.
The book is short enough so directors have no excuse not to read it. I have seen directors
who ignored the wisdom in this book destroy companies that were otherwise healthy, with
the subsequent losses in shareholder value, jobs, value for customers and good to society. It
is my hope that one day, a book like this will be required reading for anybody aspiring to
direct the fates of that wonderful vehicle of progress, the corporation.
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