In the Shadows

Posted August 23rd, 2021 by Philip Astley-Sparke, in Boards and governance, From The Trenches

By Philip Astley-Sparke, CEO of Replimune, as part of the From The Trenches feature of LifeSciVC.

I recently stepped down after a six-year stint as Chairman of uniQure (NASDAQ: QURE). In the process of interviewing potential successors, one candidate observed that “there is no manual for how to chair a biotech company.”  I had never really thought about that previously, but the comment struck a chord. While I am not sure I have it in me to write a manual, a blog seemed a manageable and appropriate means to share a few learnings from my experience serving as chair of four companies (two public and two private) and working with six chairs or lead independent directors in three CEO / President roles over the past two decades.

A CEO can obviously also be Chairman.  A company may have an executive chairman. A start-up may be chaired by an investor or an individual closely associated with a majority shareholder. The role being discussed in this article is that of a true independent chairman. Anyone can propose a motion, adjourn a meeting, read an AGM script, and provide unfiltered feedback from an executive session to the management team.  So, what attributes or experience should one bring to bear? Where can an independent chairman add value (often by doing less)? And what should an independent chairman seek to achieve?

In most profitable companies, industry experience probably isn’t necessary to make a great chairman; in fact, it may be a detriment. This, however, is not the case in biotech. I have seen chairs without biotech / pharmaceutical industry experience struggle to win respect from the board and CEO for lack of understanding of industry specific challenges and issues and lexicon, making efficient judgement calls challenging. The CEO should not have to handhold the chairman and use up his or her valuable time and resources. Therefore, I do think for pre commercial-biotech companies industry knowledge and an understanding of the inherent peculiar pressures of the sector is a prerequisite. Taken to the extreme, ex or existing biotech CEOs may make especially good chairs as they should have empathy for all the pressures and issues a CEO must handle and can help ensure the board does not make unrealistic demands, grounding proceedings in reality. This dynamic, however, has its downside; a chairman steeped in actual biotech operations, and especially a CEO type may well overstep boundaries and forget the role is a process one.  The directive is not to find the solutions to a company’s operational problems.

The role, to my mind, should be operating in the shadows.

At one company I was involved with, the CEO actually referred to the chairman as his boss.  To be clear, the chairman is not the CEO’s boss and it is unhealthy for either party to take that view. The CEO is accountable to the board as a whole and the chair provides a conduit and oversees the framework for dialogue between the “collective body” the board represents and the company’s most senior executive officer, as well as an alternative conduit to the CEO for shareholders to express their views. The framework includes agreeing upon strategic imperatives and the objectives by which success can be measured and ensuring the company is appropriately resourced for each stage of its development (including having the right CEO for each stage of development).

I should note that I have been involved with both functional and dysfunctional boards and board relationships.  Where there was dysfunction, the chair had aligned with a faction on the board, be it the CEO or VC investors serving on the board.  I am unsure whether these types of misalignments were a symptom or a cause of dysfunction (suspect more the former), but the chair needs to be their own person to win respect from all quarters.  To borrow a verse from Kipling: “If neither foes nor loving friends can hurt you, If all men count with you, but none too much.” It is important to avoid the role becoming “politicized”, if at all possible.

To the topics of meetings. The Chairman should avoid viewing quarterly board meeting management as the mainstay of the job. It’s also best not to sound off on your opinions in real time, especially if the CEO is blind-sided by a particular issue.  This will not build trust with the CEO who you want to be transparent with you before, after and in between meetings. Further, it may prevent full participation from naturally quieter members of the board whose opinions the chair should seek before giving their own.  The job of the chairman is not to point out to management teams where there are deficiencies in their quarterly output or board presentation.  At one company a new board member once told me it was like the board was grading an exam at the first meeting he attended. Unless a board loses faith in the CEO, there should be a strong trust dynamic between the CEO and chair. If the chair has worked in the shadows with the CEO and other board members between meetings, there should be little value added to sounding off in the quarterly meetings.  Issues will have been pre-flagged and surprises and excitement can be kept to a minimum. Regardless, a chair should ensure that no board member dresses down a management member in the public forum. Management performance discussions are for executive sessions. As CEO, nothing irritates me more than having to re-motivate good executives because a board member has decided to publicly humiliate them.

Moving on to meeting content. The chair should work with the CEO to ensure each board meetings focus on the most time-sensitive strategic issues at the top of the agenda to ensure they are adequately addressed and ensure routine items like succession planning are given proper attention.  The board should be able to read business updates slides and keep themselves up to date so this section of the meeting can be kept relatively brief. A bug bear of mine as CEO are board members that have amnesia. For example, if you present BD strategy one quarter, the board deck feedback of “we need a deep dive on BD strategy” the next quarter is pretty disheartening. Chairs can help by ensuring they remind the board in executive session when topics have been covered and to filter feedback from the executive session to the CEO to ensure feedback is logical and group think hasn’t led to overemphasis of a particular topic. A good chair also recognizes difficult or highly strategic issues are best dealt with at the committee levels, where it is easier to drive consensus with the right body of experts around the table before coming to the main board.

A balanced board (which a chair should help ensure is in place through skill gap analyses) will represent all the core functional areas of the company at each stage of its development. Any issue that requires some real scrutiny or is inherently controversial can be delegated to the relevant committee (standing or especially composed). This is one of the most useful tools in the chair’s toolbox. It allows for more informal detailed discussion and a recommendation to the full board that streamlines the decision-making process, which can otherwise become unwieldy. Functional expertise can also be used to advise management and provide consulting services (within compensation limits to ensure directors do not lose independence). This is all well and good but comes with pitfalls. The chair should be careful to remind any member helping at an operational level that they have a privileged view and should be careful when it comes to management performance appraisal time. They should not penalize management based on their additional internal knowledge when a manager has opened up to solve a particular problem or challenge.

Finally, and perhaps the hardest part of the job of chairman, “if all men count with you but none too much.”  The chairman is a conduit of shareholder concerns regarding management, especially the CEO. Often outside institutional shareholders disappointed in a CEO will not have the full set of facts or be aware of initiatives to increase value that are not yet ready to be made public. Frustrations are often due to a lack of communication, and the chairman can play a role explaining why the board has full faith in the CEO and that a change would be detrimental to their best interests, as well as advise the CEO how they can communicate better. However, sometimes the shareholder concerns will be legitimate. In this case it is important that the chair / CEO role remains professional and not overly personal, so the chair is able to help the board make the right call if change is necessary.

If the chair role is all about “all men counting with you but none too much”, the CEO role is about “keeping your head when all about you people are losing theirs”. They are the ones who are really in the words of FDR “in the arena marred in blood and sweat.” Finally, a good chair has the humility to recognize this.



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