We all know how important transparency is to a board and its company. Information sharing and communication are key aspects to any successful company. Transparency creates assurance, instills confidence, and builds cohesiveness among board members and the executive team which ultimately leads to shareholder trust.
A transparent board allows directors to accurately assess the state of a company and make decisions that moves the business closer to its goals. These are all great concepts, but it is much more difficult in practice. Sharing information can be extremely difficult for executives and the CEO when that information shows a dip in performance or a potential failure.
When a CEO has information that could mean trouble for the company or for them personally, fear sets in. Whether it is fear of being fired or fear of the company failing, stress and fear is inevitable. This fear affects their rational decision-making and often prevents them from sharing essential information.
This is especially true in newer and riskier industries such as Peer-to-Peer Lending. Recently the P2P company, LendingClub fired their CEO, Renaud Laplanche. This came after it was discovered that Laplanche was misleading an investor about the value of $22 million in loans. After an employee noticed that the date was incorrect on one loan, the company investigated and found more irregularities. They also found that Laplanche failed to disclose that he had stake in a fund that LendingClub was considering investing in.
Laplanche’s actions were surprising as he was highly respected in the industry. Because this is a newer industry and LendingClub still needs to prove they can turn a regular profit, the stress of performance lured Laplanche to withhold information and lose transparency.
Once his actions were uncovered, the board acted swiftly in firing Laplanche and moving the President of the company to the CEO position for the time being. The board should now focus on creating a safe environment for their next CEO to share concerns over performance of the company.
Had Laplanche come forward before taking deceptive actions, the board could have developed a plan to manage investors’ expectations while cultivating creative solutions to improve results. A safe environment is one where CEOs and directors feel like they can ask and honestly answer difficult questions without feeling guilt or shame. Having a safe and open environment prevents the issues that
LendingClub is now facing.
For more information about creating safe environments and increasing transparency, please contact [email protected].
Part 2: Dismantling a Lock-In in the Boardroom: An Emotionally Focused Approach to Board Effectiveness
Dismantling a Lock-In in the Boardroom: An Emotionally Focused Approach to Board Effectiveness