Disruption

Serial entrepreneur Patrick Grove devotes 85 per cent of a typical board meeting in emerging tech ventures to brainstorming, challenging assumptions and re-calibrating business models. The rest is spent on compliance and policy.

Grove believes boards of large companies are too focused on compliance. “Large incumbents spend too much time on governance, process and playing safe with strategy. I also think big companies are unwilling to disrupt themselves. We are always willing to disrupt our own business model if we feel there is a better one out there.”

Grove says “disrupter” firms do the total opposite of large companies. He looks for directors who are genuinely disruptive, have tech experience and agile thinking. Such directors, he says, are hard to find; many think they are disruptive but lack the skill.

This view of governance, common in high-growth ventures, reinforces why insurgent “born digital” ventures are disrupting large industry incumbents. Their boards tend to be smaller, industry focused, hands-on and spend more time on strategy than compliance.

The 42-year-old Grove has an interesting perspective on governing for disruption. Few tech entrepreneurs have as much experience in chairing listed and unlisted companies.

The former accountant left Australia to co-found several successful internet companies in South East Asia, among them iProperty Group, iCar Asia, Frontier Digital Ventures and, more recently, the mobile-streaming service iflix, which the Australian Financial Review in February 2018 speculated could be Australia’s next $1-billion “tech unicorn”.

Grove is a member of the Financial Review Rich List with an estimated worth of $801 million in 2017. As iflix takes off in Asia (Grove is a majority shareholder), he is on track to become Australia’s next billionaire and possibly its youngest.

Grove’s Catcha Group, a leading Asia-based investor in disruptive technologies, has spun out several companies that have listed on ASX, some of which have been fully or partially acquired by larger companies. He has chaired or been a director of several ASX-listed companies from the Catcha Group stable, which came to market via Initial Public Offerings (IPOs).

Grove has a refreshing view on governance. For him, constant testing and recalibration of organisation strategy and business models is where directors add most value in disruptive ventures. Such organisations need directors who can make rapid decisions, often lacking information, and work effectively on smaller, less independent boards.

This is a different governance approach compared to large organisations that have established markets and business models, many more shareholders and a stronger focus on risk management and compliance. These organisations tend to recruit directors with broader general experience in corporates, usually at executive level.

But as technology-enabled disruption affects more industries, the need for boards to focus more on strategy, challenge assumptions and make decisions quickly has never been greater.

US tech giants, such as Apple Corporation and Amazon, have shown it’s possible for large companies to think and act like start-ups as they grow – a logic that could extend to more boards that have to govern through disruption and conditions of high uncertainty.

Here is an edited extract of Grove’s interview with the Governance Leadership Centre:

GLC: What skills do you look for in directors when forming a board of a disrupter organisation?

PG: Preferably, that they worked in a disruptive organisation before, but if not, the ability to think differently and outside the box. We tend to avoid directors who sit on many boards and prefer someone that doesn’t have any preconceived notions about how a board should operate.

GLC: Do smaller, less independent boards work best in emerging disrupter ventures?

PG: Yes, I tend to believe that 100 per cent. Smaller boards make decisions faster, and if the dynamic between the individuals is great, debates are healthy and always lead to better outcomes for the company.

GLC: What are the main board challenges of governing a high-growth disrupter venture?

PG: Finding directors that ‘get it’ and are disruptive in their own outlook for the company.

GLC: How do you get the balance right between sufficient governance process and policy, without bogging the venture down or making it less nimble due to too much compliance focus?

PG: We’ve never really found this to be a problem. We tend to let 15 per cent of a typical meeting focus on governance and policy, and the balance of the time on brainstorming, challenging assumptions and re-calibrating plans.

GLC: Is it hard to find non-executive directors who are sufficiently skilled at governing organisations that operate in conditions of high uncertainty?

PG: It’s very hard! We tend to always love directors who have worked in or with a successful tech company. The rate at which strategic decisions are made in tech companies tends to be faster than non-tech companies, so being used to that pace is a huge bonus.

I think large incumbents spend too much time on governance, process and playing safe with strategy. I also think big companies are unwilling to disrupt themselves. We are always willing to disrupt our own business model if we feel there is a better one out there.

GLC: What makes for a good Chair/CEO relationship in a disrupter organisation?

PG: Somebody who has definitely done this before!

GLC: How do you think governing a small, insurgent (disrupter) organisation differs from governing a large incumbent?

PG: I think large incumbents spend too much time on governance, process and playing safe with strategy. I also think big companies are unwilling to disrupt themselves. We are always willing to disrupt our own business model if we feel there is a better one out there.

GLC: You’ve been involved in several successful disrupters that listed on ASX. How did their governance change as the organisations grew?

PG: We’ve been very fortunate to find directors that get the big picture and have been involved with tech companies before. We haven’t found it difficult to manage governance as the organisation grew.

GLC: You’ve also been involved in several Initial Public Offerings (IPOs). Does a strong, independent board help sell the IPO?

PG: It helps. But I wouldn’t say it’s the most important thing. Having a great strategy, vision and management team are very important and I believe investors look there first. And then if they are comfortable with that, they look for an established board to help guide the process.

GLC: Are you noticing more interest from directors with large-organisation experience to serve on boards of disrupter firms? Are directors with solely large-organisation experience suited to emerging disrupters?

PG: We are, but once again, I’m always looking for directors that have ‘done this before’. I find it makes a big difference.

GLC: What advice could you give other directors who are interested in governing disrupters?

PG: They need to accept that everything a disruptive company does is the total opposite of what a large, established company does.

GLC: What do you enjoy most about governing disrupter firms?

PG: Proving people wrong.

GLC: What do you enjoy least?

PG: Working with people who think they can be disruptive, but in the end find it too hard.

GLC: How important is it to ensure directors of disrupters have plenty of ‘skin in the game’ with stock options and other equity incentives?

PG: It’s very important. We try to maximise this with every company we are involved with.

GLC: Do you think more disrupters will choose not to list on exchanges in coming years, to avoid the compliance/market/governance costs and focus more on the underlying business?

PG: We haven’t found this an issue. The main reason disruptive companies are staying private is because private funding sources are now offering better terms than public sources in some cases.