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Welcome to The Boardroom Path, the essential podcast for aspiring and newly appointed Non-Executive Directors navigating the journey from executive leadership to the boardroom. Hosted by Ralph Grayson, partner at Sainty Hird & Partners, each episode offers insightful conversations with industry leaders, seasoned board directors, and governance experts. Our guests share practical strategies, valuable perspectives, and actionable advice on how to effectively transition into board roles, maximise your impact, and build a rewarding NED career.
[00:00:03] Ralph Grayson: Welcome to The Boardroom Path by Sainty Hird & Partners. I'm your host, Ralph Grayson, a partner in the board practice. In this series, we'll offer practical steps and useful perspectives for aspiring and newly appointed NEDs. Throughout its 30 year history, Sainty Hird has recruited senior board members across the City, Industry, the Public Sector and NGOs.
We're now also evaluating those boards, as well as coaching and mentoring those seeking to transition from an executive career into the boardroom. So we'll be speaking to some leading figures in the board advisory and NED world. Specifically, we'll seek their counsel about how and where to spend time and energy to make an effective transition into the boardroom. The goal is to equip recent and aspiring NEDs with tips, tactics and strategies to be most effective and build a successful career as a board director. In the process, we aim to help you to think more about who you are, how you operate and how you can make this work in the boardroom.
My guest today is Raffaela Rein who has found time in her hectic schedule and a fleeting visit to London to join us today. Raffaela is a tech entrepreneur turned board director with experience on boards including Porscheand IU.
Her newsletter, which I recommend to everybody, The AI Leadership Edge, delivers actionable insights to help boards and executive leaders turn AI into a competitive advantage. Previously Raffaela founded Career Foundry and Wild Wild Ventures, scaling startups and building other ventures at the forefront of frontier technologies, as well as adopting digital innovation for traditional industries.
She began her career at BlackRock and then launched three companies across Asia Pacific for Rocket Internet, which tech enthusiasts of a certain age, like me, will remember well. Recognized by Forbes Capitals 40 under 40, and among Europe's most influential women in tech and VC, Raffaela has built her career at the intersection of innovation, leadership, and emerging technologies.
Raffaela, welcome.
[00:02:25] Raffaela Rein: Thank you for having me.
[00:02:26] Ralph Grayson: Let's start with your background and your professional journey, because it really seems to me it informs where your current thinking is, which we'll get to in a few minutes. So perhaps start as far back as BlackRock, if you will, and then talk about the work you did at Rocket Internet, your move to China, the start of your entrepreneurial journey at Career Foundry, and we'll see where we get from there.
[00:02:50] Raffaela Rein: Yes, so 2009 I started out at BlackRock here in London. BlackRock was an incredibly professionally managed place, but a bit slow, and when Rocket Internet knocked at my door and said, do you want to start a company in China for us, that was kind of the opportunity I had been looking for, and so with 24 years, I packed my bag, moved from London to Beijing and it was the exact opposite to BlackRock. So it was very chaotic at Rocket Internet. It was a completely different culture, and we grew from, when I arrived, 40 people to 3000 people in China, in 126 cities operating within six months from when I got there. So you can imagine how much chaos it was. You had to be in the office before 8:00 AM to even get a seat. So they just couldn't buy enough chairs for the kind of people growth we had. But I realized, I thrive in that sort of chaos and in that building something and basically became clear, this is what I want to do with my life. I want to build companies and then I had the chance with Rocket Internet to do it twice more.
So after China, they send me to Australia to build the Iconic, which is nowadays the largest Australian fashion marketplace online and then at the same in Taiwan again and by the end of this time with Rocket, basically, I was clear I was going to build my own company and return to Germany and shortly thereafter, built Career Foundry. Which was, or which still is, an online education company helping people to retrain in the most in demand digital careers, scaled it pretty quickly to an eight digit revenue and was able to exit it in 2018. And that is when Porsche approached me and they were at the time looking to build an advisory board around sustainability and generally the future. So I joined that and because that is a very big brand, soon thereafter, I got so many requests to join boards that I became a full-time independent board director, and I had a portfolio of publicly listed comp boards, of private equity boards, I have a tech unicorn, a nonprofit. So I always say I have done almost every flavor of board days.
[00:05:10] Ralph Grayson: I said this before, and I'll say it again, I'm so pleased to see so many young, relevant people joining boards now, and so many people I've had the pleasure to meet and record podcast interviews, dare I say, your generation, Raffaela, rather than mine and I think that's such a refreshing view on the future of governance and how people are starting to think about what the future form of governance has to be, rather than the past.
I'm impressed by Porsche coming to find you. What was your experience of working with boards as a founder or advisory boards? What's your history? What's your recollection?
[00:05:47] Raffaela Rein: So, with my first own company, we had a board as well, and we actually hired two NEDs from Series A onwards. So basically by the time we raised 5 million in venture capital was the first time we built a professional board. There were investors on our board. There were also these two NEDs. So I've basically seen it first from that side, from being the CEO who has to manage their board, and then later obviously I joined other CEO's boards in various functions and capacities.
[00:06:15] Ralph Grayson: So how did Porsche find you?
[00:06:18] Raffaela Rein: I had a connection and they asked him for recommendations. They were specifically looking for a successful tech entrepreneur and they were looking for a female one and ideally German. There's actually not that many female successful tech entrepreneurs, unfortunately and especially they weren't five, six years ago, and so I guess I had also become something of a thought leader in the area of the future of work. Because that was obviously where with Career Foundry we were doing a lot of work, right? Thinking about how do we help people train into careers? How are careers developing? How's leadership developing? And so I did a lot of thought leadership and so, I was featured in a lot of magazines. I got to meet Angela Merkel, I got to meet Barrack Obama, and I guess I had gotten some sort of reputation that was then safe for a company like Porsche to approach me.
[00:07:10] Ralph Grayson: And I think you joined there, the specific brief was around sustainability, was that the tech application to sustainability or? I'm really interested in how they thought about the skill sets of their board, and how you fitted into that skills matrix.
[00:07:24] Raffaela Rein: Yes, because I'm not a sustainability focused entrepreneur, right? I had at that point never done anything specifically around sustainability. So I think they hired me to bring an entrepreneurial perspective into this. Because the sustainability transformation, same as the AI transformation that we're going through now, it's really a huge transformation both culturally in terms of talent, but also in terms of mindset, right? Bringing in an entrepreneurial mindset into that, so somebody who can think out of the box who maybe also feels very excited about the future rather than threatened because we also have, say, politicians in the board for example, and they can sometimes see things more through a risk lens. But I think entrepreneurs, we are positive towards the future by nature and I think that is sort of the lens I brought to the mix.
[00:08:17] Ralph Grayson: I talk a lot with prospective board members about their unique value proposition as a board member, and particularly people who are coming out of a senior executive role, as the cliche goes, they revert back to their CV and they talk chronologically about their experience. Whereas those of us involved in recruiting board members or training prospective NEDs, try to step back from that and say, what do you solve for?
So how has this experience shaped the way you think about boards and for a listener who's thinking about what board should I join and what skillset do I have beyond my executive CV, how does that shape where I should be thinking and positioning myself?
[00:09:01] Raffaela Rein: So I think it depends a bit on the person's background, but I do believe my path, starting with an advisory board into this board world was quite a good path because advisory boards are less regulated, right? It's only about strategy and actually being a sounding board to the executives and there's by virtue no regulation whatsoever. I remember when I joined my first governance board, I was quite overwhelmed almost by the amount of regulation and you know, also how much the regulatory part of the board, how much time that took off the board.
So for example, I'm still now in a governance board of a publicly listed private equity company. We do about 5 billion in turnover and the regulatory side takes a lot of time of us as a board. For example, in my advisory boards, yeah we can just purely focus on helping the executives think about strategy, answering the challenges that they have at the time that we come together as a board to solve. I think that is a bigger challenge or a nicer way to start into this board journey because as that is a governance board, then almost needs a whole small education by itself to learn about all of these regulations and what to do and what to don't and can be a bit more dry.
[00:10:20] Ralph Grayson: I've been an avid reader of a lot of thought leadership that you've published. I've found I've run out of red pens cause I keep underlining so much. But one of the great quotes I'm going to pick up on is "I think strong boards mean strong companies and weak boards mean weak companies." What makes you think that?
[00:10:40] Raffaela Rein: A lot of experience, especially as a CEO. So when I was a CEO and had my board. I do think there were many times when, for example, we had one person who was unconstructive and hostile downright. This did not make up for a good dynamic and I was very young at the time, you know, 26, 27 years of age. It is quite difficult how to handle such a situation in any time in your life, right? But especially when you're still quite young and you're not experienced enough to, and you maybe also don't know who to turn to for help to talk about these things.
Especially in venture. So, you know, venture boards are their own beast, right? And venture there really is a thing where many VCs, ask the question, are boards creating value or destructing value? Because in venture, even more so than in say, public boards, there's maybe less professionalism in the board. So this isn't just me from my own venture board experience, but it's really something that is well known throughout specifically the venture industry.
[00:11:45] Ralph Grayson: Yeah, I think that fit of both character and experiencewith a particular stage of evolution of a board is so important. Those earlier stage board members need to be much more mentors perhaps than regulatory and board oversight.
[00:12:03] Raffaela Rein: Yeah, definitely. I do think boards should challenge in a positive way. Mentors can also challenge, but mentors tend to be more on the nice side, right? So I think boards do have the function of being critical and challenging, but they shouldn't be hostile.
[00:12:17] Ralph Grayson: Yeah, boardroom behavior is such an emotive subject. I'd love to get your perspective on different forms of governance. You've got such a fascinating international background. NED's aren't an all encompassing title and governance is all around different regulatory regimes, laws, et cetera, et cetera.
Germany, your own home country, for example, has I think, much more a culture of CEOs and leadership teams also serving on boards and also they might even have, if I've understood it correctly, internal departments inside a company with a CEO or the executive to help board members prepare and work with external board mandates.
I found the whole idea of having consultants or advisors to boards, so interesting. Just give me some colour on that. How do you think that German corporate governance is different to Anglo-Saxon / American?
[00:13:16] Raffaela Rein: Yeah, so, so to clarify, in Germany, actually, the CEO is not allowed to be on the board. So we have what is called a dual governance system, and I think we're one of the only ones in the world, and it's in that way completely different to the Anglo-Saxon model. The reason is that really, in Germany,the whole point of oversight is taken much more seriously and the idea is if the CEO is also on the board, how can there be oversight? Personally, I'm much more a fan of an Anglo-Saxon model. We discussed that when I entered my new company BoardLens we are incorporated in the USA and I'm so happy to be finally able to sit on my own board because in Germany as a CEO, you then need to have a representative who represents the founders on the board, and ideally that's in somebody who you really trust.
But in the end of the day, if something happened and they went against you, you couldn't control them. So it is really, yeah, you're giving away a lot of control and you have to rely on a lot of trust. The other point you addressed is it's really in the last 50 years, and I don't know why it started, but a lot of the really big German corporate CEOs or executives serve on many boards. So they cannot serve on their own, it's for them the same as for me as a venture entrepreneur, but they can serve on other companies. It had a lot to do with, I guess with that form of trust, right? That CEOs trusted, other CEOs wanted them to be on their boards. Inside many of the big German corporates, we're talking Allianz, we're talking Eon, we're talking all of these billion dollar DAX companies, there will be a department of people that do nothing apart from preparing executives for their board meetings. That has led to people who worked in these departments at one point becomes self-employed and do the exact same work for any independent board director.
And when I had one of my first board mandates, I actually enlisted the help of such athey're called board office, and it's really like almost every serious NED, so anybody who would have more than four serious board mandates will have a board office. It's just what you do in Germany. Alone from the risk perspective and from making sure you are, you know, you're well prepared. So this is really very common and it is not cheap. You can imagine, right? This is a very senior consultant who has been doing board level and executive level stuff at the highest, echelons in corporate Germany. So they don't come for a nickel and a dime, and back when I had my board office, I really thought, this is amazing. I wish I could use this for all of my boards. But I couldn't because some of my smaller advisory boards aren't paid well enough that I could hire the board office for those, and so it made me really think, oh, that's actually crazy that no digital solution has been developed to help in exactly this way that a board office does.
[00:16:16] Ralph Grayson: That's so interesting. Quick question, so your American board BoardLens, which we'll come to in a minute, are you chairman and CEO or how have...
[00:16:25] Raffaela Rein: I'm both. indeed, and I love it.
[00:16:27] Ralph Grayson: And what's your perspective as a European in a US company acting in that US corporate governance model?
[00:16:36] Raffaela Rein: So I should say that, you know, it's still a new company and I'm still learning a lot about US corporate governance. So most of my boards have been German boards. But yeah, I really enjoyed it. I can just serve on a board. I don't need a proxy anymore. I don't need a representative anymore. I can be chairman.
I can basically, for example, in Germany, because I wasn't allowed to be on the board, it also meant I couldn't remove board members. Now, I cannot alone remove board members. I need at least one or two other votes, but I have that power to vote and remove board members, and that is, I think, something very good for the company because as we talked about, I have been in a situation where I had a hostile situation with a board director. And that was bad, not just for me and for the relationship between me and that person. It was bad for the entire company. It turned into unstructured unfruitful board meetings. It turned into a lot of time wasted, frankly, and I wish I would've had that possibility back then. But it's just not possible in Germany. So I think that is certainly not the only reason why I chose this time to incorporate in the USA, butit's certainly something that is one of the reasons.
[00:17:49] Ralph Grayson: So interesting. We could go on for ages. We're going to move on.
[00:17:51] Raffaela Rein: How is it here in the UK? Can you be on the board as a CEO?
[00:17:54] Ralph Grayson: Yeah. Well, executive member. Yeah, but you can't be the Chair.
[00:17:58] Raffaela Rein: You cannot be the chairman, interesting.
[00:18:00] Ralph Grayson: So, you touched on the recent PWC survey,which, if people haven't read it, essentially says 25% of board members say that multiple colleagues should be replaced and amongst executive management, 93% said that they want somebody on their board replaced. So, in a world where management teams are increasingly wary of what they perceive as board meddling and that interface between noses in and fingers out, and with a percentage of executives who say directors are overstepping into management's role doubling from last year to 32% in this current survey. When did you begin to understand that there was a gap between what was expected and what management is perceiving from their boards?
[00:18:49] Raffaela Rein: I think it was certainly with my own first board when I was CEO. I think we put quite often a lot of preparation into the board materials. We're looking at hundreds of pages per board meeting. Where multiple team members have spent time and in the end of the day, you know, as an executive, you are forced to make decisions, right?
In the boardroom, you are discussing the decisions for which there is no easy answer. So all of the decisions where it's not clear which path should you go. But as an executive, in the end, you have to choose a path, right? You cannot just stay where you are. And the board sometimes doesn't have that same urgency to really make that decision. Good boards do. Good boards, I would say really feel they're as much in the drivers' seats and have as much responsibility as solving these issues and solving these questions as the CEO.
But not so good boards maybe don't feel so responsible about that, and then you sit in the board meeting and you discuss these very important questions where there is no easy answer and you don't get much. You can just feel it. You don't get much effort or deliberation or they haven't gone really thought deeply about the issues at hand.
This is also what I think differentiates a good board from a bad board, like how much buy-in do they have and how much do they really want to help solve the hard questions?
[00:20:13] Ralph Grayson: Well, to ask the hard questions and to pick up the right detail within a 200 page board pack, I mean, why anybody would choose to do that. I have no idea.
[00:20:23] Raffaela Rein: Well, I actually receive sometimes 2000 pages and I'm not alone. I've spoken to probably over 250 board directors at this point, and there's many, like if you serve on a fund board, if you serve in a public company, thousand to 2000 pages preparation is pretty normal these days.
[00:20:39] Ralph Grayson: I mean, just beggers belief, right? I mean, the efficiency of a board meeting and a board process, how we solve for that is just the great question, right? So let's turn to, as somebody said to me this morning, the elephant in the boardroom: AI and the efficiency of board meetings.
[00:20:56] Raffaela Rein: In a way that's the only answer right to this question. Unless you can hire an army of analysts who do this for you, which by the way, people do. Most board directors with serious mandates, that I know, they actually have one analyst or several, or they hire a board office, right?
I don't think you can actually do this job alone without AI or without human help.
[00:21:19] Ralph Grayson: So let's look at the pros and cons of all of this. So, McKinsey have just put out their State of AI survey. They estimate 75% of organizations now use AI in at least one function. That most companies with a CEO led AI governance report higher EBIT impact. So direct correlation for the P&L. People are tied up in knots around cybersecurity, IP protection, regulatory compliance, and the whole area of how do you hire, train, suitably qualified people to use AI.
So I think your takeaway from the newsletter I read, that to maximize AI's potential, executives need to focus on active oversight, workflow redesign, and strategic talent management. So three bullet points there, I think. Can you elaborate maybe on that? Let's just start with your view of AI.
[00:22:23] Raffaela Rein: I would actually almost say there's one bullet point only, and that is lead by example. So I think if you have a company where the top executive team is not using AI, why should anybody else, right? Or if they're using ChatGPT for highly sensitive information. So I think as with any big transformation, it has to start from the top.
But also having internal champions for this transformation, and this is by the way, the same for the sustainability transformation that we had these last five years, as for this AI transformation. So you have to have champions inside the team who are excited about it, who are happy to try products, and who are sort of bringing the spirit oflet's try things out and let's spend some time of becoming more effective cause in the end AI should make all of us 10 times faster, hopefully. But it has to start at the top and to also recognize those champions and incentivize them.
[00:23:23] Ralph Grayson: So with that challenge in mind, Raffaela, I think you've turned your attention to how to solve for this. So are you expecting BoardLens to be a solution to some of these? Talk to us about what you are building and why BoardLens is going to be the solution.
[00:23:40] Raffaela Rein: So Borderlands is my new company. We have started at the beginning of the year. It basically started with the idea of building a digital board office, what I said earlier, right? Like a board office you can use for any type of board, may it be a small board, an advisory board, a public board, any type of board. And then pretty quickly, it became clear that the NEDs are just like the cherry of the problem. Like the biggest problem lies with investors. So most investors may be family offices, may be PEs, may be VCs serve on average on seven to 20 boards already from associate level onwards. You know, and as a NED you will never have more than 10 boards or like, I think there's very few NEDs that have that many boards. But for an investor, this is absolute daily breadth. This is the absolute standard and now you can imagine with that many boards, how do you keep track? How do you keep oversight? How do you actually take the time to prepare to really help the company ask the tough questions? This is where BoardLens comes in.
Our primary customer is investors, but we also serve directors if they want to use it, and we help on, I would say, four levels. The first level is really the actual board meeting, right? We help you prepare for your next board meeting, and you can imagine it, is if you had hired a team of McKinsey analysts who spend two weeks analyzing your board deck, crunching the numbers, looking at the market, and then coming back to you, give you a brief and saying,these are the questions you should ask in the board meetings, these are the key inconsistencies, that's what's happening in the market. You should ask some questions about that.
Quite often in my board meetings, also the companies ask specific questions. So, you know, they would give us some information and then ask questions about specific challenges that they have at that given point in time. So the analyst would also really think, really look at best practices, how have others solved this successfully and give me these pointers so I can really bring some case studies and best practices into the board meeting. and this is all done by AI, right? This is not actual McKinsey analysts. Cause then again, you're looking at five, six figures to spend per board meeting which we want to come away from.
The second level is over time. So what we often see in companies, there's many narrative changes over time. In venture, a classic one is, last summer, for example, a company spending 5 million on initiative X and promises this initiative will yield great results. You know, 20% increase in revenue, whatever. And a year later, initiative X isn't even mentioned anymore. This is called a narrative change. All of a sudden, big projects aren't talked about anymore. We can catch this, right, and we can remind the directors what happened with this project. We can also see discrepancies in numbers, for example, between the budget that was approved and the money that has actually been spent. We can see discrepancies over time. We can see, for example, is the budget in line with the goals? Actually, I've seen this even in public companies, there are goals, but the budget doesn't fit with the goals, right? Like, for example, there's a big growth push, but the budget is all about cost saving. So that doesn't go together. A good board director sees that. But again, you know, we want to be that analyst that helps the board director see it even faster without having spent so much time crunching through all the numbers. The third level is then mostly for investors across their portfolio. So we can give them an oversight across their whole portfolio, across all of their team members who serve on boards, and really become a strategic memory for everything that happened on those boards. For example, say there's an associate who serves on 10 boards. Now this associate is leaving the fund and goes to a different fund.
Today, all of the knowledge, everything that happened in the boards with that associate is gone from the fund and they will not know anymore. How was a certain problem overcome? What solutions did companies consider. With us, we will be that strategic memory of everything thathappened in the boards at any given point in time, and even if somebody is traveling or even if somebody's leaving the fund, this memory will be there. So then if you have the same problem in a different company, maybe a year later, we will be able to tell you this has been solved actually within the fund before doing XYZ. This is specifically interesting for meta topics such as incentivization, how to successfully do a growth phase, how to successfully do adownsizing phase. Like there's many topics in companies that just come again and again, and today, it's all solved by consultants. You only solve it with consultants, right? There's so many different, for example, compensation consultants for all stages and sizes and industries, because there is no strategic memory, and especially if a fund is focused on a certain phase or a certain vertical or a certain industry, this would be very easy to solve in future without consultants.
And then the last, the fourth lever is then really collaboration tools, right? So this would, be sharing documents amongst the board. It would also be knowing, which decisions even need board approval if enough people are in the room to take that decision today. Sort of more the organizational side of boards. We will also have a feature for that.
[00:29:09] Ralph Grayson: And so this all sits within a closed environment, presumably when one hears horror stories about slightly naive NEDs putting board papers into open source and seeing what ChatGPT and Copilot have to say on this stuff.
[00:29:23] Raffaela Rein: Yeah and actually today I think that is a huge risk. I hear it a lot, even publicly listed company directors upload very sensitive information to open models such as ChatGPT and I think that's a huge source of risk and exactly with us, we havebuilt everything from a security standpoint to be not trained upon. That it stays within the company. That it's secure, that can't be, you know, hacked and therefore is definitely a much better solution than allowing directors to go on ChatGPT or having no solution, which then probably means they will go to ChatGPT without the company's knowledge.
[00:30:04] Ralph Grayson: Chairs of risk committees will sleep easier tonight, I'm sure. You can also train it, I believe, on cases where things have gone wrong. So it can detect and flag risks early and train it in other best practice broadly for boards.
[00:30:20] Raffaela Rein: Absolutely, yeah and that is one aim we have. There's many, many areas and many sources of knowledge such as, you know, universities have done a lot of research on best practices for boards, right? But this often isn't reflected in today's Google or ChatGPT would take a lot of time to distill. So we will train our own set to make sure we have everything that's best practice for board on the platform and can exactly help directors quickly. This can be regulatory but it can also be more meta when it comes to, you know, how to solve challenges in the board. How to deal with people that, for example, talk too much in the board, which you often have. You also have the problem, some people talk too little. Many, many of these things I think are very universal for boards and there is best practices around this.
[00:31:08] Ralph Grayson: Raffaela, to just talk for a bit, if you will, about how you see BoardLens fitting into the value creation process, particularly for investor clients.
[00:31:19] Raffaela Rein: So our slogan is "Turn Board Work into Performance", and what we mean with that is in these last years, quite a range of tools have come to market for investors that help before the investment, before writing the check. These are tools that help with sourcing, with due diligence, with selecting the investment. But there's virtually nothing that helps investors drive performance after they wired the money and that's what we want to be with BoardLens. Because if you think about it, how do investors drive performance? It is mostly through board work, right? That is where they come together with the company whendifficult problems get discussed and where investors can really bring in their knowledge, their experience, and help guide the company.
And there's no tool today to help them do that better. And that's where we want to be with BoardLens and that's also why we are different to any board software that's out there today because weare primarily not a compliance tool. We are a performance tool. We will be able to add a few compliance features that are part of boards. But our core focus is to really use board work and turn board work into performance.
[00:32:35] Ralph Grayson: And that provides the bridge then for the board to think about strategy.
[00:32:39] Raffaela Rein: Strategy,is one of the main parts. It's also, for example, things like how do I incentivize my team better? What are the best practices out there? And today you'd have to go and hire a consultant or maybe ask some founder friends, if you have CEO friends who have gone through a similar stage.
But I would argue within a single fund, this question, how do I best incentivize my team at this stage of the company has probably been a topic in every single company, and yet quite often that knowledge isn't tracked systematically. And so when it comes, again, this question, the partnersmaybe can help but might also not remember. So we want to be that unified memory where these questions that come time and time again are stored so that companies do not need to hire a very expensive consultant who's going to take two months or longer for this analysis, right? Where it's just at the fingertips.
Everything in terms of incentivization or it could equally be, you know, how have growth phases been done successfully? How have downsizing phases been done successfully?There is a blueprint that has been established. Butevery company kind of has to ask this question fromzero again and has to go through this again because this knowledge isn't stored anywhere today.
[00:33:58] Ralph Grayson: It's so interesting, so pattern recognition, how that aligns compensation, culture, performance.
[00:34:04] Raffaela Rein: Exactly.
[00:34:05] Ralph Grayson: So the great debate around all of this is whether AI at some stage will replace the NED. Are we going to have a board app? What's your view on the efficiency of that, the ethics of that?
[00:34:17] Raffaela Rein: I can see it certainly for smaller companies that this is probably not that far away. That they in the future say, Hey, I'm going to get three AI avatarsand so they have basically three major parts of the world. Three very different schools of thought reflected in their board, synthetically through AI, but basically three very different schools of thought that look at the issues. So in smaller boards I can see that very quickly.
In larger boards, so first of all, public boards. I don't think this is coming very soon because you have the issue of liability and that's a huge part of why a board is there, right? That you have people who really are liable to make sure things are done correctly. Maybe in medium sized, like it we talk venture boards, I could see it's a mix happening, right? That you have a mix of people who come at it with really the lens of experience. But also have some synthetic thought leaders who basically come in for a variety of diversity of thought.
[00:35:19] Ralph Grayson: Let's just touch on this diversity a bit more, because I can see on the one hand, it could encourage diversity cause it could pick up patterns or raise questions that human board members haven't seen. But if it compounds that problem of not being able to read a thousand pages in the board papers or just encourage laziness of people not to read the board papers or just agree with AI because AI has to be right. Then that's counter the best practice of diversity, right? Where do you sit in the balance of that?
[00:35:54] Raffaela Rein: And that will be interesting how AI is evolving generally, right? I don't know if you heard last week a family in the US sued OpenAI because their son was using ChatGPT to contemplate suicide and ChatGPT kept increasingly reinforcing his thought pattern. I can see that with myself as well that ChatGPT often reinforces what I think rather than proving me wrong.
I think that's maybe why we are not there that at the point where board members will get completely replaced. I think we're still far away from that.
[00:36:26] Ralph Grayson: I met a very senior Microsoft person the other day and he was telling me that Microsoft is developing an AI, an app for chairs, which will help chairs think about the questions that are likely to be asked of other board members based upon the board papers that they're about to see. And to the same extent he was speculating whether that on the one hand will make that Chair-CEO relationship more efficient, or indeed in some way, nefariously, they could game it, because they could come with all the right answers before the question's asked, and therefore preempt the awkward conversations and that oversight, that is the essence of good governance. Good cop, bad cop?
[00:37:15] Raffaela Rein: It probably has a mix of both, so I think in the end of the day, directors are paid and hired for their judgment. Even if you have the best prepared materials in the world, a good board director should see what's in between the lines, for example, and should, from their experience point things out that maybe aren't so obvious.
AI is not anywhere quite near that, I would say, right, it just doesn't have that really on the job deep knowhow, having been through all the drama, through the trenches. Especially with all of the human problems that come up in boards. I would say, in good boards, in my good boards, human issues make the majority of what we discussed in board really.
But I do see what you're saying and I think it definitely is interesting how it's going to develop in the good cop, bad cop sense.
[00:38:06] Ralph Grayson: And this Microsoft person was also speculating on whether this is going to be Pandora's box opening for the lawyers. Because he was speculating whether activist investors, if a strategic decision is made by the board that the activist investor doesn't believe in, they could almost say, well, you relied on AI so you, you didn't do a thorough process as the board. Similarly, he said, well, of course if you could turn that on its head and say, well, did you check with AI before you made the board decision? As ever a field day for lawyers, but the ethics of this is just extraordinary. We haven't really got time to cover it here, but.
[00:38:40] Raffaela Rein: I also read there's a white paper from a professor, I think from the University of Pennsylvania, and she did put out that she thinks board directors have a fiduciary duty to use AI and should be sued if they don't. Because this is this superpower intelligence, so why not consult it?
But I think exactly this point, you know, the point of getting sued by activist investors, by shareholders, is one of the main reasons why I think public boards will unfortunately lack behind AI in boards trends. For example, in Germany, we even have this debate that, say for example, an employee tells me something and then it turns out to be wrong, then I can still blame the employee as a board director. So if then I get sued, I can still say, well, this person told me the wrong thing, and that's why I made the wrong decision. With AI, and it's wrong, there's no one to blame really. There's just basically a whole legal reason almost why you are not allowed to use AI in public German boards today.
If you think about it, that's like not using the calculator when the calculator came out. I mean, it's so backwards not to use AI in the board. So I think it has issues, but I hope the public boards won't lag too far behind because of all of these legal threats that surround public boards.
[00:39:57] Ralph Grayson: So regulators and politicians are going to have to adjudicate on this. Can you see a world where a regulator says one of the AI generated board members has to be on your board? Or whether that's voting or non-voting, or ultimately, do you require a certain percentage of humans on a board? Who's going to play God on this?
[00:40:16] Raffaela Rein: Yeah, it's a good question, right? It could go in either direction. So first of all, I think regulators will take their time. They will look how this is panning out. But yeah, I could imagine that the regulators would eventually quite want aboard member designed by the regulator to sit on the board, because then they would get a lot of the information right away and wouldn't have to come in with big screens and checks and balances and so on. I hope the strength lies in humans and AI together and I think there will make for an incredibly interesting board in the future because a good board should have harmony. It should have a healthy debate. But a healthy board is, you know, friendly. But that friendliness sometimes can lead to, you know, converging thoughts. So I think AI would really be a prime way to bring more dissent, more diversity of thought, different perspectives, also different cultures in into a board. I know here in the UK you probably don't have that problem, but in Germany, most of the boards are done in German language. So it is much harder to get, for example, somebody for an expert from China to actually join a board simply because of the language barrier.
AI could solve maybe a lot of these issues that basically lead to a lack of diverse thoughts today.
[00:41:32] Ralph Grayson: So much to unravel here. But time is running on. If listeners are interested to follow you, just remind us of your newsletter, if you will, The AI Leadership Edge and where they can find it, and if they've got more specific questions about BoardLens, how do they connect with you?
[00:41:49] Raffaela Rein: So my favorite channel is LinkedIn. You can find me, you can also find a newsletter there, and for BoardLenss, we are doing an early access program. So we have the first...
[00:42:00] Ralph Grayson: You're Beta testing this, right?
[00:42:01] Raffaela Rein: Yeah, well it's actually past beta testing. We have already beta tested, so the early access program will be the actual product. We have the first funds and directors who are joining for it, and we are obviously looking for more funds for more directors who want to try it out. So if you thought it sounds interesting, then please do approach me on LinkedIn and BoardLens one word dot AI. You can also sign up there. Yes.
[00:42:25] Ralph Grayson: Fantastic. Raffaela, that's been fascinating. Thank you so much for your time.
[00:42:29] Raffaela Rein: Thank you for the invite.
[00:42:30] Ralph Grayson: I hope that you've enjoyed listening to this podcast and have found it helpful when thinking about how to approach your own path to the boardroom. If you would like to push this a little bit further, Sainty Hird runs a bespoke one to one programme designed specifically to this end. For more information, please visit our website, saintyhird.com, follow us on LinkedIn, and subscribe to the Boardroom Path to receive new episodes. Thank you for listening.