Seven Reasons Private Companies Should Have Boards


 

Having served on boards of private companies, subs of publicly-traded companies and not-for-profit organizations, I believe that each type of organization has much to learn from each other.   For example, private and not for profits can benefit from the learnings of Sarbanes-Oxley and Dodd-Frank requirements for public companies, while public and private companies can learn from the mission and longer-term vision of not for profits.

The National Association of Corporate Directors (NACD) recently provided early insights from its 2015-2016 Public Company Governance Survey. These regulations increased the duties of board directors, making boards responsible for effectiveness of internal controls and compliance, changed the requirements for board make-up, created greater transparency requirements and linked executive compensation to company performance.   These regulations appear to be working; strengthening and diversifying board make-up and improving board impact for public corporations which are required to have fiduciary boards.

While private and family-owned companies may have no legal requirement to have a board of directors (some states do have this requirement), there are many reasons companies benefit from having a board. Venture capitalists or investors may require a board of savvy business advisors as well as representatives from the investors themselves.

If your company has no requirement for a board, what are the advantages of creating one?

  1. Good boards strengthen companies by challenging management.   As the CEO of Sterling Life Insurance Company, I looked forward to board meetings as it was essential to think through the challenges facing the company, the current state of operations, and our needs for the future – and to present this in a way that it could be understood by Directors not intimately involved in the business. Preparing for board meetings took considerable time – and every moment was worth it. Our board members challenged our leadership team and strengthened our commitment to doing our best work. Boards serve as sounding boards and expert advisors to the company, and further challenge management to achieve improved performance. A board of directors with fiduciary responsibility ensures the needs of the company, its customers, and any investors are considered.
  2. Independent Board members offer different perspectives, strengthening strategic perspectives and operational excellence.   While company insiders may have the greatest knowledge about the company and significant knowledge about the industry, independent board members offer fresh and innovative perspectives leading to operational improvements, better customer service, and strategic opportunities. They also offer a different type of oversight, a fresh set of eyes to determining whether the company is using its assets in the most productive way. For family-owned companies, independent Directors can help mitigate the emotional nuances or minefields that can plague business and executive performance, accountability, and critical transitions. Family-owned companies which benchmark themselves against publicly-traded companies will benefit from Directors with industry experience, strategic thinking as well as just solid business skills.
  3. Industry Outsiders can be game changers. While Board members with industry-specific experience offer significant value,   Directors from outside the industry who have owned their own company, created successful start-ups or served as CEO can offer valuable perspectives to organizations pursuing growth initiatives and seeking strong operational performance. Great strategies start with the end in mind: the vision for an improved future result and focus on what the customer wants and needs.   Directors from outside the industry can add different perspectives from those within the industry in thinking through the future vision for the company.
  4. Boards with specific talents offer expertise and oversight. A board comprised of individuals with specific backgrounds can provide guidance for specific challenges faced by the business. In a complex regulatory environment, it may be beneficial to have an attorney or regulatory compliance individual on the board. Directors with financial acumen, especially if familiar with industry or regional borrowing opportunities can be helpful should there be a need to raise capital. Individuals with experience in high or rapid growth companies can help navigate transitions in IT systems, human resource planning or diversification of sales channels. Experienced Directors can also add great value to strategic planning processes or the development of risk management and disaster recovery frameworks.
  5. Critical Transition Points benefit from Board involvement.   With Board focus on the company’s future, succession planning becomes a key priority.   Good boards help companies navigate the transition between CEOs and other key members of the leadership team, identifying what skill sets and experience are needed for the company’s next phase of growth, guiding the selection and on-boarding process. These critical transition points become an opportunity for improved company focus, priority setting, strength building and growth.
  6. Boards support transformational change. Companies which have plateaued, or are in a course of declining revenue, profit or performance can benefit from Boards which can offer different perspectives on key drivers for success and the necessary steps to achieve it.   Drawing from a board with independent Directors, experience from both within and outside the industry, and years or decades of experience in addressing business challenges can facilitate an organization’s transformation from stagnation or decline to positive growth and success.
  7. What gets measured gets done. Having a Board of Directors creates a different level of accountability for the executive team.   Measuring performance against specific benchmarks in itself creates performance improvement. But there is great challenge – – and great fun – – in reporting to a Board of Directors as to how the company is measuring its performance. Did sales grow by 15% over the same time last year? Did sales increase overall and within the same operations? Is there a significant improvement through expense reduction impacting profit over last quarter? Are you exceeding your metrics in comparison to industry benchmarks or regulatory requirements? A good Board has experience in these areas, and regular reporting on challenges and successes will inspire change. Good governance makes things happen.

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Edgewater Advising offers guidance to organizations seeking to elevate performance. Founder & Managing Partner Debbie Ahl draws from experience in publicly traded, private for-profit and not-for-profit organizations, as a CEO, C-Suite executive and board Director. Her approach is one of collaboration and communication, identifying stakeholders’ needs and perspectives, and skillfully managing the change process.

Contact: d.ahl@edgewateradvisingcom / 360.393.2599 http://edgewateradvising.com/

 

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