On the 2019 Private Company Board Agenda
Focus on board composition, CEO succession and culture.
Developing and executing the best business strategy at a time of constant change requires a focus on boardroom talent, management succession and company culture.
Drawing on insights from work at the KPMG Board Leadership Center and interactions with private company directors and business leaders, here are highlights of the top items for private company boards to consider as they shape their agendas this year.
Take a hard look at board composition.
The changing business and risk environment, marked by business model disruption, digital innovation, shifting customer expectations and tastes, and culture-related risks, requires a proactive approach to board-building.
A key question to ask: Is there a plan to help ensure that the board serves as a strategic asset to the company and has the right composition to help guide the company in the future, as its strategy evolves?
While determining the company’s current and future needs is the starting point for assessing and enhancing the board’s composition, there is a broad range of board composition issues that require board focus and leadership — including succession planning, diversity, individual director evaluations, removal of underperforming directors and board refreshment, as well as the potential impact of ownership transitions.
For companies operating without a formal governance committee, the board chair, CEO, lead director or a special committee of the board should assess whether the current board has the right composition and develop a board-succession plan based on future needs.
Make CEO succession and talent development throughout the organization a priority.
Few board responsibilities are more important than hiring and firing the CEO — a reality that continues to hit the headlines, particularly if the board is caught flat-footed. Given the disruptive business and risk environment today, it is essential that the company have the right CEO in place to drive strategy, navigate risk and create long-term value for the enterprise.
The board should ensure that the company is prepared for a CEO change — both planned and unplanned. CEO succession planning is a dynamic and ongoing process, and boards should always be thinking about developing potential candidates.
The key questions to ask: How robust are the board’s CEO succession planning processes and activities? Are succession plans in place for other key leadership roles? Does management have a talent plan that aligns with its strategy and forecast needs for the short and long term?
Succession planning can be a considerable challenge for founder- or family-led companies, and a high level of emotional intelligence is often required to navigate the discussions, particularly if the board has determined that it is in the best interest of the company to move on from the family or founder as chief executive.
Closely linked to the importance of having the right CEO is having the talent required — from the top of the organization down through the ranks — to execute the company’s strategy and keep it on track. We expect companies will face an increasingly difficult challenge in finding, developing and retaining talent at all levels of the organization.
Assess, monitor and reinforce culture as a strategic asset and critical risk.
Given the critical role that corporate culture plays in driving a company’s performance and reputation — for better or for worse — we see boards taking a more proactive approach to understanding, shaping and assessing corporate culture.
Among the messages we hear from directors: Have a laser focus on the tone set by senior management and zero tolerance for conduct that is inconsistent with the company’s values and ethical standards, including any “code of silence” around such conduct. Be sensitive to early warning signs and verify that the company has robust whistle-blower and other reporting mechanisms in place and that employees are not afraid to use them.
Understand the company’s actual culture and use all the tools available — surveys, internal audit, hotlines, social media, walking the halls and visiting facilities — to monitor the culture and see it in action. Recognize that the tone at the top is easier to gauge than the mood in the middle and the buzz at the bottom.
The key questions to ask: How does the board gain visibility into the middle and bottom levels of the organization? Do employees have the confidence to escalate bad behavior and trust their concerns will be taken seriously?
Make sure that incentive structures align with strategy and encourage the right behaviors, and take a hard look at the board’s own culture for signs of groupthink or discussions that lack independence or contrarian voices.
Adapted from On the 2019 Private Company Board Agenda.
Brian Hughes is the National Private Markets Group Leader for KPMG LLP.