I was privileged to join a private company’s board last year as part of its first set of independent board directors. The first several meetings mainly consisted of the CEO, executives and owners educating the new independent directors about the company, the team, the market, the ownership and more while everyone spent time becoming familiar with each other. Of course, the new board members asked our share of questions to help in this process and shared some suggestions but, for the most part, we were absorbing information. In a recent board meeting, I noticed the subtle transition from new independent board member education to those board directors providing valuable guidance, governance, feedback and ideas.
It raised a question in my mind: How long does it take for new boards with independent directors, or even new independent directors joining existing boards, to add real value? While we may be tempted to answer “immediately,” that is usually not a realistic scenario.
I remember taking on an executive role at a company and being asked by the CEO to just observe and learn for the first 90 days — to not change anything during that time frame. This wise advice was intended to ensure I sufficiently understood the context, stakeholders and impacts before making any improvements — something that could not be rushed. While someone will not likely be fully up to speed in that short time frame, it provided a good rule of thumb and permission to take the time to learn. With a few exceptions, I heeded that advice, which set me up for success after that time period and, in the long term, benefited the team, the company and myself.
For private company boards that have newly added their first independent directors or for independent directors joining existing boards, a similar philosophy should apply.
Giving New Directors Time to Learn
It should take time for a new independent director (or a board bringing on its first set of independent directors) to learn what he or she needs in order to more fully contribute to the board discussions and company governance. There is much to learn, including:
- The company. Why and how the company does what it does.
- The industry. Who are their customers and current and potential competitors? What risks and opportunities are present? What current and possible future government regulations apply?
- The team. Understanding who the top couple of levels of leadership are, their current and past responsibilities, their skills, their strengths and weaknesses, and their growth potential (think succession planning) are all important topics to learn.
- Board operations and culture. How are topics and concerns raised, discussed and voted on? How do the committees work?
- Financials. Learning about the company’s financial results and projections and their causes and impacts, and watching them evolve over time enable new directors to fulfill their duties.
- Ownership. Who are the major shareholders, and why? For private companies, are they private equity, family or ESOP? What are the owners’ goals for the company, which could range from organic growth and acquisitions through selling the company?
Bringing new directors up to speed in these areas takes the time of executives and existing directors, but is worth that investment.
Developing relationships is important also, whether between existing and new board members or between executives and new board members. This is built through a series of board meetings, but also through more informal interactions, such as one-on-one calls with executives and other board members and board dinners. These events not only allow the people who will be working together to know and understand each other more, but often also provide additional insights into company culture, structure and operations.
While there may be a plethora of information available for public firms, including annual, quarterly and special filings, for private companies, it may be limited to what they choose to put on their website, the minimal information that business reporting agencies publish and appearances in the news, if any. For private firms, as compared to public corporations, this lack of publicly available information about the company means that the other stakeholders will need to directly provide these documents and data to the new directors proactively.
Getting Up to Speed
Keep in mind that independent directors do bring their knowledge and experience with them, which helps speed up this orientation period. An experienced CFO will understand the financial concepts well and can provide value in this area earlier, although he or she will still need time to understand the company’s specific financial situation and goals. Similarly, a director with experience on other companies’ risk committees will need time to understand the risks this particular firm faces and how they are being managed, but the concepts will not be new. While some independent directors may benefit from having the exact same industry experience as the company operates in, both boards and companies benefit from directors with a variety of experiences, including in different industries.
Of course, this process cannot take forever. Independent directors were brought on to add value to the company, ownership and their fellow directors. Everyone plays a role in this. Owners can share their objectives and, for family-owned firms, the company’s longer-term history as well. The CEO and executives should provide a lot of information about the company, the team, the organizational structure, the market, customers, competition and more. Fellow board members are able to provide mentoring and help new directors understand the board culture, how it operates and board history. Whether it is the first set of independent directors or a new director joining the established board, a structured new director onboarding process helps.
The new directors play a key role in this process as well. They need to be willing to spend the time to absorb what may be a significant amount of new information, strive to understand it and make the effort to ask questions of executives or other directors in order to clarify topics. In some cases, especially when a company is bringing on its first set of independent directors, the owners and executives may not even know all of what they should share since they have been deeply involved in the business for so long and may take things for granted. The new directors can help identify this information, aiding in the ramp up. Planning this education should be a joint effort. Transparency, best accompanied by a nondisclosure agreement, is usually the best approach here, while trying not to overwhelm the new directors. While sometimes hard to identify, this willingness to learn is something that the owners or existing directors can explore when interviewing prospective candidates.
Then, perhaps after six months to a year, the newer board member(s) can become more fully effective by providing guidance and sharing knowledge from their experiences — both their industry positions and other director roles. With this improved knowledge and context about the company, its operations, personnel, culture and market environment, they will now be in a better place to offer governance and oversight that meet the expected standards but are also customized for this particular firm. Of course, new directors should have constructive questions and suggestions along the way and will be expected to ramp up their contributions.
There may be exceptions where new directors need to act and contribute earlier: For example, independent directors brought in for their expertise to provide guidance and governance to help the board and executives deal with an existing crisis. Or, new directors may have to dive into serious issues that arise unexpectedly early during their tenure. However, in most cases, a more patient approach to seeing real returns from a new board is in everyone’s best interest.
I have been fortunate in my independent director roles to date, in that the owners and executives have understood that they and the company benefit from the patience of this learning curve. They have engaged in a period of information-sharing and acculturation prior to expecting their new board to dive into meatier issues. The result has been greater contributions by those directors and stronger relationships