Private boards can borrow from the public sphere, and use committees to provide specific focus on key issues for the board as a whole.
Bob Holland, Director, Carver Bancorp, Inc.: “If you can identify resources that can help the company, whether it’s resources or leadership transition or whatever, wherever you would reach outside for expertise, there’s an opportunity for a committee.”
Kicking off a panel discussion on committees for private company boards, session moderator Jeffry Powell, executive vice president for Diligent Board Member Services, invoked the counsel of an earlier speaker, noting that “board meetings begin where director preparation ends,” and adding that this advice can be applied to committees as well.
Powell was joined by veteran executive Bob Holland, a director of Carver Bancorp, Inc., and retired director of YUM! Brands, Deborah Hicks Midanek, chairman and chief executive of Solon Group and advisory board member for The Biltmore Companies, and Edward A. (Ned) Powell, retired president and CEO of USO World Headquarters and director of AnswerMedia LLC.
When it comes to determining the requirements of a board and the full membership’s relationship to committees that are created or deemed necessary, Ned Powell observed that realistic goals are very important. “What you do with committees and how you use your board can change the long-term future for your company,” he said, invoking a number of examples during the session including fluency in other languages to literacy on social media as examples of areas where board members can bring value to the board as well as to committee assignments.
Bob Holland, taking a step-by-step approach and family business orientation, noted that the first director you pick is the most important: “It’s like getting married.” Building a board and, by extension, board committees, can be an excruciating process and, if you get it wrong, be prepared to change it and change it quickly.” From that perspective, he continued, the most important committee for a private company board is the strategy committee. This committee, he said, “has to take the view that the strategy that is developed for the long term, for the next generation, not for the next quarter or year or even five years.”
An equally-important consideration, Holland offered, is talent: “The scarcest resource in companies is talent. Lack of the right talent on the board or in committee can be a profit killer.”
Tagging onto the theme, Deborah Hicks Midanek said that if the most important selection is that very first director and his or her first committee should be the strategy committee, does that not mean that strategy is the primary responsibility of the entire board. Explaining further, Midanek noted that in a private company committees are a wonderful nexus for connection between the big picture work of the board and the day-to-day operations of the company, and you can look on the committees as training grounds for, as an example, an independent director who has never served on an audit committee. This, she said, is where the instincts and creativity of board members are honed.
Unique Private Board Committees
“A private company board can be very creative in its definition of committees, more creative than a public company, and can use committees beyond the traditional areas, such as audit, nominating, compensation, to create connections between all levels and all activities of that company,” Midanek posited. “Committees are the places where the real work of the board gets done and where big chunks of information or responsibility are processed for the larger board. Committees are a delegation process.”
On example within the context of a family business, Ned Powell offered, is a mentorship committee, one that “stores family values and the culture” and is charged with preserving that legacy and vision while engaging emerging and future generations in the process.
On the role of committees vis-Ã -vis the board itself, Midanek suggested that committees can find a way to raise important issues that may not have made it to the full board agenda and can work through tough issues in advance for full board deliberation: “Committees are critically important for boards as they offer pre-digested thoughtful consideration for the board as a whole to consider. It’s a process of training, delegation, discipline and reporting” that frees up the board to tackle the largest issues.
Holland took issue with the idea that an advisory board can serve as a “dating service” for consideration of candidates for full board membership, saying that outside investors, for example, like to see stability on a board and within a company. He further noted that he sees no real difference in the obligations of a private company board member versus a public company director. It’s all a matter of service and a desire to help the CEO and management build a better company.
Ned Powell said nonetheless that advisory boards can be used to test a potential board member, to see if the candidate shows up on time, is prepared, has read the materials, is interested in the business and its markets: “Do they ask good questions, do they leave their Blackberry behind, are they engaged and do they make a contribution?”
Taking a different tack, Midanek spoke about the roles of committees for private companies in terms of bringing news good and bad to different components of the company and the board. “The key issue,” she said, “is how you build trust and bridges of communication so that work of committees finds its way to the ears of the entire board and to management and the CEO. That’s where committees really fit in, by connecting the board to the larger company. Within the board, committees create a group of people who already have reached consensus.”
Committees That Make Sense
Addressing the issue of what committees make sense in the private company context, Ned Powell said, “The committees that make sense for a private company are the same that work for a public company, without the regulatory requirements. I want to emphasize this point: If you don’t have a strong finance and audit committee, you are going to get into trouble. The main area that private companies and family businesses get into trouble is financial. If you are a CEO, you want the strongest audit committee possible.” Midanek added that some committees are purely situational, such as an M&A committee in a circumstance that has been driven by opportunity or overture.
Holland weighed in with his observation that wherever you need outside assistance and expertise “to do the things that will sustain the company for the long term,” that’s a solid candidate for a committee. If you can identify resources that can help the company, whether it’s resources or leadership transition or whatever, wherever you would reach outside for expertise, there’s an opportunity for a committee. Someone on the board needs to step up and take charge and create a capability for debate, information gathering, decision making and, ultimately, a recommendation to the board as a whole.
On that point, Ned Powell noted that committees do not have to be permanent and can be “stood up” more or less on a moment’s notice to evaluate things like a new 401(k) plan or a potential acquisition. They do their work, they make the recommendations, and then they can disband. There is much more flexibility in the private company governance space to create structures that address targets of opportunity: “Let it do its business and let it go away.”
Lastly, the speakers presented a number of case studies in response to audience questions related to how private company board committees and committee members can grease the skids on any number of fronts where an independent voice from a dedicated committee may in fact carry more weight with the full board than the CEO or any other board member.
To recap, Ned Powell offered this assessment of how to evaluate the effectiveness and the value of boards and board committees. “If a board is costing you a lot of money, something may be a bit out of whack. The value-added is a soft measure: Do these committees help the CEO, do they keep the company on the rails, does the CEO listen to them? Are these committees giving information that guides the company and the CEO in circumstances where the CEO can’t know everything?
“That’s a great place for boards and committees of the board because they backstop the CEO, and because it gives the CEO security that what he or she is looking at reflects what’s truly going on.”