The latest trends in private company governance see boards striving to improve in the areas of board composition, structure and leadership as well as taking a closer look at their own performance and priorities.
Independents on the Rise?Â
KPMG’s 2023 Private Company Board Survey Insights, which featured responses from nearly 600 U.S. private company directors, focused on the value of independent directors and found that almost 90% of boards feature at least one independent director. Only 6% of respondents said their boards lack independent directors and are not considering adding any. Seventy-seven percent of respondents believe that an independent director can add the most value by serving as a sounding board for the CEO and other executives, while 75% said an independent director delivers value by advising on strategy. Seventy-four percent of respondents stated that independents are a good balance to the views of management and owners, but just 16% said an independent director can add the most value by serving as a board chair.
Only about a quarter (26%) of respondents said an independent director serves as the chair of their board, while 15% said an independent director serves as lead director. Of the committees most likely to have an independent director serving as chair, the audit committee and the compensation committee lead the way, with 65%. The nom/gov committee isn’t far behind at 64%. And, of those boards with finance committees, half are led by an independent director.
Audit and compensation committees are the most common committees on private company boards. The two committees are included on 51% of the responding directors’ boards, with just 33% of boards featuring a nom/gov committee and 23% including a finance committee. According to the report, 31% of private company boards have no formal committees.
Needs for Improvement
The survey’s respondents believe their boards are improving in key ways, including oversight of strategy and performance, communication with management and with fellow directors, and following up on action items. However, there are also areas where directors think their boards are not as effective, including board evaluations (both individual director and committee) and onboarding new directors.
As the landscape of business changes, so does the amount of focus that private company boards apply to certain areas. Responding directors found that their boards are focusing more on the areas of strategy, risk, disruption and innovation engagement. Focus on risk management oversight (with the risks including cybersecurity and data privacy) is also a top priority, along with executive succession planning. Factors receiving less attention include director education and enrichment, and two aspects of diversity: oversight of the company’s approach to DEI as well as building the diversity of the board itself.
When looking to make improvements in the area of oversight, private company directors are committed to upping their capabilities in the areas of talent and corporate strategy, while aspects like employee health and environmental reside on the back burner. The report sees 65% of directors naming corporate strategy, including partnerships and joint ventures, as “the greatest opportunity for improvement in oversight,” with hiring, development, retention and succession of talent being identified by 46%. Just 10% of respondents saw employee health and well-being as an area in need of oversight improvement environmental risks and opportunities (12%), employee DEI (20%) and “operations, including supply chain” (20%) also falling low on the list of priorities.
The survey also found that when it comes to ESG, private company boards will continue to be driven not primarily by the desires of stakeholders, but by the effect decisions will have on the overall business strategy. Fifty-one percent of directors said alignment with business strategy would have “the greatest influence on [the] board’s consideration of environmental and social issues affecting the company,” while 49% identified brand and reputation management. However, stakeholder expectations did come into play, with customer concerns coming in at 47% and those of employees registering 42%.