Darcy Howe on the challenges of private board service, Deloitteâs Roger Nanney on technology and risk for private companies, and latest private director appointments.
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Private Company Q&A: Darcy Howe
[Editor's note: the following is an installment of our Private Company Director Q&A series. We will continuously update this section with responses from different directors of private companies covering a wide range of topics.]
Director, Heatron; Advisory Board Member, The Bama Companies
What do you look for in a company whose boards you might sit?
DH: Fit first. And then it would be cultural fit. And then, if it’s an industry that I not only can feel excited about, but I can also contribute to, in other words, I have expertise or a point of view or something that I think would be a positive contribution. I would say cultural fit is the most important.
What are your biggest challenges in executing your role as a private company board member?
DH: Consensus building. And I don’t mean issues of the business, but coming at a problem from different points of view and understanding where the others are coming from – what their experiences are that bring them to that point of view.
Senior leadership buy into the board’s authority. Sometimes there’s a question of who does the board serve? Is the board serving shareholders or senior leadership? They are not always the same.
Also, with family business, I think the biggest challenge is for the stakeholders, shareholders and senior leadership team to all be on the same page for what I call the “100 Year Plan.” That is, who is the keeper of the “100 Year Plan,” not just the strategic plan for the next three or five years. And so it is getting all of the people involved.
What makes private company board service different than public company board service?
DH: The biggest opportunity is nimbleness. For private companies, they don’t have the same set of public eyes and regulations that public companies might. There’s an opportunity for consulting and advisory. There’s an opportunity for mentoring that might not be as much so in a public company. I think those are the positives. The negatives may be, if you look at it at a per-hour basis, the compensation isn’t there relative to a public company. But if you look at it from a more holistic approach in staying engaged in business and having an impact, I think private company board service has a greater potential to have an impact on the business.
Tell us about your first board experience. How have things changed for you since then?
DH: My first board experience I was the only non-engineering voice on the board. And so at first it was sort of difficult to understand the language and the culture of an engineering firm. The positives I saw right away, which is, I looked at the world in a different way than others on the board. I saw the positive contribution right away. I am grateful to the CEO and the team who put me on the board because they saw that the vision of that possibility more than I did.
How should a private company go about assembling a partially or mostly independent board?
DH: Use the rigor of a public company process. Which is to use a board matrix for competencies. What does the strategic plan say that the company wants to do? And then filling out a board matrix of competencies to help them get there.
Top 3 reasons not to join a board?
- For the money
- Because you want to dig into the weeds of the company – nose in, fingers out
- Lack of cultural fit with the board
From the Archive: Q&A with Joseph, B. White, James F. Towey Professor of Business and Leadership; President Emeritus, University of Illinois
Technology and Risk's Impact on Private Companies
As an avid golf fan, Deloitte Vice Chairman Roger Nanney used a sports analogy to open his speech at the Private Company Governance Summit 2015 held in Washington D.C. last May.
Nanney, who is a trustee of the PGA Foundation, spoke about golf legend Jack Nicholas and Nicholas’ viewpoints on success as he addressed a room packed with directors, owners, and advisors of family-owned, closely held and private-equity owned businesses.
“[Nicholas] has a great view on achievement, Nanney said. “He says it’s largely of aspiration and expectation. He says it’s about raising your game, and that’s what we’re all here for.”
Nanney specifically addressed privately held and mid-market companies as they play a critical role in determining the economic future. He placed emphasis on these types of companies recognizing the power of good governance, and the importance that good governance has on the success of an organization.
“Some are working on the basics like developing boards,” Nanney said. “Others are working on strategy around committee work, while others are focused on the process, like CEO and board evaluations. But no matter where you are on the spectrum, this conference will provide the opportunity to raise your game to improve your level of aspiration and expectation.”
Economic Engine Report
Nanney then went on to speak about the struggles that these privately held companies have experienced. These companies sometimes struggle to see beyond their immediate market context. And it’s very hard to know what others are thinking and how they’re executing in this market environment.
To help dive deeper into the economics, Nanney addressed Deloitte’s America’s Economic Engine Report and its findings. Twice a year his company surveys more than 500 midmarket executives – 80 percent of whom leave private companies – with the goal of identifying their plans and expectations.
The results, which were released in June, show a sturdy confidence in the economy.
“The key indicators were that hiring and capital spending were on the rise,” Nanney said. “Companies seem to be moderating their investments and making deliberate, tactical adjustments to ensure future growth.”
The two areas of emphasis that were revealed in the survey were talent and technology. Other findings of the study include:
- 62% voluntary attrition has increased (up from 43% in 2012)
- When the economy improves, there is more job mobility and retention takes a greater level of importance
- 46% said their company is more productive now than it was a year ago (up from 37% in spring).
- 2/3 of executives said technology was the greatest contributor to productivity – investments in cloud computing and analytics.
Analytics and Cloud Computing
Nanney addressed using analytics as a business tool, but also stressed the fact that companies need to be careful when using these analytics because of the threat of cyber intrusions.
Analytics and cloud computing were found to be the two areas of technology that have been increasingly important to an organization. Almost 60% of privately-held companies are employing cloud-based solutions (compared to only 25% in 2013).
“With a well-developed analytics capability, mid-market companies can punch well above their weight, often against much bigger competition,” Nanney said. “Imagine being able to target your customers with reliable precision because you now have valuable insights about your marketplace, your customers, your prospective customers, preferences and needs.
Nanney emphasized how technology and risk seem to go hand in hand in today’s economy.
“Risk is associated with technology,” Nanney said. “Technology risk brings the issue of trust front and center. Gone are the days where a simple anti-virus program is enough. The web, mobile-device technology and social media all create exposure to risk.”
The three aspects to a cybersecurity:
- Secure: having the controls around your most sensitive assets and balancing the need to reduce risk while enabling efficiency.
- Vigilant: having the threat awareness and detection solutions that can rapidly identify intruders.
- Resilience: limiting the impact of intrusions when they happen.
Nanney also spoke on the importance of trust and how it can significantly impact the day-to-day operations of any organization. Nanney defined trust as “the degree to which a company’s stakeholders believe its products, services and actions will benefit them.”
Nanney spoke about recent consumer surveys and how family-owned businesses and privately-owned companies have the distinction of the most trusted companies. He defined the three fundamental elements that comprise a trusted relationship as:
- Shared experiences
- Consistent follow through
Coming in September!
The next issue of Private Company Director Magazine, the only publication focused exclusively on private company governance. For a free subscription, click here. To advertise, please contact publisher Scott Chase at 301-879-1613 or by email.
At least $16 trillion of global ultra high net worth (UHNW) wealth will be transferred to the next generation over the next 30 years, according to the Wealth-X and NFP Family Wealth Transfers Report.
This will be the largest wealth transfer in history, creating a new crop of ultra wealthy individuals.
Some of the highlights of the report include:
- Nearly 40% of this family wealth transfer, US$6 trillion, is due to come from the largest group of UHNW benefactors, who are located in the United States.
- Wealth rises with age, and those UHNW individuals who are 80 years or older are worth five times more on average than those below 40 years of age – who have not yet made all of the wealth that they will ultimately transfer to the next generation.
- The majority of those passing on their wealth are self-made individuals.
- The United States will see the greatest amount of wealth transfers, with US$6 trillion set to change hands in the next 30 years — amounting to nearly 40 percent of the global total.
- Private holdings form the largest component of the net worth of UHNW individuals set to transfer their wealth, with US$6 trillion of UHNW wealth currently held in private companies.
- 68% of those UHNW individuals passing on their wealth are self-made individuals. It is crucial that the first generation transmits their business ethos and values to prevent the proverb “shirtsleeves to shirtsleeves in three generations” from coming true.