March 21, 2018

In This Issue

Boards & Business Disruption - Women Bolster Private Boards - Embracing Tomorrow's Disruption

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Featured Articles

Boards Help Companies ‘See Around Corners’

A Q&A with Julia Klein, CEO of a major privately held firm and veteran private company board member. 

Private companies worried about being prepared for the next big business disruption could benefit from an independent board that can keep owners and management on track.

That advice comes from someone who’s been there.

Julia Klein is chairwoman & chief executive officer of Reading, Pa.-based C. H. Briggs Company, one of the nation’s largest independently owned distributors of specialty building materials.  And she’s a veteran private-company board director who knows first hand the value of good governance, especially when it’s done right.

Here is a Q&A with Klein, who will be a featured speaker at the upcoming Private Company Governance Summit 2018: Boards & Business Disruption. The summit will take place in May in Washington, D.C.

Private Company Director:  How much of an issue is business disruption, everything from blockchain to the “Amazon effect”, for private companies?

Julia Klein: All the disruptive forces that affect a Fortune 500 company affect closely held companies, too — maybe not at scale, and maybe some niches are a bit more protected than others — but we still all swim in the same water. One of the best reasons to use an outside board (fiduciary or advisory) is to help private company shareholders and management "see around the corner” and get some outside perspective. Often an advisor’s experience in a different industry can help a privately held company ‘connect the dots’ faster, or an advisor might be able to push a management team to respond more rapidly to disruption because they are not mired in "the way we’ve always done it.”

PCD: Are there certain disruptive forces that have everyone worried, or excited about right now?

JK: Digital disruption, artificial intelligence and talent are the Big 3 topics — every company in every industry is facing challenges in these areas.

PCD: Can you offer examples of how the boards you’ve served on or have been able to observe made a difference for private companies?

JK: By helping a generational transition, the board was able to help the next generation fully step into their leadership roles by providing coaching and formalizing a strategic planning process. The board gave the retiring generation permission to step away gracefully because they knew there were ‘adults at the table’ and helped the next generation take the reins by actively supporting a new paradigm of customer experience and new product development that was stalled with older owners. The board played a role both as a buffer and a catalyst.

Also, I have seen an outside board push to sell a company that was dwindling toward bankruptcy. The board hired professional advisors, got the business marketed, and ran a process that resulted in a much better ending (although not a home run) than management could have anticipated. The outside view was critical to pushing the timeline, hiring professionals, and insisting on a proactive ending. That would not have happened with just shareholders and management at the table.

PCD: How does a company balance board input and management input when it comes to making strategic decisions related to business disruptions?

JK: Understanding governance is critical. The board’s role is not to run the company, but to ensure that the right leader is in place, the right strategy has been crafted, and that execution is happening. The best board/management relationships happen with good ground rules and civil discussion, with both understanding the right roles. This is not always easy, especially when you have board members who have been (and maybe still are) operators in another business. They have to know what hat they are wearing. The best board members are always asking good questions and pushing management to consider new perspectives, not telling them what to do and how to do it.

PCD: What advice would you give a company owner or management about how to find the right board to bolster growth in tumultuous times?

JK: I think privately held companies should look for board members with private company experience; big corporate experience does not always translate well. Chemistry is key with the other members, and with shareholders and company leaders. In addition to a skill matrix, it’s useful to develop a style and approach profile, too. Do you need a calming influence? A good mediator? Excellent questioner? More discipline or more expansive thinking?

Doing this work to figure out what’s really needed around the board table will result in a great pipeline of candidates that will help guide companies through disruptive times.

 


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Women Add Value to Private Boards

They can boost the bottom line, bring ‘emotional intelligence’ to the boardroom. 

The slow pace of women heading to the nation’s private company boardrooms mirrors the sluggish rate at public companies. That’s bad news because experts say women now entering the world of governance offer more than ever before.

Both private and public boards have a comparable percentage of women directors, according to the 2016 Global Survey of Directors from WomenCorporateDirectors Foundation and Spencer Stuart — around 18%. An exact number is unavailable as private companies have no requirement to report the makeup of their boards.

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But as generations move forward, progress is being made, says Ivy Silver, founder of Sparkplug Innovations, a consulting firm, and a founder of Mily-on, an architectural design firm. Many private companies are family businesses and the boards are built from the founder’s needs or wants. As subsequent generations work their way up in the business, the face of the boards have and will change.

“There are a number of second and third generations at family governance institutes and universities,” says Silver, a member of several public, private and nonprofit boards of directors. “There are more women who are coming into those transitions (of succession) on their own. A woman on the board in the past was often there because of estate planning due to a death and she inherited the position.”

A shift, she says, started in the 1960s, when women started attending business school and building their own businesses. It’s a shift that continues today.

She says the growth of women in business, life sciences and technology has widened the pool of candidates for board service.

How companies build their boards also has an effect on who sits on them. If the founders are looking for venture capital, private equity investors, or people in their own industry, that pool is heavily dominated by men.

Once the private companies have established their investors, the boards extend out, Silver says. They need to “build a values proposition to allow diverse voices.”

“The advancements of women on private boards, from my view, has been slow-going,” Silver says. “I’d say the equivalent to the public boards, though public boards have a lot more scrutiny today from their shareholders than private companies.”

Indeed, large investors such as Blackrock are pushing public firms to add more gender diversity or face the consequences.

Even though private companies aren’t forced to add women, Susan Stautberg, co-founder and co-chair of WomenCorporateDirectors, says there are several reasons companies should add women to their boards.

The pool of experienced male directors is limited, she says, and they are often serving on a number of public boards already and don’t have any additional time. Women directors who are not over-scheduled with a number of other boards, she explains, can dedicate the time a private company needs to steward growth.

There is a wealth of data on the financial boon companies receive from an increased number of women on public boards. And Patricia Connolly, executive director of the Center for Corporate Governance at Drexel University’s LeBow College of Business, believes that’s the case for private boards as well.

Research shows women in the boardroom bring a fresh voice, a different point of view and a new way of handling conflict. Those qualities lead to greater success to the business.

Companies with sustained high representation of female directors (three or more in at least four of five years) outperformed those with sustained low representation by 84% on return on sales, 60% on return on investment capital and 46% on return on equity, according to Catalyst’s The Bottom Line: Corporate Performance And Women’s Representation On Boards.

Among those skills women bring to the table is a different perspective, Connolly maintains, a different way of evaluating situations and what is called “emotional intelligence.”

Even when a private company brings in a women director, that doesn’t mean it’s always smooth sailing from there. Sometimes women still face resistance.

“There are strategies for any woman in the boardroom,” Silver says. For instance, there have been times in her board career that her recommendations fell on deaf ears. However, when a male colleague made the same suggestion, it was embraced.

Some of that may be unconscious bias.

“It has a lot to do with whether the leader at the table is aware and conscious. Are they sensitized to it,” she says. For their part, women need to find the balance between building trust and pushing to be heard.

When Silver’s suggestions are rejected, she doesn’t roll over. She makes it clear, if appropriate, that she was the first to come up with an idea, but goes out of her way not to be too pushy and offend fellow board members.

In fact, according to the Forum of Executive Women’s, “2017 Women in Leadership Report,” companies with three or more women board members tend to have better financial performance; dynamic environment created where women have influence and their perspectives are valued.

It’s a fine balance indeed, but she feels women can do this well.

“That’s one of the advantages I think women have, significant emotional intelligence,” Silver says. “I’m not saying more (emotional intelligence) than (men), but that it’s developed over the years to a fairly significant emotional competency. This helps with dynamic issues of family, family transitions, family ownerships.”

Women are often the peacemaker, she adds. “We know how to have people trust us over time. That’s part of what you have to do is build trust to make any kind of real change.” 

 


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Embracing Tomorrow's Disruption

A few years ago, Milton Rock, my grandfather and the longtime publisher of Directors & Boards magazine, was asked what was the best day of his life and without hesitation replied: “tomorrow.”

Earlier this year, he passed away at the age of 96. He was a remarkable man of exceptional vision who, as managing partner of the Hay Group, helped to transform and professionalize corporate governance. (Today, Hay is part of Korn Ferry.) For someone who accomplished so many great things, he never dwelt on the past, but always faced the future. 

As president of MLR Holdings, the owner of media and B2B information businesses, including Private Company Director, I have been fortunate to serve on the boards of private companies with some very talented individuals. That includes the board of 451 Research, a provider of technology business intelligence and market data, owned by MLR Holdings. 

While 451 Research provides its clients with insight and analysis on technology innovation and market disruption, even our board has to consciously step away from the focus on near-term items to envision potential disruption to our own business and market. 

All boards are charged with stewardship of the business, which naturally includes looking out for potential opportunities and pitfalls, but seeing transformational changes can be challenging. 

A board’s ability to identify and respond to possible business disruption is aided by four things: 

•          The inclusion of independent board members with different backgrounds and skillsets can ensure the diversity of thought needed to avoid tunnel vision. 

•          A board empowered to ask tough, penetrating and longer-term questions, including those where the answer could lead to discomfort, is imperative to successfully identifying and navigating possible disruptive change. 

•          At least once a year, having a discussion around what is not only out of view, but potentially around the corner, can force concentration on these issues. 

•          And finally, after identifying potential opportunities and pitfalls, boards need members who are committed to holding management accountable to prepare for and affect the change needed to capitalize on disruption. 

At a recent 451 Research board meeting, we set aside part of the meeting to consider possible disruption to our business and then played out potential responses to limit challenges and capitalize on potential transformation of our industry.  Through exercises like these, independent and diverse boards can experience the optimism my grandfather always held, with the knowledge that through preparation and foresight, their best day may be “tomorrow.” 

Bill Rock is the president of MLR Holdings LLC, publishers of Private Company Director magazine.

           

 


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