Independent board directors offer experience, perspective and knowledge during a challenging economy.
The early outlook for 2023 has pointed toward companies needing to be ready for turbulent economic conditions. Businesses are facing an increasing number of risks, including large-scale layoffs, the threat of an impending recession and the continued fallout from geopolitical conflict.
During these challenging times, private companies greatly benefit from having a board with independent directors who provide diverse insight and guidance. Outside directors bring unbiased perspectives and experiences that are valuable to those immersed in the company’s day-to-day operations. Independent directors can also challenge assumptions, instill accountability and leverage their networks to support the business. In addition to the traditional board roles of governance, strategic planning and financial oversight, there are five areas private company directors should focus on to be most effective in creating long-term value for the company.
Secure the supply chain
During the pandemic, many private companies realized just how fragile and interconnected supply chains are. While some supply chains are returning to a pre-pandemic “normal,” now is the time for boards to question the strength and resiliency of a company’s supply chain and provide guidance on what steps are needed to safeguard it and grow the business.
An optimal supply chain will have great inventory, warehouse and transportation management, as well as quality sales and operations planning. Boards should be aware of weak areas and hold management accountable for executing on a plan to automate processes and boost agility and productivity.
Invest in cybersecurity
When it comes to cyber threats, it’s not if, but when. In fact, 86% of private company executives reported being concerned about cybersecurity in PwC’s recent Pulse Survey: Cautious to Confident. Maintaining strong protection against cyber threats should be a focus for the board, since private companies, which may lack sophisticated defense tools, could be more susceptible to cyberattacks.
Boards that lack a director with cyber expertise should work with a leader in the cyber space to become more informed. This expert can report to the board on ways to increase operational and technological resilience against cyberattacks and determine what controls and training need to be put in place for the entire organization.
Address talent acquisition and retention
Talent acquisition and retention will always be a top priority for leaders. In a tight labor market, private companies need to effectively communicate their purpose, have well-defined values, be transparent and offer competitive packages to be an employer of choice.
Private company boards should review comparisons of industry standards for compensation, benefits and ESG initiatives relative to the company. This will position the director to better understand alignment with the company’s purpose and strategy so they can advise management on what should be implemented in order to appeal to current and future employees.
Determine the right deal strategy
Deals can be transformative for private companies, especially if they are acquiring key technology or talent to keep up with the pace of innovation. Given current market conditions, there will likely be a reset in valuations and an increase in dry powder in the system, opening the door for well-positioned private companies to consider buying to enhance their existing capabilities. An outside director with transaction experience in various market conditions can lend added credibility to a company that wants to complete a merger or acquisition to better position it for growth.
However, an acquisition is often a disruptive time for the management team, and the company is still expected to achieve short-term financial objectives. This is why independent directors are beneficial for the entire board. Someone in this role will help to ensure the longer-term vision or strategy of the company is still being executed and long-term growth goals will still be achieved.
Transform the finance function
Given the current uncertain economic conditions, many businesses are trying to work under the guise of “do more with less.” According to PwC Pulse Survey: Cautious to Confident, only 46% of private companies are confident that they can free up working capital, compared with 78% of their public peers. This could become a critical issue for private companies, especially during a recession when capital may need to be reclaimed and available during a recovery.
The key for private companies to continue to achieve growth and financial resilience is to balance short-term and long-term priorities while also managing the risks and opportunities. This is where outside directors can truly help a company, since they likely have guided others during similar economic conditions. To best position the organization, its board should have a forward-looking view and advise on digital transformation investments that will reduce costs and enhance financial forecasting capabilities. While the board works on the longer-term strategic planning, the management and finance teams can tackle the present-day challenges and focus on the core business- and cash-driving elements, as well as transitioning fixed costs to variable costs.
Independent board directors bring experience, perspective and diverse knowledge that assist private companies navigating today’s economic hurdles. By challenging old ways of doing things, embracing shifts in systems and strategy, and balancing short- and long-term thinking, boards give private company leaders a sharp advantage in today’s market, building resiliency, creating stability and improving performance for the business.
Shawn Panson is U.S. private company services leader for PwC.