Keep Calm and Use Your Board
By David Shaw
Back in 1939, faced with what must have seemed like the end of the world, the British government released a motivational poster with the simple phrase: “Keep Calm and Carry On.” While apparently not widely distributed at the time, the poster captured the spirit that some choose to exhibit when faced with large and impending risks. After all, what is the alternative? Panic serves very little purpose in either the short or long run.
Today, that motto is much more widely known. A copy of it even hangs in our kitchen as a sort of family creed. But as coronavirus cases multiply, and the stock markets spend their days trimming off value, I wonder if we’re all able to truly keep calm. There’s a lot to worry about here, and more on the horizon. We’re in an election year during which the United States seems more divided than ever. Travel restrictions will have reverberating effects on economic growth. And we’re 10 years into an economic expansion that will come to an end, as they all do. A lot can, and more than probably will, go wrong.
We humans tend to both overestimate and underestimate risk, often to our peril. I clearly recall, in the midst of the 2008 financial crisis, the feeling that things were moving speedily out of control, with no end of shocks in sight. But what was really moving out of control was my ability to process what was happening, and see things from a calm perspective. You may remember feeling something similar.
I was thinking about all of this as we prepare for our upcoming Private Company Governance Summit in Washington, D.C. this June. Our theme is the “The Engaged and High-Performing Board,” and we’ll look at how closely held and family-owned companies can increase the effectiveness and impact of their boards, no matter where these companies are in their governance development.
One of the key duties of a board is risk oversight. A good board can and should help management and shareholders understand, evaluate and react to risks. This is a compelling reason to have board members with strong opinions and diverse experience, who can help your company’s senior management and shareholders think through risks that everyone seems to ignore when times are good, and counsel calm thought and action when times are troubled. This is where independent directors, whether fiduciary or advisory, can bring a much-needed outsider perspective that can break through group think and family dynamics that might get in the way of good decision making in a closely held ownership environment.
I commonly hear that fear of “loss of control over the business” is one of the key reasons some private companies choose to not build strong, partially or majority independent boards. My answer is, of course, that shareholders don’t lose control of their company — directors serve as representatives of and at the pleasure of shareholders. I would instead worry more deeply about “loss of control over good decision making” without having strong governance and risk oversight.
I have high hopes that this current feeling of crisis will lessen, and that cooler minds will prevail, but as a human being, I am probably overestimating the chances of that. But I do know that we will carry on, that times and markets will improve, and that those who have acted rationally and for the longer term will emerge stronger than before. And those companies who have the excellent counsel of a strong board will have a head start.