Private Company Director

Optimize the Value of Your Company's First Independent Directors

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Outside board members benefit from proper onboarding, thorough information-sharing and a comprehensive defining of roles.

So you’ve heeded the advice you received to gain outside expertise and perspective by adding your first independent directors to your private company board. You have also gone through the process of finding candidates, interviewing them, checking references and selecting the right ones to enhance your company’s governance. You and they are now ready to start your new board governance journey together and contribute to the success of the company. What can you look forward to next?

Onboarding. The first step, as it is for any new board member at a company, is onboarding. Since this may be the first time you are helping any new board member become familiar with the company, its executives and the other board members, this may mean creating an onboarding plan. Some things that you take for granted after years of being an executive or board member at your company will be completely new for your first independent directors. As there have been good articles written about how to create effective onboarding for board directors, this article will not dive into those details. Successful onboarding may involve sharing information that your company is not used to providing to those outside the existing leadership team or ownership. This is especially true when the previous board was made up exclusively of family members.
Sharing information. In order to provide the best possible guidance and fulfill their duty of care, independent board directors will need to know information about budgets (including how they are generated, what assumptions were involved and why those assumptions are reasonable), strategy, operations, key personnel, succession planning, competitive analysis, employee engagement, cybersecurity plans and more. Sharing this level of information, especially if the board members are the first people outside the family or private-equity firm to have access to it, may require setting new expectations on the part of existing board members, executives and their support staff.

Defining the role of the board. The start of the first independent directors’ term is a great time to discuss how the board defines governance and its role. This may look different than when the board consisted exclusively of private equity investors, operators or family members. The previous board may have engaged in activities that were more appropriate for the executive leadership team or outside consultants. Experienced independent directors can share what they have learned from serving on other boards or from their training and certification, such as the concept of “noses in, fingers out,” which refers to the board’s mandate to ask probing questions but to steer clear of the management role. It is best to start early (perhaps at the first board meeting where independent directors are present) with a specific agenda item about governance along with the function and responsibility of the directors. This is a good time to engage in frank discussions and develop guidelines. This may also be something that is not “one and done” and is best fine-tuned over time.

Gaining an outside perspective. With good onboarding, information sharing and agreement on the board’s role, independent directors bring several major benefits to the company. They may have served in a variety of different roles in industries that are distinct from those in which your company operates. This means that they may have already experienced events, trends, strategies, competitive threats and opportunities that are new to your company and its industry. How did those companies respond to new realities or go about expanding? What have the board members learned from those events that can be invaluable in guiding your company on a more successful path without making some of the mistakes they have seen?
These independent directors may also serve on other company boards. From that service, they can bring not only knowledge of good governance, but also specific learnings about what has worked (and what has not worked) for other companies in areas such as succession planning, risk management, M&A and executive compensation. Your company can save a lot of time and money, and reduce risk, by not “reinventing the wheel.”

Broadening your network. Your first independent directors may have a different network (outside your company’s industry and the related connections of its executive team) and may be able to connect you with new customers, suppliers, advisors or organizations. This could provide your ownership group or management team with new opportunities to learn from peers outside your industry. Independent directors may also be able to help the company fill a critical need; in one case, I successfully referred an experienced fractional CFO, who provided financial analysis and recommendations to the CEO.

Raising different questions. The new independent directors will not be as familiar with the company’s processes, strategy, history and personnel as the existing board members or executives are. This is a great opportunity for them to ask questions that others may not have thought of. The new questions that are raised may help clarify everyone’s understanding and cause the owners and management to question their assumptions — both of which characterize a healthy process for the company and governance. Asking about budget line items and the priorities associated with them is one way your new independent directors can help ensure a company’s strategy, operations and budget are aligned and realistic. Embrace these questions to receive the most value from your board.

New independent directors bring a lot of benefits to a private company, but it will likely mean some adjustments to “business as usual.” Putting some effort into onboarding, information sharing and aligning directors’ understanding of corporate governance at the company will pave the way to new ideas, experiences, questions and contacts.

Steven Lustig is founder and CEO of Lustig Global Consulting and an experienced operations executive. He is a recognized thought leader in supply chain, manufacturing and risk mitigation, and serves on the board of Loh Medical.


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