The Private Company Board
In today’s business environment, CEOs and owners of privately held businesses have a host of options to get valuable input, fresh ideas and a supportive sounding board for the challenges they face. These options include personal networks, CEO peer groups, trusted attorneys and accountants, executive coaches and expert consultants in specialty areas. They can be a rich source of knowledge and special expertise on selected matters and a CEO’s self-development and learning are to be encouraged.
New thinking and perspectives from external sources can also be valuable if you are considering significant internal matters, competitive risks and executing growth initiatives.
So why is a board of directors even needed for your business in this environment of readily available business advice?
Often, the issue is that this advice is offered with the genuine desire to assist, but without the full benefit of understanding the complete situation at hand. External advisers may have a limited disclosure of facts due to confidentiality, alternatives already being considered, organizational dysfunction and other priorities in place. When a board is tasked to weigh in, it has the advantage of more complete information, keen insights into the company and its decision-making processes built up consistently over time and input from multiple sources.
Here are the core reasons why a board is invaluable as your most trusted adviser and partner in building your business:
• Board accountability: A board and its members are fiduciaries accountable for considering all shareholders and stakeholders — if it’s a fiduciary board — and consider key decisions with this in mind. A board acts prudently in light of all information and must look at critical matters from a 360-degree point of view and vet big initiatives to stress test them, deliberating fully before deciding on key matters. If this is done well, it will lead to strong support, conviction and commitment to management’s course of action. A board will have to live with the consequences and results of their decisions, advisers do not.
• Management accountability: Boards hold management accountable for running the company and diligent execution, whereas advisers and peer groups do not have that authority. Accountability is a key driver of a company’s success and CEOs and shareholders know and appreciate this aspect. No external business consultant can fulfill this critical role.
• No conflict of interest: All boards must act in good faith in the best interests of the company and its owners and can have no conflicts of interest — a director cannot have any other business relationship with the company that could affect your independent judgement. As expert as they are and as valuable as they may be, paid advisers inherently have this conflict in appearance and reality.
• Deeper understanding: Boards understand the business more deeply than peer groups or paid experts due to their consistent engagement and efforts in reviewing the business, seeing trends and debating issues over time. Boards have unfettered access to confidential information that is well-analyzed, providing for a more complete understanding of the business and fuller context for key decisions. This foundation is critical in considering new initiatives, investments or programs.
• No hourly limitation: The right board members are always thinking about the business or investing time outside of the boardroom staying on top of key industry and market issues, seeing what competitors are doing and otherwise staying educated and informed. They don’t do timesheets, bill by the hour or assignment or have conflicting demands. They are immersed in your mission and always on! In fact, they are most likely to be among your highest return on investment.
• Business builders, not technical specialists: While subject matter experts can be extremely valuable and board members may be the experts needed in a key area from time to time, the premium for privately held companies, whether it be family-held or investor-backed, is the business-building experience of board members and how they have overcome obstacles, scaled to take advantage of market demand, or dealt with disruptive industry forces. A business-building board considers all issues, often utilizing expert input from specialists.
• Forward-looking clarity: A board can help you look further down the road and around corners, helping anticipate obstacles and keeping focused on the most important priorities. It can help you sift through all the expert options and ideas you may be considering so you can keep the company committed to its key initiatives for the biggest payoffs.
• Business judgement in uncertain times: Management runs the business and boards provide governance, weighing in on the biggest, most pivotal matters for the long-term health of the organization. The lens of a board is multi-faceted, combining an investor discipline, strategic viewpoint and operator awareness for practical business building judgement in its deliberations.
The bottom line is that all CEOs and owners should take advantage of the ideas and perspectives of external networks and paid experts. However, a board is an accountable, dedicated resource for a CEO and a partner in business-building governance for the long-term success of your business. At its optimum, the board is the most trusted adviser you can count on in building your business.
Don Yee has been CEO of several businesses and has served on numerous private company boards. He is currently an independent director on the boards of Blue Diamond Growers (2018 Private Company Board of the Year), OC Communications and NACD-Northern California, where he is Chair of NACD-Capital Valley and an NACD Board Leadership Fellow.