What Private Company CEOs Want From Their Boards
What should private and family company CEOs expect from their boards, and how can the board help a CEO lead his or her company most effectively?
These were key questions addressed by a panel of private company CEOs at the Private Company Governance Summit 2015. These CEOs also discussed their working relationships with their boards and how their boards have been a guiding force for providing discipline, accountability, strategic guidance and expertise.
F. Douglas Raymond III, partner, Drinker Biddle & Reath, LLP, moderated a panel discussion with Julia H. Klein, chairwoman and CEO of C.H. Briggs Co.; Paul Bartelt, president and CEO of The Vollrath Group; and Keith E. Williams, president of Underwriters Laboratories, Inc.
“There’s no such thing as best practices, there is no playbook in private company governance,” said Doug Raymond. “There is no standard set of guidelines to abide by since every company is different and operates on its own standards.”
Finding the Right Balance
A key area is striking the right balance and alignment between family or management and the board to run a successful company. One of the most important aspects of this alignment, according to the panelists, was making certain that the family or shareholders, the CEO and the board are completely transparent, so that each knows what the others are doing.
“You have to understand the dynamics of the family, what’s important to them, what their long term financial goals are, and most important, what their long term family goals are,” said Paul Bartelt. “The objective of the family, CEO and the board is to have an open and honest conversation about what’s possible and whether you can strike a balance to meet those goals and commitments.”
Having people in the business work independently of one another is something that causes miscommunication and could cause tension throughout the hierarchy of the company.
If there is such a disagreement, or if the board is not fully briefed on what the CEO is doing, then it could lead to a negative reaction. Board members—whether they are from within the company or independent—want to feel like their opinion means something.
“You want to make sure (board members) are involved in the conversation and dialogue, like they feel like they have a chance to give their point of view,” Julia Klein said. “Even if the decision ultimately goes in the different direction, they feel like they’re part of the process.”
Keith Williams added, “You want the very best people on the board to have the skills that you need. And at the same time, it’s good to avoid bringing in board members who think they’re going to be management. That actually creates problems in the business.”
Other ways to increase the line of communication between the board and the CEO include:
• Have quarterly phone calls and meet individually before group meetings to ensure there are no surprises at the actual meeting.
• Make sure board members know they have clear-cut roles.
• Make sure the board is aligned in their strategic role.
“The most important thing is for the shareholders, the directors and management of company to have a clear understanding and agreement on what the roles and responsibilities of each are, and what the expectations are in terms of frequency of communication and interactions in the business. Then I don’t think you can go wrong,” Williams said.
“Quite frankly there are some board members that have phenomenal input and you have them on your board because they are most effective at a board meeting,” Williams added. “And you have some that you recruit for specific technical leverage. It starts on how you build a board, what you want your business to be and what your expectations are.”
Dealing with Disagreement
No matter what line of business you are in, there are bound to be disagreements between management and the board members on how the company should be run. When these disagreements arise, it is the CEO’s and management’s responsibility to create a strategy, and then it’s the board’s responsibility to execute that strategy.
Family business settings work a little differently. When dealing with a hostile family member or someone who just wants to disagree with everything and play devil’s advocate, it’s best to handle the situation outside of the board. Often times family members are the ones who know how to deal with other family members best, and there is no need to bring in an outside perspective on those matters.
“Directors and family members should have separate meetings,” Klein said. “It formalizes the structure. There’s no potential to have anything ‘behind someone’s back.’”
Appointing the next in line to take over for the current CEO is a very crucial part of any board’s role. But often, private companies aren’t exactly sure who that person should be.
To help with that process, our panelists suggested:
• Review senior management with the board to see if there are valid replacements.
• Formalize a program to help eventually pick the successor.
• The board should push the CEO to think regularly and formally about succession.
Each panelist had uniquely different experiences in dealing with succession planning. Some CEOs put together an advisory board to help with the decision; some have regular discussions with the board chairman seeking advice and counsel; others knew personally who they did and did not want to take over.
The Dysfunctional Director
What happens if the CEO encounters a dysfunctional director? Some companies, whether privately-owned or publicly-held, have a real problem confronting a problem director and finding ways to deal with him or her.
“Our board frankly kind of just lives with it,” Williams said. If your company wants to take a proactive approach to dealing with a dysfunctional director, board evaluations are a good place to start. “A board evaluation services those issues (of a dysfunctional director) rather quickly,” Klein said. “You need to ask, how do you think we did as a board? How well did you prepare? What can we do better? Then the board chair takes a look and evaluates those answers.”
Fiduciary vs. Advisory Boards
The topic of fiduciary boards versus advisory boards also was addressed during the panel discussion. The speakers discussed and the advantages and/or disadvantages of having either.
The key takeaways were:
• You should work towards having a fiduciary board to protect the company from risk and protecting the investment from risk. There’s a high level of gain to be had with that mindset versus just an advisory board.
• A fiduciary board can act as a buffer between ownership and management.
• You’re not able to attract great advisory board members if you are not able and willing to take advice from them. It will be very short-lived. The company really needs to take advice and act on it.
Rob Chakler is an associate editor for Directors & Boards, Private Company Director and Family Business magazines.