Uncertainty can quickly consume valuable real estate on a board agenda. At a recent board meeting, we spent an hour dissecting an executive order by President Trump that was, perhaps intentionally, unclear. In another boardroom a few days later, an impending executive order hijacked the discussion, sidelining management’s scheduled presentation on an important — but not urgent — issue.
This is not a rare occurrence. In an era of geopolitical shifts, regulatory unpredictability and economic volatility, companies are increasingly finding themselves consumed by the immediate unknown. It is in times like this that boards are most important. One member of Private Company Director’s Editorial Advisory Board put it succinctly: “The greater the chaos, the greater the need for good governance.”
Relative to public company directors, private company board members often bring deep industry and company expertise and frequently are asked to do more than just traditional oversight. Rather than just “noses in, fingers out,” many directors are increasingly expected to play a more active role in strategy formulation, not just strategy assessment.
Directors can be especially valuable as they bring an outside view into the company. Many directors serve on the boards of other companies or are currently in operating roles. Because of this, directors’ gazes are frequently focused outward and bring additional perspectives — unlike management, which sometimes focuses inwards. Thus, in times of heightened uncertainty, private company boards can play an even more significant role.
The challenge is not just acknowledging uncertainty but ensuring that management is effectively planning for it. Traditional risk management approaches, such as reviewing risks in an annual cycle, are no longer sufficient. Instead, boards must work with management to proactively scenario plan. However, with so many variables at play, a key governance responsibility is to narrow the focus.
One of our other Editorial Advisory Board members routinely asks management, “What are the sources of uncertainty that trouble us the most?” This question helps cut through the noise, identifying the factors that could have the most significant impact on the strategic direction of the business and the company’s talent, operations, customers and supply chains. It also allows the board and management to reflect on whether to let the dust settle before taking an action.
Boards can then help management both frame the right questions and stress-test potential scenarios through tabletop exercises. They can guide management in identifying key external and internal uncertainties, challenge assumptions, and ensure agility and flexibility in execution.
At a time when uncertainty threatens to derail boardroom agendas, good governance demands discipline. Boards must strike a balance between addressing immediate concerns and maintaining a focus on long-term strategic imperatives.
Many private companies, especially family businesses and ESOPs, have the luxury of a longer-term time horizon. Given the long-term outlook of their owners and the trust they have built up with their stakeholders over decades, their boards can help them take well-calculated risks that play out over many years.
The most effective private company boards won’t allow uncertainty to dominate their discussions. But they won’t ignore it either. Instead, they will help management ask the right questions, focus on the most relevant risks and prepare for a lengthy period of greater uncertainty.