According to Thomas S. Murphy Jr., Private Company Governance Summit attendees had reason to feel pretty good about their association with private companies and their boards. Murphy, cofounder and partner of Crestview Partners and a director of Berkshire Hathaway, says one of the biggest advantages of being a private company is the ability to make decisions quickly and, by definition, the ability to do so outside of the strictures that bind public companies. One such instance is firing the CEO.
“If you are private, once you make a decision to transition a CEO, you have the optionality to do so on your timetable. If you’re in a public company context and you replace the CEO, you not only risk disrupting the valuation of the business, you also risk disruption among internal and external stakeholders. The bottom line is you can effect change very quickly in a private company, especially if there’s a controlling shareholder.”
Of course, while being able to more easily fire the CEO is a benefit of being a private company, Murphy also believes that if you are going to have that option, it’s important that you allow the chief executive to do their job so that they can be properly evaluated. When it comes to running the company, Murphy believes that for a board, “it’s not hands-on, it’s eyes-on, and the CEO’s in charge. That’s the job you’re paying them to do, so let them do it. How can you evaluate the CEO if you’re telling them what to do all the time? That’s just not fair to them, but it’s also a bad use of your time. The whole goal is to get leverage against your time, against your energy and against your insights.”
A veteran of the private equity space, Murphy tries to be aware of selection bias when identifying directors for the companies under his firm’s control. But ultimately he believes that the best composition for a board often comes down the company’s industry. While stating that “you’d like people to have industry knowledge or skill-specific knowledge,” he stresses that the actual needs vary depending on who you have on your board and in management. “If you have people who have real skill sets in your organization, you don’t need to bring those people onto the board because you have that expertise in shop.”
Board composition can be more complicated when it comes to the family business, says Murphy.
“The next person on the board doesn’t necessarily have to be the next oldest child or cousin or nephew. That might not be the best person for the job. It’s just the nature of life, family and business. You have to be honest with yourself and honest about what you’re trying to accomplish. Communicate, because, if you don’t, you’re going to keep making suboptimal decisions and either anger the family or damage the business or eventually both.”
On the topic of age limits for board tenure, rather than advocate a strict rule, Murphy preached a culture of self-recognition, using his own experience as a guide.
“I’m 63. I think I’m better at some things now than I’ve ever been. And I’m definitely worse at other things than I used to be. I would not put me in charge of negotiating a credit agreement ever again. I’ve done it a hundred times. But that’s a job for a younger, sharper, more rapacious personality than I am right now. Skills evolve, and so should job descriptions.”
Murphy believes it’s essential to learn new skills and emphasize other abilities as both your career and your board tenure progress, like the aging pitcher who needs to learn how to better locate his fastball as his career goes on. And then, at some point, you have to know when it is time to make a graceful exit.
“You’ve got to be honest with yourself very early and not overstay your welcome. You usually know, and if someone has to bring it up, it’s too late.”
And if you happen to be a board decision-maker dealing with a director who is waffling about when they might want to exit the board, Murphy recommends you act with haste.
“If someone says, ‘I’m thinking about retiring,’ they’ve already retired. We have an old saying: ‘Hire slowly, fire fast.’ Make the tough decision and move on. Be kind, be gracious and be supportive, but the velocity of decision-making is a key success factor in business.”