The improvement in impactful governance for private companies continues to progress, spurred on by the needs of most businesses and the growing resources available for best practices in the private world. Indeed, interest in private board director roles is on the rise as accomplished business leaders seek to enthusiastically engage in working with companies in their business-building efforts. However, despite investing in best practice processes and practices, many private company boards can struggle with really making a difference, especially if the business is stuck in the middle or worse in terms of performance. In many cases, this comes down to how to better utilize your board processes to their fullest potential to improve business performance. While your situations are unique, here are a few of the most critical areas that high-performing boards strive to get right.
CEO engagement and reviews. You most certainly have a process to engage with, support and discuss results and leadership performance with your CEO. In addition to ongoing discussions and clear feedback, the annual review should have no surprises to anyone and should serve as a meaningful milestone summary for alignment. However, many boards are not as effective as they should be in working with their CEO and, in the spirit of side-stepping conflict, maintaining comfortable relationships and hoping for improved results, avoid the obvious about whether the CEO is performing or whether they are right for the role. Does your board discuss CEO performance and fit holistically, to either reaffirm support and get useful clarity for performance expectations and improvement or to make a mutually agreeable transition? The key lesson here is not to avoid direct, transparent discussions about performance and not to avoid potential conflict. This can be the biggest “elephant in the room,” often not dealt with until a surprise or crises occurs.
Key insights: Straight communications drive improvement. Don’t avoid the obvious.
Strategic planning and multiyear views. We all understand this not about a beautiful document on the shelf, but true insight into what our opportunity is and what resources are needed to reach our fullest potential. Externally, it’s all about markets, relevant offerings, trends and competition. Internally, it’s all about talent, focused initiatives, and the time, money and people we can invest. Anything can be planned in multiple spreadsheet scenarios, but it can only be as good as a true understanding of key assumptions, upsides and risks. Also, don’t underestimate execution time and the inevitable surprises. The perfect plan does not exist, so don’t prepare one. Use the strategic planning process to ask the hard, uncomfortable questions; deepen understanding of the business; and gain board and management alignment on what’s possible based on your limitations. Set milestone triggers for assessing results on execution.
Key insights: There is no perfect plan. Rely on great thinking, adaptation and resilience.
Performance oversight. Reviewing business performance is one of the key responsibilities of the board in ensuring the health, returns and stability of the enterprise for all shareholders. Most boards have standard retrospective reporting packages, but they can be mind-numbing and not really as useful as they should be in supporting directors in this critical responsibility. Do you get a large package of historical performance data but little digestible information or conclusions? Is the information intended to sell yesterday’s performance or does it seek to improve tomorrow’s performance? Do you have a critical dashboard of leading performance indicators or an early-warning system of some kind? Make sure your board packages improve in two key ways. Insist on a clear expression of what has been learned from our performance (specific insight on what to adapt if needed), not just report results (hindsight with lots of data). Make your performance results stellar with clear headlines, and don’t cloud issues or results, making sure that you have performance and decision clarity.
Key insights: Hindsight is not insight. Less is more.
High-performance targets. Every board and executive team must get super-aligned on what high-performance means for the business and the current situation. This sounds easy, but it is critical if you aspire to be a pay-for-performance enterprise. Is it simply better than last year or some prior period? Is it market-leading results? If you are aligned on setting the right level of performance targets, that means you are aligned on understanding the opportunities, risks, issues and practical execution, so the targets should not be contentious but unifying.
Key insights: Different expectations are divisive, so get aligned. Consider adapting short-term incentive plan metrics to drive change. Keep long-term metrics for multiyear performance and value creation.
The patient board. When you are aligned on the areas previously discussed, it provides the proper foundation for being “impatiently patient” as an effective board, with full attention on oversight of short-term performance and a way to gauge real progress toward realizing future potential. Of course, the best result is that the board can spend more time recognizing performance and the team that achieved them, a much more rewarding board responsibility.
Key insights: Patience is not being passive or tolerant of persistent underperformance. Patience is having a long-term orientation with clear time horizons and accountability for achieving critical performance milestones.