Nine Best Practices for Creating High-Performing Private Company Boards

    Nine Best Practices for Creating High-Performing Private Company Boards

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    According to recent studies as well as our own direct client experience, more and more private companies are establishing Boards. Countless CEOs and business entrepreneurs are strong-willed, talented professionals in their areas of expertise and can’t imagine reporting to a higher-level governing body. These “experts”, however, may still be interested in assembling a group of dedicated Advisors who bring complementary talents to the table. Other executive leaders, especially those in family businesses, may take it a step further by assembling a group of Directors who accept greater responsibility for the governance of the companies they serve. These Directors actually assume fiduciary responsibility for the company’s performance and thus have more of a controlling influence on their CEOs and broader businesses. 

    When evaluating the potential for private company governance structures like a Board, consider the following two key reasons to have a Board. First, an advisory Board can provide broader perspective and advice to support Management’s established decision-making processes. Second, a governing Board can offer oversight to create greater accountability to the results you produce. Regardless of which kind of Board you establish, the following nine best practices can help you significantly enhance the effectiveness of your Board.

    1. Establish a set of Board priorities every year and maintain the distinction between governing and managing – The Board’s job is to set (in the case of a Board of Directors) and/or provide input to (in the case of a Board of Advisors) the strategic direction for your organization. It is Management’s job to get you there! Be careful your Board doesn’t blur the line and impede your CEO or other senior leaders from doing their jobs. Equally important is to monitor Management’s performance in achieving those annual objectives and adjust as needed based on any changes to your business or shifts in the broader market.
    2. Create special working committees to direct your Board’s work – There’s nothing worse than having marathon meetings to discuss more tactical matters. To keep your Board meetings tight and on track, leverage special committees (like Finance and Performance Management committees) to do the Board’s work outside of your Board meetings. These committee members typically interface with senior leadership and outside consultants to complete the actual work, but they often provide the direction and oversight needed before sharing any recommendations or short updates with the full Board. This will keep your Board meetings focused on the conversations that need to happen with the full group while still enabling the work to be done.
    3. Use Executive Sessions to raise the level of your Board’s discussion – The one thing that may actually be worse than having those marathon meetings is not having open and productive conversation at all. An effective strategy to manage this critical Board dynamic is to hold regular Executive Sessions. Executive Sessions allow Board Members to speak freely away from the Company’s managers or other individuals who might otherwise attend your open sessions. For example, you may not want to discuss the CEO’s performance or compensation in an open forum. This common but sensitive topic would be better suited to an Executive Session.
    4. Appoint independent Advisors/Directors to your Board – It’s very common for CEOs to think that outsiders will never know their businesses as well as they do. As a result, they often choose not to establish Boards at all. When they do, it’s very common for them to select their friends and long-time colleagues to their Boards. In family businesses, Boards also tend to consist exclusively of family owners. These approaches are not nearly as effective as considering and selecting independent Members who bring valuable experiences to your Boards and can provide unbiased views unimpaired by personal relationships (owner, friend, etc.). What’s the point in having a Board if it’s not going to be impartial and free of influence from others?
    5. Establish regular meeting calendars and other meeting practices – When you are working with a Board (of Directors or Advisors!), scheduling can present significant challenges for a group of busy people who all have competing commitments and responsibilities. That is why it is so important to set the meeting calendar far in advance (ideally annually) to minimize conflicts. As you set your calendar, you might even consider identifying regular topics for those meetings – like a financial review and audit of last year’s performance at your first meeting of the year or review of key talent and leadership succession plans at your last meeting of the year. That will facilitate your working agendas and help your Board Members focus well ahead of time. Then be sure to distribute those preliminary agendas and any necessary reference materials (i.e., the Board book) well ahead of your scheduled meetings so that everyone is prepared when you meet.
    6. Follow fundamental meeting management techniques during your Board sessions – The purpose of a Board meeting is to give everyone a voice in contributing to your most strategic matters. For this reason, it’s important you are diligent in setting practical agendas with strategic topics and realistic timeframes to address them. Then, invite everyone to comment and share their thoughts on each subject throughout your meetings. Some Board Chairs feel it’s their job to control the conversation and therefore tend to speak first on any matter. The Board Chair’s job is actually the opposite! It isn’t about demonstrating your individual talents and expertise when you step into the boardroom. It’s about creating the context for collaboration and dialogue. At the end of any Board meeting, it’s also important to identify any decisions or future actions as well as confirm the Board’s “One Voice” leaving the meeting. The Board’s deliberations and any individual opinions should be kept confidential, so Board Members need to determine what uniform and consistent message they can and will share with their stakeholders when they leave the sanctity of the boardroom.
    7. Incentivize Board Members and evaluate their performance over time – For your Board to be effective, your individual Board Members need to be incentivized to help you achieve your long-term strategic objectives. To get your Board Members to accept this commitment and dedicate their time to you, you will likely need to compensate them fairly for their time and the value they offer. This may not be true in the case of a not-for-profit organization. Even in a family business where your Board members may be owners too, these individuals literally bring more to the table than comparable shareholders when they accept this important responsibility on behalf of all the owners of the company. To that end, evaluating the performance of your Board every year and in a meaningful way is critical to the long-term success of your organization. Anyone who does not meet your expectations for serving on the Board should first receive that constructive feedback and second be removed if the results they deliver do not change.
    8. Remember, this is not a one-size-fits-all approach – Some of your companies may lend themselves to creating a Board of Advisors to introduce valuable outside perspective to your governance and decision-making processes. Other organizations, family businesses in particular, may have Boards of Directors in place and simply need to augment them with independent non-family, non-shareholder members. Some companies may prefer to have only 5 Board Members, while others may prefer a larger group of 11 or more. Take the time to consider what’s best for your organization and who would make an ideal Board Member before appointing anyone to your Board.
    9. Create a Family Charter and separate Family Council to manage your Family’s interests – Don’t forget the key principle behind your Board’s very existence. It’s to govern and/or help support business activities. Focusing on your family’s interests – including those in the family business – is natural when you have a family business. These two matters don’t need to be in conflict, but they are very clearly two different things. For this reason, you’ll want to establish a separate Family Council comprised of only family members to work with and operate separate from your Board. This provides an effective forum for discussing family matters like who may/may not work in the business away from the business Board. Drafting a Family Charter is also a great way to capture your family’s priorities and give direction to future generations to mitigate potential conflicts from occurring after you exit the business.

    Whatever your current situation, we invite you to consider how best to complement your leadership team’s capabilities with these additional players who are committed to – and can effectively contribute to – your continued success as an organization. Have questions on how best to do this? Give us a call at 310.589.4610 or email us to discuss the best approach. You can also visit the Executive Coaching page of our website to see how we support our chief executive clients in producing better business results by implementing better leadership practices.