difficult and tedious process. However, when a private company
achieves effective good governance, it should be celebrated. Most
entrepreneurs who achieve this “holy grail” for their company will
have added confidence in their ability to execute on their mission
and strategy. In a February 2016 report by McKinsey and Company,
they reported that 69% of effective boards cited being able to
effectively adjust strategies regularly and that 36% of corporate
boards cited that their board of directors had a very high impact on
long term value creation. Having an experienced board that can
provide strategic direction to day-to-day operations is vital to the
building of a private company, regardless of its stage of growth.
It is important to note that, “private companies are not
simply miniature versions of large companies.” This is a common
misconception that fails to outline many of the financial and legal
ramifications during the company’s lifecycle, including its board.
For example, “the majority of start-up’s in Canada face major
transition points when they expand with debt, seek capital or catch
the attention of potential acquirers.” This is where the sage advice
of experienced board members meets its ultimate test.
There are few experiences that can have such an extremely
different outcome on the spectrum from total nightmare to self-fulfilling achievement; sitting on a board of directors is one of those
experiences. When one has the privilege to serve on a good board
it is both a pleasant, educational, and a rewarding experience.
When the opposite is true, it can be exacerbating, energy draining,
and very frustrating.
The roles and expectations of board members have changed
dramatically in recent years. Recently I heard of a case where the
board of a private company deliberated over an offer to sell the
company for only two hours. This is not acceptable due diligence
or duty of care for a group of directors charged with governing a
company. Rightfully, the company’s directors were successfully sued.
In this article, I would like to provide some of the characteristics
I find to be common in good boards of private companies.
1) Great leadership
In most organizations I have been a part of – whether it was a
public corporation or the private companies I serve on the board
of, I always find that strong leadership leads to a well-run company
and a well-functioning board. The most dysfunctional component
on a board can be its lack of cooperation and respect among the
board members. The most pertinent cause of that is a lack of
leadership. With a confident and mature CEO, there will most often
be a strong lead director or chair of the board who will ensure that
there is a strong “Tone at the Top”. This leadership creates trust
between management and board members, as well as provides a
healthy environment for all stakeholders. Both of these positions
must be filled with well-meaning and strong individuals of integral
character. If not, the leadership on the board must be instrumental
in weeding out unqualified board members and those board
members who are disruptive or unprepared. Some may need
coaching and others may need to be plainly relieved of their board
duties. Finding the right leadership can be a tedious process, but it
is instrumental towards building long-term success for a company.
2) Strategically minded
An organization where its CEO, chair, directors, and
management are aligned is most often the organization that will
have a strong and successful board. Board members tend to
say they make their biggest contribution on strategy, whether
it is a start-up, a charity or a Fortune 500 company. When the
board is holding the CEO accountable for this strategic direction
and the directors are not getting their fingers or noses into the
weeds or operations of the company, the best chance of success
exists. I have often experienced boards where the directors lack
governance experience and education. Often times, they will
compensate for this by getting into the minutiae and minor details
of the operations of the organization. When directors are mature,
experienced, educated and confident in their board roles, the
resulting board is most often well-functioning.
3) Board Meeting Organization
The boardroom meeting is the formal place where the board
exercises its duties and responsibilities. Directors must be prepared
and those meetings must be well planned and effective to ensure
that the board delivers on its mandate to the company. This is
where the constructive partnership between management and the
directors is on display. A well-managed board meeting goes a long
way to producing effective results. David Dobson, a Professor in
managing growing enterprises at Stanford University, mentions
that “if you leave those board meetings consistently prepared to
do something differently because you learned something from the
board meeting, that’s the mark of a good board.” A board meeting
agenda is required for ultimate productivity; it should include a clear
purpose and schedule that helps directors understand why they
are there. Administrative or routine matters can be dealt with in a
“Consent Agenda”, which is provided in the meeting’s pre-reading.
Sending out a quarterly survey on how meetings are executed and
completing an annual board performance assessment helps ensure
the board remains efficient and aligned to the company’s needs.
A well-functioning board requires diversity of thought,
experience, gender, and culture. Although strategic alignment is
important, if all of the board members think and act alike, their
decisions will reflect their lack of diversity. This doesn’t only mean
culture and gender; well-run boards also reflect diversity of age,
experience, and industry.
This includes complementary skills such as: risk management,
channel distribution, sales, marketing, human resources,
compensation, information technology, finance, fundraising, and
industry vertical knowledge. Brad Parry, an experienced private
company director and Partner at DCB Investment Partners,
indicates “the most imperative ingredient for a well-functioning