Best Private Company Boards: High standards bolster bottom line
By April Hall
Private companies with boards that have authority to guide change have found bottom line success. That’s definitely the case with the private company boards recognized for excellence in governance at the annual Private Company Governance Summit.
While private company boards don’t face the same regulations as public company boards, there are company owners who realize how critical good governance is and try to emulate their public counterparts.
Dozens of private boards of directors were nominated for the Private Company Director, Directors & Boards and Family Business magazines’ second annual Private Company Board of the Year award — handed out in Chicago earlier this year — but five stood out for their diligence, standards and outcomes.
The winners included: Blue Diamond Growers, Bush Brothers and Company, Diesco Ltd., Samaritan Medical Center and W.S. Darley & Co.
The award recognizes both fiduciary boards — those tasked with protecting shareholders and by voting on decisions that are binding for company management — and advisory boards — more informal boards that have no binding regulatory role.
Here’s an overview of the winners.
SAMARITAN MEDICAL CENTER
Fiduciary Board, under $100 million revenue
Family-owned Samaritan Medical Center owns and operates 18 medical office buildings in San Jose, Calif. The 50-year-old company has had a board of directors for 25 years, but added independent members after Dave Henderson, one of the owner’s son-in-laws, became president.
The company recently got the OK on a massive construction project in its community and Henderson says it was the board that guided the company through the community pushback.
“Most importantly, we learned from the outside members to stay close to your community,” Henderson says.
“You might not agree with them or like what they’re doing, but stay close. Meet with them regularly, let them know what you’re doing, be consistent with messaging, and listen to what they’re saying. You can’t make everyone happy, but let them know you’re doing something to show you’re listening to them.”
Samaritan governance highlights include:
- A formal operating agreement established in 1998 outlining all elements related to Samaritan’s business including spending limits, the roles and responsibilities of owners, board term limits and sale of shares.
- An eight-member board, evenly split between family members and independent directors
- The chairman/CEO roles are split, for 12 years the chairman role has been filled by an independent director.
- The board has three standing committees with formal charters — finance (independent chair), compensation (independent majority and chair), nominating, and an ad hoc independent directors’ committee to assist the company with ownership matters.
- A recently completed 10-year plan to substantially expand the company’s holdings, including real estate.
W.S. DARLEY & CO.
Fiduciary Board, under $300 million revenue
W.S. Darley & Co. is a fourth-generation business designing, manufacturing and distributing firefighting, defense and emergency services equipment. The company is based in Itasca, Ill., and has grown rapidly from 20 years ago when revenues were $20 million. Estimated 2017 revenues are $220 million.
The board was first established in 1976, but added independent directors in 1990. Additional outside members were added in 2008.
“We had a concerted effort to get the best of the best board members, very high-profile people, but not to be there for lip service or to make us look good,” says Paul Darley, chairman of the board and fourth-generation family business member.
“Of the three things that account for our 10-fold growth,” Darley says, “the board is at the top of the list.”
Darley governance highlights include:
- There are nine board members — four are independent and one is a non-management shareholder representative.
- The board is built around skill sets and experiences the company needs to grow.
- The board holds executive sessions and has an outside attorney advising.
- The company maintains a separate eight-member advisory board for the defense area.
- The board is increasingly involved in succession planning, hiring and onboarding family members, and receives a report from the fourth generation in the business at each board meeting.
- The board has staggered board terms.
- The board has been able to successfully implement majority vs. unanimous decision-making in a family business.
BUSH BROTHERS AND COMPANY
Fiduciary Board, under $1 billion revenue
Bush Brothers and Company has been family-owned since 1908. Currently, the company is likely best known for the Bush’s Best beans line, followed closely by the TV commercials that feature Jay Bush (a board director and family member) and “his talking dog.”
In the 1990s, the company began to build a board structure and aimed to professionalize it. They modeled the board after the rigorous standards public boards are held to, including regular, formal evaluations, even tapping a corporate psychologist to conduct individual interviews of board members in a qualitative feedback process to flush out opportunities for improvement.
“Each time we look for a new board member we assess the needs of the board but we have not needed to retain outside search firms,” says current board chair and fourth-generation family member Drew Everett. “What we have tried to do is find a good cultural fit for our board and we have been intentional in developing a culture that supports our core objectives.”
Bush Brothers governance highlights include:
- The fiduciary board includes five independent directors, three family directors and a non-family CEO. There are also two non-voting family members. All five branches of the family are represented in the boardroom.
- There are no term limits for independent directors; family members can serve two four-year terms.
- There are three committees with formal charters — audit, nominating and governance, and compensation. The committees hold quarterly meetings before the full board meets and independent directors hold the majority in two of the committees, while the compensation committee is completely independent.
- The chairman and CEO roles are separate and there is a separate lead director.
- The board conducts formal self-evaluations.
- The board has been deeply involved in two leadership transitions.
BLUE DIAMOND GROWERS
Fiduciary Board, over $1 billion in revenue
Unique to this list, Blue Diamond Growers’ board is a co-operative board, representing 3,000 family almond growers who are considered shareholders. The board was formed when the co-op was built in 1910.
A decade ago Blue Diamond was the biggest almond producer, but wasn’t seeing the returns other producers did. The board started with “asking the hard questions,” says independent director Don Yee, and then dove into more rigorous planning, engagement and talent development, particularly in the next generation of growers/shareholders.
Part of the reinvigoration of the board included grooming future shareholders and leaders. The current chairman of the board, Dan Cummings, is a product of that program.
Since the increased board engagement, annual revenues grew from $650 million to $1.7 billion by introducing new products and pivoting to retail sales.
“Our growers have been supportive [of the board] and we’ve been successful,” Cummings says.
Blue Diamond governance highlights include:
- There are 11 board members (two independent) serving 3,000 shareholders.
- There is a democratic process for selecting the “inside” board members (all shareholders and growers vote for their regional representative) with no members of the management team on the board.
- There is strong alignment between the board and management. A strategic plan was developed together, while adjustments are made when necessary.
- The board is committed to talent management and development for CEO succession.
- The board opened to new points of views and insights when it recruited its first independent director based on skills and diversity, as well as fostering open discussion and debate in governance. A second independent director was added recently.
- The board participates in ongoing education, skills inventories and annual board assessments that include input from management.
- Committees include young leaders, scholarship and foundation, nominating, governance, and compensation.
- CEO and chair roles are split; the chairman position is elected annually.
Advisory Board, $130 million revenues
Diesco Ltd., a large group of diversified companies including everything from beverages to real estate, was facing efficiency and scaling issues, and as a result decided to create a board in 2013.
“I knew the board was going to create a lot of shock in the system. The businesses had never had a board,” says Manuel Diez, CEO and chairman of the Dominican Republic-based company’s advisory board. “As a family business, it was a follow-my-lead kind of place.”
But things changed for the better after the board came on. In four years' time, he explains, the business grew about 150% and earnings tripled in all the company’s units.
Bernie Tenenbaum, the first member appointed to the board who helped Diez find the other board members, says he has been impressed through the entire advisory process.
“We cleared away all the noise and left just the best parts [of the business] in place,” he explains. “Everyone knows what their jobs are. They know what has to happen this year to make next year happen. Nobody is confused.”
Some Diesco governance highlights include:
- The company has a majority independent advisory board, with six outside advisors.
- The advisory board brought strategic focus and helped the company streamline from 12 operating companies into four vertical companies. The business has grown 150% in four years, and the company’s performance tripled in all four verticals.
- The advisory board holds executive sessions without management present, has formed a compensation committee, and plans to implement an audit committee.
- The advisory board helped attract Goldman Sachs’ first investment ever in the Caribbean Basin, with board members assisting in every step of the transaction, including reviewing term sheets, identifying legal resources and assisting with final negotiations. Goldman officials noted confidence in the governance and management of the company.
- The board is diverse, with two women and three native Spanish speakers.