The Board’s Role In Growth & Succession
Building a board with trust and good governance is the key.
Smart private companies realize boards can play a key role in succession planning.
At Power Construction, Al Gorman, the former CEO, “served as his own board,” according to his son Ken Gorman.
He knew his dad wouldn’t be at the helm forever, so a succession plan was in order. “We had to think ‘How is this company going to continue and could we fulfill and grow what he was giving to us?’” says Gorman. “We decided we could not.” So they needed a governance plan.
Ken Gorman and others in Power Construction’s management team created a fiduciary board to help with succession and bolster plans for growth.
Forming a board of directors can happen at any point in a company’s life. Some are a part of the founding of the business, others are decades later, it all depends on needs and goals.
What is clear is businesses that are at the top of their game often look to board members outside the private company to provide transparency, bring fresh eyes to stale problems, and serve as resources to executives who may not have the specific skillsets needed for business growth.
Many private companies have long realized the importance of independent voices.
For Bush Brothers and Company, makers of Bush’s Best Beans, current chairman and G4 family member Drew Everett says the company pursued independent members because, “as a business it was somewhat dire.”
As the 1990s opened, the second generation of business leaders died and it was time for the third generation to transition in. At the same time, the company was moving away from its trucking business and decided to focus on canned beans.
“Three G3s had executive positions in the company and recognized they needed help,” Everett says. “It was really about survival at that time.”
But with a family board of directors made up of “aunts and widows,” the Bush Brothers executives needed to broach the concept of an independent board with caution.
“We needed trust,” Everett says. “The family had to feel they would be fairly represented by the board and their interests would be recognized by the independent members.”
Once that trust began to build, the company set about creating a nine-member fiduciary board, which is now majority independent. It consists of five independent members, the non-family CEO (the first of which was appointed during this time), three family members and two advisory family members which keeps each branch of the current Bush family at the table, though the advisors do not have voting rights.
“We needed to take risks,” he said. “And we took the time to ID and select board members who were strong within the industry that we could use as resources.”
Bush Brothers also kept family involved through a family council, a family senate and a family private trust company.
At Power Construction, trust was a key issue as well. Founded in 1926, there had been an advisory board at one time, but that fizzled without any real authority.
Neither Power Construction nor Power Wellness, a healthcare management firm founded in 1995 under the Gorman Family Holdings umbrella, had a board.
The boards of directors for both Power Construction (for which Al is the chairman) and Power Wellness (for which Ken is CEO) have two family members, the two top non-family managers and two independents that are professionally recruited with unanimous approval from the rest of the board. The holding company has a four-member board.
The goal of finding quality independent members was to give management resources with insight into the industry in which they operated, even if that meant bringing on an executive from a company that could have been viewed as a competitor, as they did for Power Construction. Eventually that board member earned the trust of the business’ CEO.
“We got to the point where we could not grow any bigger,” Gorman says. “We needed to look at acquisitions and we had never done that before. We needed well-connected people who were experienced.
“At some point you have to put your personal ego aside and decide what’s best for the company.”
Independent members bring important perspectives to different kinds of private boards, not just family businesses.
Mead & Hunt, an infrastructure planning and construction consultancy, has been employee-owned since 1949 when the founding family exited the business (currently 170 out of 550 employees are shareholders). The board of directors has seven fiduciary members who are internal members and three advisory independent members. Chairman and CEO Rajan Sheth says the independent members, though they don’t have voting rights, are vital to the company’s transparency.
“They ask questions internal members may be uncomfortable asking,” Sheth says. “They are also important in the leadership succession and selection process.”
To build trust, the Mead & Hunt board also travels to different company sites for board meetings, inviting two or three shareholders in to observe and then spending time talking to local employees and their families at social gatherings.
Bringing independent members to a fiduciary board means hearing the advice and following the direction the board brings to the table.
“Right off the bat, when we established the independent board in 1991, we embarked on a strategic plan and it’s a discipline we’ve held every five years and we’ve engaged the board in that process,” says Bush Brothers’ Everett.
In addition, he says, the board plays a significant role in succession planning, but took the lead in CEO nominations and other governance.
“I think the board not only supported and led the process to name our CEO [Jim Ethier], but supported Jim’s work in family governance structure alignment and support of the family.”
Gorman says when Power Wellness faced the daunting task of becoming Health Insurance Portability and Accountability Act (HIPAA) compliant; it was the board that was a saving grace.
“We’re dealing with a lot of protected information,” Gorman says. “One of our independent directors, with the risk manager, brought this to the top in 2016 and I sleep better at night knowing that we’re now at the end of that [compliance] process.”