Top Five Myths About Private Company Boards

Top Five Myths About Private Company Boards

A good governance reality check for business leaders.

By Don Yee

While there are many private companies that have well-formed and high performance boards of directors, the majority still do not.

Why? It may be because of some widely held myths or beliefs about what a board is, what it does, how it works and most importantly, what it means for the CEO and the leadership team. 

Sometimes these views are formed by what they read about public company boards or what they hear about investor owned private company boards.  But they need a reality check.

Based on my experience as a private company director, and numerous sessions with private company CEOs (from founders through multi-generation family businesses) and their closest advisors on their views about forming and empowering a board, I’ve put together five myth-busters for private board naysayers.

  1. I’m the expert in our business:  Private company CEOs often have successfully built their businesses over many years and business cycles and have deep knowledge about their companies and industries.  They often ask themselves “How can anyone on a board know more than I do and how can they really help the business?”

The right board understands you’re an expert and seeks to enhance your leadership growth and support you as the CEO. 

It’s true that successful CEOs have often navigated growth and challenges without the benefit of having a board.  The risk and opportunity is that a whole new set of future challenges and transitions need to be navigated and that as you grow you have even more at stake. 

Having the right board of talented and experienced individuals, supported by clarity in its charter, can really complement a strong CEO.  It’s less about how much you know now, but more about what you need and want to know in dealing with your next big decisions and investments. 

The right board brings other perspectives, insights and an objectivity to critical decisions you have to make.  As one CEO said, “Its really lonely at the top when I have to make a tough decision and my board helps me make a decision with less conflict, more confidence and total commitment.  I know I’m the expert in the details of the business, now I feel I’m equally expert in sound judgment for the future.”

  1.  I’ll lose control.  I often hear the concern that a CEO (who is very often also the major shareholder) is afraid of losing control because they have to cede authority and decision making to a board of directors.

In fact, you can actually gain control.  The common phrase NIFO (Noses In to understand the business and Fingers Off since the CEO runs the business) applies here. 

As noted earlier, with a properly established, chartered and composed board, you actually can gain more control over an uncertain future with inevitable transitions in your industry and company, whether it’s industry disruption, a change of ownership or new generations of family leaders. 

As a leader and owner, you have the opportunity (and the control) to establish the right board vision, ground rules and key areas of board oversight and approvals (most often in the areas of affirming strategy and supporting budgets, major transactions in financing or acquisitions, incentive and reward programs and leadership succession planning).  In reality, high performance private company boards play a business building oversight role, provide insight and advice, only make formal approvals consistent with its charter, and never run the business. 

They contribute to the path forward, looking ahead with peripheral vision seeking to avoid unnecessary risks and to help identify the greatest opportunities. 

Lastly, a fiduciary board has to consider the interests of all shareholders and stakeholders in carrying out their responsibilities and you are both the CEO and a shareholder.  You can also call upon board members for perspective and consultative input between board meetings; it’s your resource.

  1. I don’t want to be second guessed.  CEO’s don’t want to be second guessed, even if they want open discussion and debate amongst their leadership teams and with board directors.  Similar to the prior loss of control point, CEO’s want to make the call and have the strong support of their leadership team and board of directors.

Great boards debate constructively and bring perspective and insight to high performance business growth and critical decisions.

An excellent board invests in being well informed and comes prepared to add value to deliberations on strategy, organization and performance based execution, all done in a collaborative forum.  It should respectfully and constructively challenge and debate key business assumptions and premises for a decision and not just the individual opinions, but the good thinking and rationale behind them. 

If you select the right board members who have both the hard and soft skills required to be effective you will never feel second-guessed, but supported.

  1. It’s just too much work.  We don’t have the time or resources to prepare for and have board meetings and I can better use my time on building the business.

You can’t afford not to do a little work and the best private company boards are tailored to focus on business building results, not bureaucracy, perfect governance protocol or compliance reporting for external audiences. 

The boards I have served on focus on utilizing information that management already has (or should have) and not creating unnecessary reporting that is not useful to the CEO or the management team, thus minimizing any extra work. 

Regular sharing of relevant existing information, coupled with well-crafted board agendas that align with the scope of a clear board charter, minimizes the effort and maximizes the benefits of having a board. 

A high growth company CEO commented, “I love the accountability and discipline that our board meetings and discussions provide.  It gets me out of the daily fire fighting and keeps all of us focused on the big things and priorities that really matter to the success of the business”.

  1. I just can’t afford it.  It’s not just the time, it’s the money.

In reality, you can’t afford not to.  Several private company studies have shown that having a board has substantially improved their financial performance in terms of revenue growth and profits. 

In addition, while their impact is no less than the public company world (and often even more in business building, growth, and financial results), private company boards are often smaller and individual directors are generally compensated considerably less than their public company counterparts. 

Affordability is not the issue in forming a board and it can be one of your highest payoff investments, commitment and practical steps in forming or refreshing your board is.

Consider these myth-busters and you can build the high performance board you want when you’re ready.

Don Yee has been CEO of several businesses and has served on numerous private company boards. He is currently an independent director on the boards of Blue Diamond (2017 Private Company Board of the Year), OC Communications and NACD-Northern California, where he is Chair of NACD-Capital Valley and an NACD Board Leadership Fellow.

 

 

 

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