Category: Board Information

Private Company Snapshot: Priorities Vary by Company Type

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Strategy, corporate performance, and corporate growth or restructuring were the most commonly cited governance priorities overall for respondents of the 2015–2016 NACD private company governance survey. But a closer look at the results by the type of business reveals distinct differences in director concerns.

This year, NACD for the first time published its survey report in three separate volumes organized around major ownership structures—family, investor, and employee-owned—to provide more customized analyses that address challenges specific to each company type.

Survey findings are drawn from some 712 responses to a questionnaire e-mailed to NACD members serving on private company boards representing each of the three ownership structures. The questionnaire was in the field between March and May 2015.

PrivCoSurveyDataFamily Business Boards

NACD’s survey results indicate that the boards of family businesses are likely to view long-term strategy and value creation as their top priorities. When considering executive performance horizons, a large portion of respondents from family business boards (49%) define “long-term” as more than three years. Twenty-four percent of respondents identified leadership development as one of the three most time-consuming tasks for their board, alongside strategic planning and corporate performance.

The results also indicate that despite their attention to long-term strategy and leadership development, 24 percent of family business boards do not have a formally written CEO succession plan. The lack of such a plan can complicate the effective transfer of leadership, whether between generations of family executives or from the family to outside management.

For guidance on effective practices for family business boards, see NACD’s handbook The Family Business Board, Volume 2: Governance for Agility and Growth.

Investor-Owned Company Boards

Boards of investor-owned companies or those that are supported by venture capital or private equity firms may comprise a mix of founders, management, and investors, depending on the company’s stage of development.

Venture capitalists and private equity firms, by the very nature of their work, are especially focused on results: they want the valuation of the company to increase, oftentimes at a quick clip. Not surprisingly, investor-owned company boards rigorously scrutinize the performance of the company and its executives. The majority of directors at investor-owned companies (61%), closely monitor profits, while 37 percent monitor sales to gauge the company’s performance and determine executive pay.

A significant 33 percent of respondents use cash flows, which offer insight into where and how the company generates income and how its cash is being deployed. The focus is not solely on financial metrics; 44 percent of investor-owned companies also use customer satisfaction as a gauge of the company’s strength.

Employee-Owned Company Boards

Executive talent management ranks as a high priority for the boards of employee-owned companies, which are owned at least partially by their employees, either directly or indirectly through a trust. The vehicles for employee ownership can take several forms, including employee stock ownership, stock options, and profit-sharing plans.

While profits and sales remain important metrics, a large number of respondents from employee-owned companies use metrics related to employee morale (52%) and employee turnover (32%). The prevalence of these metrics was particularly notable among employee-owned companies.

For further coverage of the private company surveys, please see the forthcoming September/October 2016 edition of NACD Directorship magazine.

To download NACD’s surveys of private companies or view guidance and tools for private companies, please visit the Resource Center for Private Company Governance at www.NACDonline.org/privatecocenter.

 

The Value of Your Voice

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Here at NACD our annual governance surveys—publicprivate, and nonprofit—underlie nearly every aspect of the organization’s activity. From our Blue Ribbon Commission reports, to peer exchanges and our annual Board Leadership Conference, data collected from the thousands of respondents informs discussions, forums, topics, and future events. Beyond the boardroom, the trends, statistics, and perspectives captured in these surveys provide those in the C-suite, investors, and stakeholders with crucial information on the current state of corporate governance in the United States.

In the regulatory sphere, we use survey data to inform our comment letters and in-person testimony on behalf of boardrooms to regulators and lawmakers. Most recently, survey responses from NACD’s membership strengthened a December 2013 comment letter to the Securities and Exchange Commission on pay ratio disclosure.

NACD also uses the three annual governance surveys to create industry-specific one-page benchmark reports. Whether you use one of these or commission an NACD Custom Benchmarking Report, data broken down by industry, size, or both serves as an excellent starting point for boardroom discussions.

NACD is dedicated to providing directors with timely and pertinent content, but we need your input. As a thank you for participating in these surveys, NACD will send each participant a free electronic copy of the final report for each survey he or she takes. This is the sole opportunity for non-NACD members to receive a copy; once this window closes only NACD members and participants will be able to view the final report.

This investment of your time is critical to NACD’s ability to work for you. We thank you in advance for your participation.

Resourcing the Board

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As the job of directors becomes more demanding, the level of resources needed to support the board also needs to change. This panel addressed what companies can do to ensure their boards have the tools they need to meet the evolving challenges of a dynamic business landscape. What kind of support do boards need to fulfill their oversight responsibilities? What is the current state of “resourcing the board?” Is it enough, or does it fall short? And what will boards need to support them going forward? This discussion covered the challenges of resourcing the board at small- and large-cap companies.

Highlights:
1. Finance expertise, industry experience, and leadership skills are the most sought after attributes for public company board members, according to the 2013-2014 NACD Public Company Governance Survey. Corporate governance acumen, technological skills, and IT ranked much lower.

2. The growth of social media has created “crowd knowledge,” where collective data and information stored on such sites as LinkedIn, Facebook, and Twitter, is pooled by many people online. The belief is that such knowledge can be better and more reliable than the knowledge of a few elite people. The convenience and depth of such sites make it easier to access knowledge about industries, companies, and their employees. One of the shortcomings of these social media tools, however, is that the information is unfiltered. Directors and management should bear this in mind when using those sites.

3. In today’s complex and dynamic world, directors need to have “depth and width.” This means directors need to have both in-depth knowledge about a certain area and broad knowledge about the company and its industry. One suggested way to support directors with such knowledge is for boards to have their own staff. Such a support team could give the board its own resource for company information, separate from the management team.

Speakers:
Orlando Ashford
President, Talent Business Segment, Mercer

Paula H. J. Cholmondeley
CEO, The Sorrel Group; Director, Terex Corp., Dentsply International, Minerals Technologies

Peter R. Gleason
Managing Director, CFO, National Association of Corporate Directors

This summary provided by PricewaterhouseCoopers.