Leaning Forward: Leadership Opportunities on Private Boards
While the boards of public companies have a host of duties, including complying with Securities and Exchange Commission (SEC) regulations and safeguarding shareholder interests, these important responsibilities are primarily fiduciary in nature. That’s their focus. Board members of privately held companies, on the other hand, are encouraged to focus on the company’s growth, providing mission-critical relationships, expertise, and guidance.
Rather than sitting back, private board members lean forward.
The primary focus of private boards is to grow the company. Typically, they comprise stakeholders: management team owners, private equity investors, creditors, and mezzanine financiers who often have observation rights to attend critical meetings. As a member of a private board, you would be expected to roll up your sleeves and get to work. But what kind of work, exactly, would you be doing?
Typically, you would expect to have at least four board meetings per year, as well as additional committee meetings and one-on-one meetings with the CEO and executive team members. You will have been asked to join the board because they believe you have an important skill set they need. The value of a private board member can be found primarily in three areas:
Leveraging your relationships to help the company is one of the most important ways you can provide leadership on a private board. You may be asked for recommendations for key hires or introductions to prospective customers, to connect the management team to seasoned advisors, to help them find a company they may want to acquire, or even to set up a potential sale. You may also find yourself using your own connections to help a company avoid disaster. On one private board, for instance, a board member had to leverage his own personal connection to the chief executive officer (CEO) of a major retail distributor after the president of the company skipped a critical meeting, and in doing so failed to secure a deal with a new procurement team. It was the board member’s ability to reach out directly to the top that paved the way for trust to be regained and the deal to go through.
Smoothing the waters, providing warm or hot introductions, and getting the company in corporate doors they have yet to crack open may all require you to open up your contact list and pick up the phone. This kind of high-level, personal network is a tremendous asset, and the willingness to leverage it in service to the company can make you an invaluable resource on private boards.
In addition to connecting the company to key resources through your network, you will also be expected to provide advice and concrete help in your area of expertise. For instance, business development is something almost every company needs. Many private companies start with a big idea, but don’t necessarily have a robust sales platform.
Or perhaps something has gone wrong: for instance, if a core customer revenue stream suddenly dries up, the company may have to pivot to a new industry. A board member’s expertise in the area of securing government contracts saved one company when their core business of building telecommunication infrastructure vanished almost overnight. In a similar vein, a board member’s experience in getting companies certified minority-owned may open up new opportunities. Marketing, valuations, structuring deals –all of these are elements of expertise that are in high demand on private boards.
Your Business Savvy
Finally, your experience in all aspects business can be an asset to a growing company. From being a sounding board for the CEO, to making sure deadlines to banks and creditors are met, to recognizing pitfalls and preventing missteps, your business acumen can mean the difference between success and disaster. In one case, a company was going to bid on a major public sector project they viewed as a loss-leader, assuming that –as had been the case with other big projects they had worked on – securing the initial set-up contract meant they would automatically get the long-term, and more lucrative, maintenance contract. It was a board member who had had a great deal more experience in reviewing such contracts who realized that the company was not guaranteed the maintenance contract and in fact stood to lose a great deal by being the low bid as a way to get in the door. Ultimately, they decided not to bid on the project at all, sidestepping what could have been a large financial blow.
It’s not that CEOs and owners aren’t brilliant in their own fields. We have worked with several highly impactful leadership teams who have successfully navigated the growth and challenges of a $100 million or more company without the benefit of board guidance. But what these and many other, less-successful, CEOs don’t realize is that as they continue to grow, they expose themselves to a new set of risks and challenges. One problem in particular is the failure to fully grasp the risk and exposure they may bring to key stakeholders, including lenders, bonding, and insurance partners, which may play a critical role in future growth.
As fiduciaries, everyone on a private board has to consider the interests of all shareholders and stakeholders. Many private board members are themselves investors; even if you’re not, you may be offered compensation such as warrants. They want to incentivize you to have a stake in the success of the company. Your interests should directly align with the company and its leadership.
Establishing a board of talented and experienced individuals –people like you –can strengthen and balance a strong CEO. Private board members contribute to the path forward, identifying both unnecessary risks and significant opportunities. It is an important leadership role and one that can be satisfying in a number of ways, including building your own network, expertise, and business acumen, thereby making you even more valuable to the next board you sit on.