This article was first published in the Private Company Director Magazine, October 2017
There is a fallacy that serving on a private company Board is somehow easier than serving on a public one. After all, public company Boards are subjected to intense scrutiny about their bottom line and answer to a disparate collection of shareholders; activist shareholders are now common and regularly upending corporate leadership. Private company Board members face none of these issues. But serving on a private company Board brings its own unique challenges and requirements. The conditions and terms of private company Board service differ, depending on the private company type and its strategic vision. A family business Board may be more concerned with long-term sustainability; venture-capital (VC) or private-equity-backed (PE) company Boards prioritise a possible acquisition, potential IPOs, and ROI. They also generally have shorter time frames to produce results.
Here are five questions I use to get to the heart of a potential director.
1. Why Do You Think You Are A Good Fit For This Board?
It’s critical that any potential Board member understands the commitment they are being asked to make: Not only the fiduciary duties associated with being a director – duty of loyalty, care, good faith – but also the expectations and general responsibilities of a director. Often, private company Boards can serve as a training ground for rookie directors who lack Board experience and don’t have a clear idea of what they are going to be asked to do. Dive deep into a candidate’s current or prior Board experience (you want someone with at least some Board experience; the nonprofit sector often offers candidates), and ask what experience they have acting in other fiduciary capacities. Knowledge of the general field in which the other company operates is key. It’s critical to identify any knowledge gaps, so they can be addressed later in a director on-boarding program.
2. Do You Have Any Conflicts Of Interest?
Divided loyalties is the hidden landmine that can result in drama (at best) or legal ramifications (at worst) down the road. An unearthed conflict of interest can quickly steer a company off its strategic course and distract the Board. Certain circumstances, especially in VC or PE-backed companies, can be exceptionally complicated when investor representatives serve on Boards in which their firm invests. It’s critical that candidates be transparent about current relationships and past affiliations – and that you ask about them.
3. Are You Prepared For The Time Commitment?
You used to be able to miss Board meetings – or two, or three. Not anymore. Private company Board members are expected to attend every meeting, so check your candidate’s calendar and other responsibilities. According to the 2016-2017 NACD Private Company Governance Survey, the average private company director spends a whopping 172.5 hours, annually, on Board-related matters. That’s more than four full-time weeks every year. In the hyper-connected business world of today, much of the communication between Board members and executives at private companies is “off the cuff”; directors need to have expectations laid out that they should expect more frequent informal points of contact, and they’ll be expected to respond in a timely manner.
4. Do You Understand The Culture Of This Organisation?
Private companies often have deep-rooted, and unique, boardroom culture that stems from multi-generational family ownership or a founder-led company. There is a right way to make points, ask questions and raise issues. Exemplary Board candidates will do their due diligence and familiarise themselves with a company’s history, culture and operations. That being said, candidates should be comfortable and ready to reconcile differing opinions and mediate potential conflicts between family Board members or major stakeholders. Companies should inquire about a candidate’s ability to handle conflict and their willingness to voice unpopular viewpoints in a convincing yet respectable manner. They should also question the candidate’s personality, workstyle, leadership style, and values. Importantly, companies should determine whether the values of the candidate align with that of the company.
5. Can You Spy – And Manage – Disruption?
In their early stages, private company Boards are often filled with like-minded individuals – family, friends, and business acquaintances – which can unfortunately lead to group-think, decision-biases, and strategic ineptitude. In their search, private companies should seek out candidates that have unique experiences and diverse perspectives that not only inspire but inject new ideas, conversations, and innovative thinking to the boardroom. Companies should ask the candidate what upcoming trends or industry-specific disruptions they believe are on the horizon, and how these may affect the company, an d how he/ she can turn these threats into what they are: an opportunity.
Dale E. Jones is AltoPartners Global Operating Committee Member and Diversified Search President and Chief Executive