NACD BoardVision - Evolving Needs of Private Company Boards
This week's edition of NACD BoardVision focuses on the evolving needs of private company boards. Join Chris Clark, publisher of NACD Directorship, Pamela Packard, director of Brown Jordan International, and Tom Duffy, national managing partner, audit, of KPMG, as they discuss the changing priorities and needs of private company boards through the different company life cycles.
Christopher Clark: Hi, I'm Christopher Clark, Publisher of NACD Directorship Magazine. And this is BoardVision. Today's subject is going to be governance considerations for private companies. Today I'm joined by Tom Duffy, National Managing Partner Audit of KPMG; and Pamela Packard, Director, Brown Jordan International and the new president -- I can say this -- of NACD's New York Chapter. Welcome.
Tom Duffy: Thank you, Chris.
Pamela Packard: Thank you.
Tom Duffy: Good morning.
Christopher Clark: Tom, our two firms did a Pulse Survey a few months ago, really delving into risk in the barriers to growth for private companies. But in terms of barriers to growth, clearly the global economy was concern number one; but very closely followed by concerns and a focus on talent management, succession planning, compliance and regulatory issues. And that speaks to something -- I had a chat with one of your colleagues -- again recently, Jim Liddy, and he had hinted at the idea that private companies and private company boards really need to be flexible, adaptable, and I would love you to kind of mash those things together and elaborate.
Tom Duffy: Thank you Chris, and good morning. The concept that companies need to be flexible and company boards need to be flexible sort of is an underpinning around the corporate governance model that companies need to think about in terms of their lifecycle. So when we talk about flexibility, let's talk about we're a company may be in their maturation process. So we have companies that are, for instance, startups that, that governance around the company in its infancy is a lot about the board is perhaps the neighbor, the angel fund, investor, somebody that the founder can attract. And in that early stage, the company then becomes, starts to develop its own identity. And the flexibility around developing policies, processes, and procedures is an important early stage, because it sets the tone and the culture of the entity. And, you know, you really only get the chance to get it right once. And then if you need to change your culture or your tone because of things that might happen in the organization, that's a difficult thing to do. So getting it right early and being flexible to adapt to the maturity of the company is very important. And the ability of the company to be flexible enough and transparent with its board to say, "We need to introduce somebody who has relevant industry experience, or has international expansion experience."
Christopher Clark: Someone like Pamela.
Tom Duffy: Someone like Pamela, would become critical and I think from our perspective, being anticipatory around that, looking around the corner before you get there and thinking about those things early on -- certainly at the board level -- that's a key analysis and a key priority that a board operating at an optimum state would be looking out into the future. And quite frankly sometimes there's a self-selection process on board members who exist today, who were a part of the board who may not be part of the board's future because the company evolves and their talents are not a fit any longer for the board, and that's a critical analysis as well.
Christopher Clark: Pamela, you have been on a number of private company boards. You happen to be on one now and I don't want you to refer to that in particular.
Pamela Packard: Thank you.
Christopher Clark: But please talk to the value of assessments, the value of independent directors, and some of the things that you've experienced where this evolution should occur, governance should evolve, you should be a step ahead -- it doesn't always happen that way.
Pamela Packard: You're right, it doesn't always happen that way. And if you start where you started with the startup company, a founder is just so excited to get funding from a VC to move forward, filling the board with anyone who will say yes, but if they're strategic, they're filling the board with an individual who has a personal network that can help them with potential customers, potential suppliers, move their product or business forward. They didn't have the foresight because of the excitement to say, "I need your skills today, but if we are successful," which of course every entrepreneur expects to be, "I may need different skills in the future. And there may come a point in time where I have to ask you to step aside to make room for someone with those skill sets that I need now."
Christopher Clark: Tom doesn't want to get off the board; he wants to stay.
Pamela Packard: And that's exactly what happens is that you've surrounded yourself with people who believe in the company, love the company, want to help the company succeed and don't want to part company. And then at a sort of less optimistic perspective, some companies get into trouble, and when you are a financially declining company, the skills that are required in a boardroom are very different than when the company is at high growth. I'd also like to build on what you talked about in terms of being a step ahead on internal controls, and risk management processes. I agree wholeheartedly. My caution --
Christopher Clark: There's a "but" coming.
Pamela Packard: ...my caution is, a step ahead is fine; 10 steps ahead is problematic, because if one said, "Oh, well, I'm going to look at the largest company in my industry. And what are the controls and processes that they have in place? And I'm just going to, you know, have it all lined up so that I, you know, don't ever have to worry about this again." Those controls and processes absorb resources that are better spent on developing the company and moving forward. So that's something else that's just a cautionary tale.
Christopher Clark: Tom and Pamela, thank you for coming today. Wonderful food for thought. I'd really like to pursue this further in a subsequent BoardVision episode.
Pamela Packard: Thank you, looking forward to it.
Tom Duffy: Thanks, Chris, and thanks to NACD as well.
Christopher Clark: You're most welcome. On behalf of KPMG and NACD, thank you for viewing today. I'm Christopher York Clark, and this is BoardVision.
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