Leading a Private Company to Success
As a board member of both public and private companies, I have observed that successful CEOs hit the ball out of the park by focusing on five areas. These pillars of good leadership differ for private companies and present an opportunity to further a company’s success.
Use Culture to Drive Loyalty and Future Growth
Culture—shared values, goals, and practices—takes on a very different meaning in a private company for two reasons. First, private company employees consider themselves as family members, and employees know when the company puts their employees first (which has emerged as an important theme in dealing with COVID-19). Second, because the line of sight to the CEO is short, the CEO’s beliefs, values, and vision have a large, immediate impact. Both present a terrific opportunity for a private company CEO to harness their employees’ energy, productivity, and loyalty to instill shared values and position the company for growth. A healthy culture in a private company has the added competitive advantage of attracting and retaining employees.
Create a Vision Statement Focused on Strategy and Operations
A vision statement—that inspirational statement of the future—employed by public companies tend to be viewed as too grandiose for private companies. Public companies don’t really expect to achieve their stated vision in the near or even intermediate term. However, it is the stake in the ground that defines the territory the company wants to occupy. Private companies can harness the power of a vision statement by scaling it down to something more meaningful and closely tying vision to strategy. A vision statement communicates aspirational intent for employees, customers, and competitors, helping them understand how the company intends to thrive and grow. Private companies can use it to their advantage to inspire their workforce.
Build an A-Team
While private company management may be at a disadvantage recruiting and retaining talent due to compensation considerations, there is no substitute for building an A-team. Because compensation is only one factor in attracting good people, private companies are in a position to be inventive, flexible, and nimble. For example, compensation programs could incorporate shadow equity or performance plans. Because there are less bureaucracy and less of a need for standardized position descriptions, private companies can offer their talented employees increased responsibility, inclusion, and job rotation, which larger companies often find difficult to implement.
Deliver Financial Performance
Public companies are judged on a variety of standardized financial metrics as well as non-financial measures, which are ultimately reflected in the stock price. Private companies have greater latitude (depending on their capitalization structure) to determine what metrics are used to assess their performance. This presents an opportunity to determine how success is defined by choosing those metrics that are actually indicative of performance and are relevant to the business.
Further, it is my observation that many private companies focus on cash as the best measure of performance. While cash may be the primary metric (especially in companies paying dividends to shareholders), there could be missed opportunities to incorporate best practices normally associated with the P&L statement. Three examples are to:
Incorporate scenario planning into the budgeting process to think through the what-ifs in advance and help accelerate corrective action if needed.
Develop a Plan B for circumstances that might disrupt business operations, whether it be alternate sources of supplies or thinking through how to manage operations if there are employee reductions.
Budget for change in expenses to be less than or equal to the change in revenue from period to period to promote profit and cash growth.
Communicate Often and With Transparency
Public company communications are governed by detailed disclosure rules that do not apply to private companies. Therefore, private companies have a great deal of latitude about what is communicated to shareholders and employees. While many private companies prefer not to divulge strategic plans and detailed financials, keeping shareholders, family members, and employees informed increases engagement and provides reinforcement of the company’s objectives. There is opportunity for the CEO to choose how (i.e., standardized quarterly reports or employee newsletters), what (i.e., goals and objectives, strategy, financial and operating metrics), and when to communicate. This is also an opportunity for the CEO to communicate to the board how to measure the leader’s performance.
As you read about companies and CEOs that have experienced great success or very public failure, try to assess their performance along the aforementioned dimensions and how they can be creatively adapted to the private company environment.
Gail F. Lieberman serves as a board director and chair or member of audit, compensation, and nominating committees for public and private companies in the technology, life sciences, manufacturing, financial services, and utilities sectors. Her current board assignments are the privately held Equilend, Thesys Group, and W.L. Gore & Associates and publicly held ICTS International.