February 28, 2021
By Cheemin Bo-Linn
Private companies have significant economic power, with the number of US privately held companies surpassing publicly traded companies. The execution of their strategy set by company management and their board, however, impacts the relative success of its execution.
Private Company Priorities
Responses from 283 private company directors reveal that COVID-19 accelerated pre-existing disruptive trends including technology’s impact on their business, according to the 2019-2020 NACD Private Company Governance Survey. Fifty-nine percent of those respondents include the impact of business-models disruption among their top five risks, closely followed by the accelerating speed of advance in technology at 43 percent.” The COVID-19 pandemic facilitated 10 months of digital technology adoption into three months, per McKinsey & Co.
This digital thrust was attributed to remote working and the necessity and convenience of e-commerce. “Survival of the fittest” required “all-hands-on-deck” to ensure business continuity with financial reporting, internal controls, and disclosures. Material changes in relative costs and revenue, liquidity, and credit resources were examined. More importantly, customer relationships were nurtured by leveraging social listening, e-commerce platforms, artificial intelligence, and machine learning tools to capture customer sentiment, loyalty, and register rings.
Navigating a New Normal
Private board effectiveness means reprioritizing and recalibrating strategy and strengthening corporate governance. To transition from COVID-19 survival to thriving, decisive action must be undertaken. According to two-thirds of the private company directors surveyed, just renewing their current strategies over the next five years is not a viable option. During strategy discussions, 80 percent discussed their changing customer needs. Hence, the “new” normal is defined by factors such as changes in consumer spending and new behaviors in the remote workforce. Forward-looking optics (and perhaps a need to pivot) include bold digital investments in talent, tools, and infrastructure to remain relevant.
For new board recruits, the top professional experiences continue to be industry and executive experience with technology expertise increasing in importance. Technology is the backbone of operations, and hence, every business must be considered a tech company with digital acceleration a prerequisite.
The stickiness of online e-commerce and the “home economy” of how we work, shop, learn, or even use technology is no longer a social trend but part of today’s mainstay fabric. Market leaders are created by their success in e-commerce, as foot traffic slowly comes back amidst bankruptcies. The use of “click and collect” increases the customer’s propensity to buy. Reaching customers via the internet is no longer a contingency plan but a complement to brick-and-mortar stores, driving deeper customer engagement. Be cautious that the “in-person experience” is not merely transformed into a digitally native website. The new baseline includes personalization, mobile connectivity, and real-time end-to-end customer service.
According to the US Census Bureau, consumers spent $211.5 billion during the second quarter of 2020, up 31.8 percent quarter over quarter on e-tailing sites. Further, US consumers averaged 25 minutes longer on mobile devices in 2020 compared to 2019, plus one more hour per day online during stay-at-home restrictions, according to eMarketer. Europe saw a 13 percent uptick in consumers considering online purchases for the first time, per McKinsey. In Italy, e-commerce transactions rose 81 percent just in March 2020. Hence, private company success (pending the sector) has already been realized by those who are digitally innovating and embracing omnichannel for a faster recovery.
Power of Private Board Governance
Over the next 12 months, private directors’ oversight duty towards innovation and digital transformation is especially critical. Assumptions will need to be quickly tested with increased scenario planning and resiliency measures and metrics instituted in case of a resurgence in the coronavirus. Private companies already navigated 10 months of pandemic-fueled uncertainty. Looking forward, we should assess previous short-term decisions against long-term implications with a strong risk lens.
Perhaps the single good thing for business about the pandemic is the spotlight it has shined on the power of e-commerce to deliver new and increased sales and ramp up customer loyalty.
Cheemin Bo-Linn, CEO of Peritus Partners, currently serves on the board of Blackline Safety. Her prior board service includes five private and public companies where she chaired or led audit, compensation, governance, and digital technology committees. She is a 2019 NACD Directorship 100 honoree and former vice president of IBM Corp.