3 Theories of Board Management in Privately Held Companies

During most meetings with clients and prospective clients, the topic of board meetings comes up. It happened this morning during a breakfast meeting.

It’s really rather interesting, what CEOs have to say about their philosophy of dealing with boards. They seem to fall into 3 camps.

This camp is probably the least controversial. These CEOs own their company outright. There’s no question who is in control. At most, they may have a handful of minor investors. These executives have the self-confidence and vision to know that a group of expert advisors can be a tremendous asset. Experts can offer perspective, a dissenting opinion to force the CEO to think through his/her decisions. Or, they can bring skills and expertise to the table that compliment and bolster the CEOs own skills. The end result is a better run and more successful company.

The second camp are those CEOs who run companies owned by either outside investors or a large contingent of internal and external shareholders. They generally own a sizeable chunk of the business but may not be majority owner. Their board is generally not hostile but not always made up of members with significant business skills or special expertise. They are mostly friends or family. These board members strive to over communicate. A significant percentage of their time is spent simply schmoozing board members, making phone calls and sending emails with updates. The end result is that by the time the quarterly board meetings roll around, there is little new to say. Meetings rarely seem to last very long.

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The final camp is really split into two sub camps. In either case, the CEO is a shareholder but the majority of the business is owned by outside interests and the environment is often confrontational or even caustic. Within this stressed environment, one type of CEO most often mirrors the CEO in Camp 2. He/she strives to communicate on a regular basis and spends massive amounts of time preparing and documenting facts and trends prior to board meetings. The second sub camp is run by CEOs who are total control freaks. They communicate with board members infrequently, if at all in between board meetings. During board meetings, they provide cursory information and present financials and other business details at only the highest level. They are not above something close to bullying board members to avoid protracted discussions. They believe the less the board knows, the better.

This last style has always fascinated me. I am surprised that any board would tolerate that commandeering style with limited presentations and receive even less information about the business, especially the financials.

In all cases, I often ask how long board meetings run. The usual answer is about 90 minutes to 4 hours.

When I hear that, I am envious. It reminds me of the Head Noise that I experienced years ago chairing a board that was comprised of partners from two private equity firms. These guys had radically different styles, philosophies and expectations as to what should be presented in a board meeting. The two firms often clashed during our meetings. One firm was filled with micro managers. The other firm was filled with big picture people. They drove each other crazy. Consequently, it made for a high-stress and exhausting preparation process and experience. We ran as organized and disciplined a meeting as possible. But often, I found myself in referee mode. Other times, I was the punching bag.

My management team and I devoted at least one solid week to preparation of board materials. Our board books would range from 75 pages to probably 200 pages on a regular basis. We’d rehearse, play devil’s advocate and have back up charts behind back up charts. We could have dozens and dozens of back up charts waiting in the wings to answer some question coming from some board members. Heaven forbid when we didn’t have an answer on the spot.

Consequently, our board meetings were all consuming. On a good day, they’d last 6 hours non-stop with no official breaks and an eat-while-you-work lunch. On a bad day, they’d easily run 8 hours and were known to go as long as 10. We were thankful for inflexible airline schedules. That hard stop was usually the one thing that would force the end of a meeting. People had to make flights.

In my opinion, there was virtually no value in these time consuming, demanding and high stress meetings. It forced us to spend our time in non-productive ways. The only possible benefit is that we did know our business inside and out.  If it’s important to know why someone was $500 overspent on T&E this month.

What is your experience with board meetings? Which style of board management is best? How long should meetings last?

Note: If you have an interesting and/or educational CEO story of Head Noise caliber, write to me at cbishop@capitusgroup.com. I’d love to speak with you and share your story in my Head Noise blog. You can tell your story either on the record or, without attribution.

Cameron Bishop is a partner with The Capitus Group. The firm provides comprehensive business value enhancement and transition strategy solutions. Partners and Advisory Directors comprise an experienced team of business professionals who have successfully owned, run, grown and sold companies. Capitus utilizes proven value enhancement and risk reduction techniques to enable superior transition options.

 

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