Good corporate governance can help private companies maneuver the snares of disruption, Jason Downing, vice chairman and U.S. leader of Deloitte Private, said recently at the Naveen Jindal School of Management. Those snares are caused by technological innovation and other pressing concerns of running a business in the 21st century.
Deloitte Private is the division of the Big Four firm that serves private companies, and Downing delivered his remarks at a breakfast presented by the Institute for Excellence in Corporate Governance.
He provided the audience, comprised of institute members and guests, an overview of business trends and best practices based on a Deloitte Private survey of more than 2,500 private-company executives from around the world.
“Today’s environment is constantly changing, and private companies, more than ever before, need to be nimble and prepared to address a variety of external influences,” Downing said. “Influences like innovation and disruption, changes in the regulatory environment, industry consolidation, shifts in consumer demands, geopolitical uncertainty and substantial technology advances.”
Private-Company Trends
According to Downing, there is a direct correlation between many of these external influences and key trends among private companies, and between external influences and the topics that are keeping private-company executives “up at night.”
Trends among private companies include adapting to disruption, which includes the implementation of new business models. Survey results showed 40 percent of private companies are devising new business models, and another 43 percent are considering doing so.
Adapting also means embracing technology, which, Downing said, goes hand-in-hand with disruption.
Other trends include dealing with risks associated with trade barriers and cyberattacks, overcoming market competition, focusing on acquiring a talented workforce and creating a strong corporate culture.
“Most companies believe that a strong corporate culture is foundational to their business — especially private companies,” he said. “Specifically, our study found that more than three-quarters of the survey respondents characterized culture as strategically important to the success of their company — with more than a third strongly agreeing with that sentiment.”
One significant trend that Deloitte found from the survey is a sense of purpose among private companies.
“Profits are needed to sustain a family business, but they are derived, at least in part, by a sense of purpose that resonates with stakeholders across the spectrum — from customers to employees to people in the places where they operate,” he said.
The conditions and trends found in the survey revealed the need for good governance in private companies, Downing said.
External forces, combined with related private-company trends, “create an increased focus on the role of the board at private companies,” he said. “More and more, private companies are embracing board governance and the structure and processes once seen primarily at public companies.”
An engaged and strategic board, Downing said, provides substantial value to an organization by delivering benefits like independent thinking, new ideas and diverse perspectives on important topics.
How Boards Can Deliver Benefits
Following Downing’s presentation, a panel discussion moderated by Tonie Leatherberry, board-relations leader for Deloitte’s risk and financial advisory practice, considered how boards can best deliver those benefits. Panelists Ray Hemmig, retail and restaurant executive and a member of the Jindal School’s advisory council; Toni Portmann, co-founder CEO of Walkabout Workplace; and Dennis Cagan, principal at Caganco Incorporated and an institute advisory board member, shared their experiences as board members within private companies.
Portmann said that having a passion either for what the company is doing or what its products and services are doing is a prerequisite for membership on a board.
“I always say that people join boards for people, products [and] platforms,” she said. “Those three things have got to be aligned so that you get excited about spending your time, which is your most valuable asset, contributing to what that company is intending to do.”
Hemmig, when asked what attracts him to private boards, echoed Portmann’s remarks, stating that the practical matter of interest is preeminent when he makes a decision to join a board.
“I have to have at least some intuition or some idea that I can add value to the company that I’m advising, whether it’s a fiduciary or advisory role,” he said. “If you can’t add value, the money that they may offer you in terms of cash or non-cash [compensation] is not worth it, because you are essentially filling a role that someone better could fill than you. So it’s really more about that internal ‘I got the idea; I think I know how I can help.’ And, many times, it’s better…to say no.”
When asked what changes he has seen in the composition of boards during the past five years, Cagan said he sees more attention being paid to targeted skills and diverse backgrounds across the board.
“It’s been very difficult until now to find anybody on a board that knew anything about marketing or technology,” he said. “For me, arguably, marketing and technology are the two single biggest differentiators in business today. Yet boards are devoid — most of them don’t have anybody from either [functional area]. They’ll go outside for expertise on both of those”
Dennis McCuistion, executive director of the Institute for Excellence in Corporate Governance, emceed the event. He said the presentation and panel discussion reinforced the fact that most well-run private companies are now, by necessity, getting involved in some level of governance.
“Most private-company leaders these days are making that commitment to governance better than they ever did before,” he said. “They recognize that they need additional levels of expertise during a time in which, as Jason said, 40 percent of companies are discussing the need to change their business models.”
