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May 18, 2015

Learning from private companies

Publicly listed firms could benefit from discussions that private companies are having about ways to ensure business longevity and attract skilled managers

In my May 6 e-newsletter, I provided a bit of context for the new category we’ve created for this year’s Corporate Governance Awards, which will recognize governance efforts by private companies. That same week I also attended the Family Business Governance Institute sponsored by WomenCorporateDirectors as part of its annual Global Institute. Family businesses face some unique challenges that at first you might think have little relevance for larger publicly listed companies. But as I sat listening to speakers on some of the panels, I got to wondering about how or even whether similar discussions are happening in public organizations.
Here are my reflections on a couple of points from the panels I attended:

Who owns the 100-year plan?  In a family-run company, where the business considerations often get mixed up with emotional issues among family members, there’s a growing need for a clear division of responsibility between senior management and the board, which increasingly includes independent directors from outside the family.
‘The board can’t own the culture; the family must,’ said Darcy Howe, first vice president of investments at Merrill Lynch’s private banking and investment group and a member of a few boards. ‘The board must own the mission.’ Owning the mission seems to suggest accepting responsibility for putting in place appropriate governance processes  that ensure long-term sustainability of the business. This harked back to an earlier comment by another panelist, who asked, ‘Who owns the 100-year plan?’
Public companies are being asked the same question by their investors these days, as the rising volume of shareholder proposals focused on environmental and social concerns such as climate change and corporate political activity attests. These companies are also under greater pressure to integrate their financial and non-financial reporting and link their corporate social responsibility programs to business strategy and ultimately to financial performance. If they see these pressures as opportunities to rethink and improve ‘the 100-year plan’, companies can turn what may look like irritations to their -- and their various stakeholders’ -- ultimate advantage. 

• Attracting top management talent.  Companies need to give senior managers recruited from outside the family ‘head room’ in order to draw the best talent, another panelist said. She was referring to room to think creatively and develop professionally and personally. This is critical because private firms don’t have equity, options and other public company compensation perks to offer an outside CEO.
As we all know, concern about increasing compensation packages for top executives in public companies, even as their organizations may experience financial and even reputation-related hiccups, has prompted some deep thought about how to better tie pay to performance, including new rules proposed by the SEC last month. The idea of providing more ‘head room’ seems apt for any company struggling with its succession planning. Retaining talent deemed high-potential for possible CEO succession is as much about what a company can offer in the way of career planning and a cultural fit that speaks to internal candidates’ values as about how much money they are paid.
As private companies continue to develop and hone their corporate governance practices in the years ahead, it may be worthwhile for public company boards and governance specialists to stay current with some of the things they are doing and discussing.

David Bogoslaw

Associate Editor and Online features producer for Corporate Secretary