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May 25, 2016

Awards Corner: Stepping up private company governance

Emulating best practices of large-cap public companies is making the succession process easier for some private firms

The discipline of running your organization more efficiently based on prioritizing the interests of key stakeholders is one of the main benefits a company gains by adopting the best practices of corporate governance. That was one of the key points Graybar Electric’s secretary and general counsel made after the company received Corporate Secretary’s first award for corporate governance by a private company last year.

Private firms are increasingly trying to emulate the more rigorous governance practices they see public companies using. For the upcoming annual conference of the Society of Corporate Secretaries and Governance Professionals (SCSGP), private company members of the society suggested panel topics the conference programming team thought were more applicable to large-cap public companies, including cyber-risk and enterprise risk management.

It’s not surprising that one aspect of governance best practice private companies are showing a keener interest in should be recruiting independent directors to the board. At the fourth annual Private Company Governance Summit held earlier in May, Peter Mondavi credited a focus on independent governance with helping to draw two branches of his family’s winemaking business back together after a painful schism, as David Shaw, president and managing partner of the firm that publishes Family Business and Private Company Director, said on a recent conference call with the SCSGP’s private companies committee. The Mondavi wine business currently has a majority independent board, which is one way of guaranteeing the future of the family brand and of attracting members of the family’s fourth generation into the business, Shaw added.

There’s a growing trend among private companies to use the board as a succession tool, especially for family-owned businesses, Shaw said. Getting input and advice from non-family members, including independent directors, can smooth out rifts that arise between factions during the succession process and can make the difference between failed and successful succession plans, he explained.

Other key issues for private company governance are not knowing where to find new directors and how to benchmark their compensation, the value of creating an advisory board as an intermediary step toward a fully fiduciary board that has the power to hire and fire the CEO, and creating accountability for management that can help drive the business forward.

Among the best practices Shaw said he’s seen private company boards embrace are:

-       Scheduling quarterly or greater-frequency board meetings that include sessions without the CEO’s or management’s participation

-       Having a formal committees structure and charters, starting with a nominating/governance committee and a compensation committee

-       Establishing term limits for directors and making them stand for re-election

-       Evaluating board members’ performance

-       Having a majority of independent directors and robust on-boarding procedures

-       Including gender and ethnic diversity among the criteria for recruiting directors

-       Separating the roles of chairman and CEO to avoid conflicts of interest.

Corporate Secretary is now accepting nominations for the ninth annual Corporate Governance Awards. If you would like to nominate your company or a client you work with in any of the 14 categories, please click here.


David Bogoslaw

Associate Editor and Online features producer for Corporate Secretary