“A world of no surprises.” That is the lofty goal of private equity investors Eli Boufis and Steve Thompson when they take on a new company. It involves open communication with the CEO – including reminders of how much money they can make if the acquisition succeeds – and a plan to build a better board of directors.
Building a better board of directors is a four-part process:
Much has been written about board governance best practices. Much less information is available to help you figure out how to fix a board that isn’t delivering peak performance.
InterimExecs CEO Robert Jordan interviewed two experienced private equity investors, Eli Boufis and Steve Thompson, to talk about how to build a better board of directors.
To start, they believe board composition should include independent directors — people who are employed neither by the company nor by the private equity fund — to ensure effective governance. But, they noted, there are six ways independent board members come up short on corporate governance.
Helping them improve on these six issues is the “low-hanging fruit” of improving board effectiveness, they say.
You’re on a public company board and the phone rings at midnight and it’s not good news: Your CEO or CFO has passed away. The next morning, the board convenes in emergency session. There’s only one subject beyond condolences for the tragic passing: Who is going to step into the interim CEO or CFO role?
Will you choose a placeholder from among your board, or will you choose to do something more proactive?
Let’s dive into the options.
Bruce Werner has a blunt message for company owners. “Owners are leaving money on the table. They’re not getting full value from their boards,” he says. “We can improve the outcomes in your business, make your life a little better, and take risk out of the business by having a board do what it ought to. And it doesn’t take that much more effort. You just have to ask a few important questions.”
Werner came up in the family business, a $500 million company that made ladders until it was sold in a leveraged buyout in the mid-90s. After the sale, Werner started, grew, and sold four companies, was a partner in a private equity fund, and served on more than 10 boards, mostly for family-owned firms.
He’s distilled all of that experience into two books, Your Ownership Journey: 12 Secrets for Personal and Business Success, which published in 2022, and Navigating Private Company Governance: The Savvy Business Owner’s Guide to Developing an Effective Board, which published in 2023.
We interviewed him in the wake of the publication of Navigating Private Company Governance and asked him about his advice for business owners wondering whether they need a board of directors for better corporate governance.
The concept of an Interim Executive Director (ED) isn’t well-known among nonprofit organizations…yet. But, it’s becoming more mainstream and for many good business reasons.
On average, it takes a Board of Directors 9 months to recruit a new Executive Director. By the time they are on-boarded and contributing, a year may have passed since the departure of the prior nonprofit leader.
While nonprofit board members may step up to “mind the gap,” the truth is that stakeholders — employees, partners, and funders — can lose confidence in your organization during this leadership transition and key employees may leave.
Organizing payroll, developing a budget and/or managing human resources may keep the lights on, but without someone filling the executive director role during the transition period, your organization can be harmed and stymied while the Board is focused on the executive search for a new ED.
So you’ve made the decision that a change needs to happen at the CEO level, and heaven knows it’s painful! You rely on the CEO as quarterback of the team. It feels like the chief executive is indispensable. But you signed up for service on the board of directors. You know that while corporate governance is a general and varied responsibility, the shareholders trust the board to choose the right CEO. It is, perhaps, the board’s most important decision.
Of course, you’ll go through a permanent search that will be thorough, even if internally focused.
But what happens if you need to fire the CEO and find a new leader right now? Having a CEO exit with no CEO succession plan in place can create a leadership vacuum. The resulting instability within the organization can cause major issues and harm company performance.
The need for a new Chief Executive Officer, the right Chief Executive Officer, is urgent.
After a CEO dismissal, the first thought for many public companies is to look around the boardroom table to see who’s brave enough to be named interim CEO for Sarbanes Oxley compliance.
But, where’s the guts in just appointing a placeholder to keep the seat warm?
The modern world now presents you with a far more robust choice: a true interim CEO. A veteran executive who’s been there, done that. Who is expert at jumping into companies going through points of change. And who is accountable for action and results.
When considering whether to bring on a placeholder versus a true interim CEO until you can hire and onboard a new permanent CEO, here are the questions to ask at your next board meeting.
Our own Paula Saban, InterimExecs director of development, has another claim to fame, as a longstanding Board member at InvenTrust. While under her tenure serving as Chairman of the Board, the company accomplished its IPO in October 2021.
In the tsunami of digital transformation, it has dawned on boards that disruptive technologies pose not only a great opportunity, but also bring inherent risks. New technologies bring great promise to help businesses grow, improve efficiencies, and seize new markets. On the other hand, when an organization decides to embrace new technologies, they will come face-to-face with new business models and regulations that are unlike what they have ever seen before.
Boards may not be fully equipped to face the onslaught and speed at which new technologies are infiltrating the business sector. In fact, according to the 2018–2019 NACD Private Company Governance Survey, 80% of directors say that boards need to expand their knowledge of the challenges and risks of emerging technologies.
We just experienced possibly the largest wave of CEO departures in recent history. Was it due to falling profits? Poor succession planning? Or is there more drama behind the scenes? Think firings, hurt egos, politics, and personal infighting. Author Isabelle Nüssli uncovers one of the big reasons for turmoil at the top ― the fractious relationships between egos at the executive level, particularly between CEO and chairperson. Hence the brilliant title of her new book, Cockfighting: Solving the Mystery of Unconscious Sabotage at the Top of the Corporate Pyramid.
“When you read the news, usually the reason [given for the CEO leaving] was strategy misalignment or different leadership style or different chemistry, etc. But the story that is not put out to the public is that there was a relational conflict, which apparently is the case most of the time,” says Nüssli.
We have spent years developing a methodology for matching companies and executives, but ultimately at the top of the list is chemistry between the executive, private equity fund, company owner, or management team. So once we suggest an executive or team to fit a company’s needs, the question usually arises: what questions should I be asking in an interview to see if it’s a good fit?
Here are a few recommendations so you will be armed with targeted questions for the interview process:
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First-year Change Agent members have access to the Interim Institute’s 4 hour audio program on the Fundamentals of Interim Management, and a one-hour strategy session to help jumpstart their interim career.
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