1As we can start to look past COVID-19 and the pandemic, it’s time to get ready for the inevitable business upturn that will follow as businesses reopen, people start going back to work and spending picks up.
No, things won’t be the same. There will be changes to the way we work (hybrid working looks to become the norm, for example) and to competitors that will take advantage of the new trends and technologies, but it seems likely that we will see global GDP growing by 30-50% over the next decade, and gain more than it lost, as this McKinsey report suggests.
Another McKinsey study shows that boards are now looking more to specific risks and organisational issues, and away from overall corporate resilience – especially those companies that reacted most quickly to the COVID-19 crisis.
How is your business and – more specifically – your board responding to all this?
The NACD undertook research in the second half of last year which looked at North American private company boardrooms, and the trends they are showing. These make for interesting reading:
- Over 40% (42.6%) of private company board directors are now independent, having no employment or family tie connections with the company – with a median average of 3 such directors per board. The main reasons given for this are “to share experience running profitable businesses” and “to serve as a source of new ideas.”
- Almost one in three (28.8%) private companies supplement their statutory board with an advisory board of a median average of four members. This is most common among smaller companies – nearly half (48.7%) of those with revenues under $50 million p.a. having an advisory board as against some 13.2% of companies with revenues over $250 million p.a. It seems that the smaller companies make up for their smaller main boards (average size of 5 members) through increased use of advisory boards.
Although we don’t have a similar study for South African private companies, it is commonly believed that we lag significantly behind North America here, so this is an area needing some additional focus as the “global village” reawakens.
If your company is under, say R150 million ($10 million) in annual revenue, do you have an advisory board to help you get ready for the post-pandemic future? And / or do you already have some independent (non-executive) board members on your main board – say, at least 1 or 2 (the average in North America is 1.5)? If not, should you not be actioning quickly, to ensure you can make the most of these valuable resources?
Of course, if you’re considerably larger, you might decide the need for an advisory board is less important, but you should certainly be looking to increase your level of independent directors: larger North American companies see them making up 50-60% of the board.
Apart from bringing significant executive experience of running profitable businesses, especially in tough times, and being a source of new ideas as they’re not already bound up in your business, or market, such non-executive independent directors greatly improve governance. This can enhance access to capital at lower cost (banks, and others, are attracted to companies with strong governance). They also typically expand the company’s networking system and can often assist with mediating family disputes. And, when it’s time to exit, well-governed private companies can attract valuations up to 40% higher than those for less well-governed businesses.
Now’s the time to get ready for the post-pandemic future – it looks like there will be some great opportunities to take advantage of.
#BusinessFitness #Business #Boards #Governance #Growth #Opportunity #Pandemic #Planning #Recession #SmallBusiness #Success #Valuations
Some other posts on board matters that might be of interest:
- NEDs – a Cost-Effective Way to Add Significant Value to Your Business
- Boards Accelerate Success & Increase Value for Small Companies, Too
- Proper Preparation for Productive Boards
- Board Meetings not Bored Meetings!
- Is Your Strategy Fit for Purpose?
- Why Even Small Companies Need Regular Board Meetings
- How Independent NEDs Can Catapult Growth in a Small Business
- Know Your Company Role(s)