The National Association of Corporate Directors (NACD) released its 2018–2019 NACD Private Company Governance Survey Report, an annual survey that reveals current trends and common board governance practices among private company board directors across the country. The report, which breaks out specific findings for boards of family-owned and private equity-owned companies, also includes comprehensive director compensation data for private companies.
On the list of top concerns for private company directors participating in the 2018–2019 survey are talent deficits, business-model disruption, and lack of cyber-risk preparedness. The report offers insights into critical board priorities; current board practices for oversight of cyber risk, organizational culture, and CEO succession planning; private company director compensation; and the cadence and structure of annual board agendas.
“This report serves as a valuable resource for boards who are seeking affirmation that their governance practices are effective, fit for purpose, and clearly communicated to stakeholders,” said Peter Gleason, president and CEO of NACD.
Outlined below are highlights from the report’s key findings.
Talent Deficits, Business Disruption, and Regulatory Uncertainty Are Top Risks:
- Key talent deficits topped the list of risks that private company directors report will impact their organization in 2019. This is the third consecutive year that it has placed in the top three risks, and this is likely driven by the competition many private companies face for highly skilled talent.
- Business-model disruptions and changes in the regulatory environment followed talent on this year’s list. These forces are often interconnected and difficult for management to control, making anticipating their impact on company performance a challenge.
Cyber Risk Remains a Concern:
- Although directors indicate that they have received improved cyber-risk reporting from management over the last two years, more than half of respondents are not confident that they understand cyber risk well enough to deliver effective board oversight.
- Nearly the same percentage lacks confidence that their organization is properly secured against a cyberattack.
Priorities for Improvement Include Strategy Oversight and Stronger Dialogue With Management:
- The priority areas for board improvement over the next 12 months center on enhanced oversight of strategy development and execution, as well as on strengthening the boardroom’s dialogue with management.
- Eighty percent of directors indicate that their boards need to improve their understanding of new risks and opportunities—perhaps not a surprising finding in this fast-changing business landscape.
Technology Is Seen as a Disrupter and as an Enabler:
- Disruptive technologies such as artificial intelligence, automation, and the Internet of Things present both risks and opportunities for many organizations. For many of these technologies, directors see more upside than downside risk.
- Artificial intelligence is seen by private company directors as the biggest business enabler.
Understanding of Corporate Culture Has Improved:
- Board understanding of the corporate culture below the executive ranks has improved over the last year. Private company boards report a strong understanding of the tone at the top and have strengthened their understanding of the health of the culture at all levels of the organization, although there remains significant room for improvement in the board’s ability to assess the culture at the middle and lower tiers of the organization.
CEO Succession Planning Is Improving:
- Private company boards indicate that they are strengthening their CEO succession planning practices. Both long-term succession planning and planning for an emergency transition are more common board activities this year as compared to last year.
Private Company Boards Have Been Slower to Improve Diversity Than Have Public Companies:
- Just one-third of private companies have concrete goals to diversify their board’s composition, and most who do so seek to expand their board’s cognitive diversity: the range of mind-sets and experiences of directors. Many organizations report the lack of an open board seat and difficulty in finding the right skills as top barriers to advancing board diversity.
Private Company Board Agendas Are Stretched and Still Growing:
- Private company boards report stretched agendas that are dominated by recurring, mostly short-term issues. Strategic discussions about disruptive technologies and the performance of the board as a whole are often crowded out.
Directors Rely Heavily on Information From Management:
- Private company directors spend proportionately more time with management than their public company peers. While frequent dialogue with management is important, directors should be careful to balance management’s information with external perspectives that can help them to challenge management’s perspective where appropriate.
Little Progress Has Been Made on the Use of Self-Evaluations:
- While director onboarding has become more common over the last two years, respondents cite little progress in the use of board self-evaluations to address performance issues or in the adoption of term-limiting mechanisms to help ensure the right board composition.
The 2018–2019 NACD Private Company Governance Survey Report details responses to more than 80 survey questions from 218 private company directors conducted between June and August 2018. Findings from our 2018–2019 NACD Public Company Governance Survey are published separately.
To download your copy of the report, visit www.NACDonline.org/privatesurvey.