Private companies and IPOs: closing in on the red zone.

Author:Houston, Tracy
Position:PRIVATE COMPANIES - Initial public offerings

The number one weakness in CEOs is failing to engage boards, reports 2013 Survey on CEO Performance Evaluations, a new survey by the Center for Leadership Development and Research at the Stanford Graduate School of Business, Stanford University's Rock Center for Corporate Governance and the Miles Group.

Board relationships and engagement can add significant value for a company, especially for major transitions or equity events such as initial public offerings (IPOs). Key support from directors with hard-won wisdom can provide critical insights and negotiating savvy for CEOs and the management team.

In the case of an IPO, consider board composition for competitive advantage. Timely additions of board members who can assist with the unique challenges in this growth step can be done three-to-five years before the liquidity event.

In addition to building a board that has the financial expertise and can help meet U.S. Securities and Exchange Commission (SEC) requirements, there are several underlying issues for boards and how a CEO can leverage the expertise directors bring to the table, along with "take-aways."

* Constructive Challenge: Though privately held businesses are not bound by the same rules as public companies and are not required to have independent boards of directors it is a an important benchmark to follow, especially if going public. But what does a truly independent director mean? This is hotly debated.

Outside the typical advice of conflict of interest, it can be advantageous to have directors that make inquiries without conducting an inquisition. A key topic to probe is the candidate's governance model.

Ask for examples of how the candidate has balanced a team aspect with standing up and saying "no" as necessary. Listen for ways that the candidate handles an emotionally loaded position.

For the CEO to fully leverage a sitting director's expertise, there needs to be a comfortable back and forth--comfort on the part of both the director and the CEO. Asking the right question in the right way is an art, honed over time, which can help enhance decision-making in the boardroom.

Take-away: It is much harder to ask an intelligent question than to provide guidance.

* Reflective Intelligence: This represents the lessons learned from "been there done that." Negotiation with investment banking firms or other major players involved in an IPO--experts in negotiating board seats and other power positions--has specific power nuances. Finance...

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