Mid-November Newsletter – Some Public Advice on Advising Private Companies

Dear Friends and Colleagues,

Back in the fall of 2008, as I was whittling away on my business plan for what would become The Pekarsky Group and, eventually Pekarsky Stein, I received some very sound advice from my older, wiser and (happily) shorter brother.   He suggested that I form an Advisory Board for my soon-to-be fledgling empire; an empire which, at the time, consisted of me in my pajamas in my basement.

As with most of the brotherly advice I’ve received over the years, this was sound.  I reached out to four individuals, each of whom had mentored me at some point in my career, explained what I was up to and cajoled them into serving on my Board.   To this day I am grateful for their contribution in those early years.   Each of David Percy, former Dean of Law at U of A and huge booster of the Golden Bearristers Rugby Club I co-founded in 1994; Quincy Smith, former Managing Partner of the law firm I grew up at; Francis Saville, fellow Edmonton Oilers fan and former Regulatory partner at my law firm and Board Chair of Nexen; and Al Bellstedt, former General Counsel at TCPL and also a mentor from my early days practicing law, agreed to sit on my Board, such as it was and live on my website, such as it was.   Though our governance may not have exactly been Fortune 500 caliber, and though I wasn’t about to win any diversity awards given the rather white male thread that stitched this group together, they provided me comfort, counsel and credibility at a time when I needed all three.

So, when Rick Vogel of our Edmonton office agreed to write this month’s mid-month Pekarsky Stein original article on the topic of private company advisory boards, I thought it was fitting.  Though my Board is now primarily reading greens, not financials, the topic is no less relevant today as you’ll see in Rick’s article.

Regards,

Adam

Some Public Advice on Advising Private Companies

One of the interesting things about executive search in a market such as Edmonton, where Pekarsky Stein, as a 1 year old, is still cutting its teeth, learning to walk and not drooling as much, is the number of small to medium sized companies we have the privilege of calling clients.  Unlike a market such as Calgary, where there are numerous head offices and public companies with sophisticated HR teams and large executive search budgets, the Edmonton market, though abundant in the aforementioned type of company, is chock full of small to mid-sized private or family owned companies who, like their larger public brothers and sisters, want to hire the best people available.  In the course of my 8 year search career, I have had the good fortune of performing numerous searches for this type of organization.  In fact, since launching the Pekarsky Stein Edmonton office, I have seen an uptick in this type of work as it appears there is a desire among so-called ‘mid-market’ organizations to partner with so-called ‘mid-market’ search firms.   One of the other things the large public head office companies enjoy that the smaller private ones do not, is exceptional governance and no shortage of highly qualified executives lining up to sit on a corporate Board.   Indeed, one of the challenges in recruiting for this type of company is the lack of, or perceived lack of, governance.   Over the course of my search career, and through my ICD training, I have learned a few things about this and thought I would share them with you.

Andrew Carnegie said “It is only but three generations from shirtsleeves to shirtsleeves.”  A more modern translation has found many versions including “the first generation builds the business, the second generation grows the business and the third generation destroys the business.”  Such is one of the many challenges facing privately owned/family owned businesses.  How does a business owner balance the needs of the business (ie. competence, leadership, business acumen, etc.) with the desire to pass the business on to the next generation?

Common scenarios include:

• A business founder has three children who all want to be the CEO.
• A business founder has three children, all employed by the company but none have “corner office” aspirations.
• A business founder has three children, all have “corner office” aspirations but none of them have the skills.
• Second generation brother and sister co-owners have seven children who all want ownership of the company.
• One of the second generation siblings’ spouse is the most qualified successor to the founder.

The real world scenarios are as numerous and varied as the companies and people themselves.  How does a company create and implement proper corporate governance when it can be in conflict with familial issues?

In many cases, establishing a Board can help guide the business for generations to come.  This, of course, assumes that the Board is not all family members (Thanksgiving Dinner should not qualify as an annual Board meeting)!  And it is the common answer for large publically listed companies where the shareholders elect a board of directors to hold the CEO (management) accountable in his/her operational leadership of the company.

I can hear you saying, “That’s great Rick, but I am not CP, WestJet or TD Bank.  I own a small $30 million company with 100 employees that was built by my father who is no longer here to guide and mentor me?  How do I access that kind of sage business wisdom and guidance?”

Over the past few years, the concept of a Private Advisory Board (“PAB”) is gaining wide acceptance and popularity.  Executed effectively, the owner/CEO will have access to a “board” comprised of individuals with appropriate business experience and acumen, willing to commit some time and energy to help the business succeed and prosper.

The PAB differs from its public counterpart in that the owner/CEO does not formally report to the board.  A publically listed board can fire the CEO.  The PAB has no authority to fire.

Selected wisely, this PAB will be there to provide advice, wisdom, experience and ideas on how to grow your company.  It can also be tremendously valuable during difficult times on how to survive the rough parts of the economic cycle.

Sounds like a great idea?  It is.  It’s just not simple.

Critical questions include:

• Who do you seek for your PAB and how do you find them?
• What’s in it for them?
• Are you ready for some honest input about you and your company?

While the list of questions can be daunting, I offer these few “must haves” in order for a PAB to add value to your organization:

1. The members of the PAB must want to see you succeed.  In this province, we are fortunate to have many successful business leaders who are in a stage of life where they have value to offer but do not want to make a full time commitment to a company.
2. You must be willing to hear (and listen to) their thoughts and opinions about you and some of your decisions.  It might fall under the category of tough love but if all you want are compliments and commendations, the PAB is of no value to you.
3. There must be a clear and formal process guiding the interaction between management and the PAB.  Meeting dates need to be scheduled at regular intervals and should be on the calendar for the next 12 months.  Appropriate corporate information must be provided prior to these meetings and should include (but not limited to) recent financials, material corporate events since the last meeting, any new competitive intelligence and both quantitative and qualitative corporate accomplishments versus targets.

Establishing a PAB for your company is not a small task.  It requires time, effort and commitment.  But it could be a significant step toward successfully passing your company on to the next generation, or successfully establishing new markets for your company, or increasing your corporate margins.  Done correctly, establishing an effective corporate PAB may be the single best ROI initiative you can do.

It may also save Thanksgiving Dinner.

Rick Vogel is a Partner in the Pekarsky Stein Edmonton office.  In addition to leading search assignments for organizations large and small, public and private, throughout the Capital Region, Rick is an active member of the Institute of Corporate Directors recently acquiring his ICD.D designation.