As a non-executive independent director, I am always conscious of what value I bring to the business. Some board roles are typically filled by executives, and in the private sector tech world, most of the remaining seats are contractually filled by investors, so if there is an independent seat, the independent has a unique position and role to play, and it is important to make a meaningful contribution.
I have recently been engaged with several companies in various stages of launching a process for a change of control liquidity event (sell the company), and this topic of meaningful contribution has been playing in my head. Once a company starts down the path to a sale, particularly if an investment banker has been engaged, the role of the board changes dramatically.
If the likely buyer is a financial institution, then the sale will be a change of control, and some form of the business will live on. However, a new majority or one hundred percent owner will certainly make changes to the board, which will lead to changes in strategy and direction. If the likely buyer is another company purchasing for strategic reasons, then the board will be dissolved and the business will be absorbed into the acquirer. In any outcome, the board is changing, and the board members days are numbered.
Therefore, once a sale process is initiated the most obvious change is that the board’s planning horizon shrinks dramatically. Rather than discuss the strategy and direction of the business for the future, the aperture narrows to the timeframe of the sale process. The board only needs to focus on guiding the business as a going concern up to the point of sale. But, isn’t that management’s job? So that raises the question, once the decision is made to sell the business, what is the purpose of the board beyond ultimately approving the deal?
The members of the board who represent institutional investors have the benefit of having been to this movie before. They or their firm have been through multiple sale processes and that experience can be very helpful to the CEO. Hopefully, the same is true for the non-executive independent director(s). Board members know bankers and lawyers and advisors, and they know what to look for in each relationship. They also know the pitfalls and challenges involved in getting a deal done, and important nuances to negotiate. The sale process is a time to leverage the board for all it can provide, but too often, it becomes a time when the board retreats and the CEO goes it alone.
One benefit of engaging the board became evident at a recent meeting. The company had struggled to narrow their message about the unique value of the business, and how to present it in a compelling manner to potential strategic buyers. The CEO decided to preview the management presentation with the board for feedback. It was a great use of the board. As one board member put it “I have seen thousands of pitch decks. This is something I can help with.”
Once the decision is made to head down the path to a corporate sale, board members are no longer making a long-term strategic contribution, and management is firmly in charge of the day to day operations leading up to the sale, so it is easy for the board to ‘stay informed’ but stop contributing. A sale process is very taxing on management and the CEO. They need to continue to run the business and meet targets, while also dealing with the activities and crises of the sale process. Inevitably, word leaks out in the company, and management will also have to deal with the cultural impact on the team. In my view, deal time is when the board needs to shift their focus solely to supporting the CEO in whatever capacity will be helpful. It could just mean giving the CEO more space by reducing the number of meetings and phone calls, or it could be assisting with the pitch deck, or managing the banker, or whatever will be helpful. The important thing is to not just check out and abandon the CEO.
The simple starting point is to ask “How can I help.”