2016 NACD Private Company Governance Survey Results

The National Association of Corporate Directors (NACD) recently released its 2015-2016 NACD Private Company Governance Survey. In an article in the March 2016 edition of “Private Company Director” – a monthly publication sponsored by NACD – senior research analyst, Ted Sikora, highlighted a few of the results. Some of the more interesting take-aways were those that distinguished family owned business from other privately held companies. For example:

• Approximately three-quarters of all family owned business lack any kind of formal CEO/leadership succession plan. At the same time, respondents to the survey from family owned businesses identified leadership and management training as some of the most important and time consuming parts of their job (more so than other privately held companies). This interesting juxtaposition might arise from the fact that many family owned businesses (although certainly not all) already have a presumptive leadership heir. As such, there does not appear to be any need for a formal process for identifying a new CEO. Because the next generation of leadership is frequently already with the business, however, there is a constant reminder of the training they need.
• Barely half of family owned businesses have any kind of board evaluation mechanism. Again, it is not difficult to imagine the relationship dynamics in a family business that would lead to this result. If everyone on the board of directors is in the family, a formal review process would seem particularly awkward.
• A majority of family owned businesses have no limitations or restrictions on time spent in management or on the board. Many privately held companies will have term limits, age limits and other restrictions, but these appear notably less used in family owned businesses.
• Respondents from family owned businesses strongly identified the need for outside, industry expertise on their boards. Yet family owned businesses are the most likely to have boards lacking in outsiders, industry experts and others identified as adding value.
• Consistent with nearly every other survey in this area, family owned businesses demonstrated a longer vision and a greater priority of long-term planning, as compared with their non-family owned counterparts.

These results are obviously generalizations, but they do give insight into how the family dynamic can impact attitudes towards corporate governance. As always, it is good practice for every privately owned company – family business or otherwise – to take the time to review its corporate governance policies periodically. Drew Steen is a business transactions attorney at Davis Wright Tremaine, LLP.  He represents both buy-side and sell-side clients in mergers and acquisitions, venture capital investments, joint ventures, equity co-investments and restructurings.  He also serves as regular corporate counsel for several closely-held and family-owned companies.  Drew can be reached via email at andrewsteen@dwt.com or directly at 206.757.8081.