5 Boardroom Trends in High-Growth Private Companies

The Evolving Landscape of Corporate Governance

A significant shift is underway in how companies are led. Nigel Travis, a board director and previously the CEO of both Dunkin’ and Papa John’s, recently initiated a conversation about the future of corporate governance, addressing chief executives and board members.

Transformations in Board Dynamics

Similar to many facets of the business world, boards of directors are experiencing substantial and enduring changes. This evolution has become particularly evident over the past year.

Our insights stem from discussions with over 500 business leaders and our involvement in approximately 300 board searches. Furthermore, a recent benchmarking study of boards has revealed key trends.

Five Emerging Trends in US Boardrooms

Analysis of high-growth private companies across the United States has highlighted five prominent trends impacting boardrooms.

• These trends represent a fundamental reshaping of corporate leadership.
• They signal a move towards more dynamic and responsive governance structures.
• Understanding these shifts is critical for both current and future board members.

The changes observed are not merely incremental adjustments, but rather represent a fundamental rethinking of the role and responsibilities of the board. These developments are poised to redefine the expectations placed upon directors.

The future of corporate governance is being actively written, and these five trends are central to that narrative. Adapting to these changes will be essential for sustained success.

The Critical Need for Board Diversity

Traditionally, the selection of board members has relied heavily on existing relationships and the personal connections of current board members. This method prioritizes familiarity and ease of collaboration, often at the cost of achieving a diverse board composition.

Increasing demands for greater diversity in corporate leadership, coupled with growing awareness of the potential pitfalls of homogenous boards, are prompting companies to adopt more inclusive strategies for board formation. Organizations are actively seeking candidates beyond their established circles, appointing individuals from diverse backgrounds, including women and people of color.

This shift reveals that the perceived lack of qualified diverse candidates isn't the primary obstacle; rather, it's the limitations of relying solely on existing networks. Significant progress has been made, with the proportion of late-stage private companies comprised entirely of male boards decreasing from 60% to 49% within a single year.

Despite this improvement, the fact that almost half of venture-backed, high-growth companies still lack even one female board member highlights the substantial effort still required. Currently, women occupy only 11% of board positions in these high-growth private companies, and women of color hold a mere 3%.

Looking forward, we anticipate continued advancements in racial and ethnic representation on boards. Requests for referrals to female board candidates through Him For Her increased nearly fourfold in the final quarter of 2020 compared to the previous year. Furthermore, approximately 25% of newly appointed directors identify as Black or African American.

Expanding the Search for Independent Directors

Historically, boards of directors have often prioritized candidates with prior CEO experience when recruiting independent directors. However, due to the existing disparity in gender representation at the CEO level, this preference inadvertently favors male applicants.

To effectively increase female representation on boards, a more deliberate and strategic approach to defining director criteria is proving beneficial. Rather than solely focusing on the CEO title as an indicator of suitable qualifications, boards are now undertaking comprehensive skills gap analyses.

This process identifies the specific combination of core competencies that would provide the greatest value to the board’s oversight function. The outcome is a broader pool of highly qualified executive leaders.

Beyond CFOs capable of leading audit committees, demand is growing for executives with expertise in areas like go-to-market strategy, product development, and human resources.

We are also seeing companies actively seek individuals with specialized backgrounds – such as physicians, nurses, and law enforcement professionals – to ensure diverse perspectives and a deeper understanding of their customer base are represented in boardroom discussions.

Diversifying Executive Backgrounds

The shift in focus allows for the consideration of a wider range of executive operators. These individuals bring both strategic insight and current best practices to the table.

This broadened search strategy is proving effective in building boards with more diverse skill sets and experiences, ultimately enhancing their ability to provide effective governance and oversight.

Earlier Appointments of Independent Directors

Chief Executive Officers are increasingly focused on bolstering board diversity and operational knowledge. Consequently, the inclusion of independent directors is now occurring at a more nascent stage in a company’s lifecycle.

Just how soon are these appointments being made? Brad Garlinghouse, CEO of Ripple, asserts that “it is never premature to include an independent director on the board.” At Ripple, their first independent director was selected just one year following the company’s establishment.

Data indicates a significant rise in independent director representation. The 2020 Study of Gender Diversity on Private Company Boards reveals that the proportion of well-funded private companies with at least one independent director increased from 71% to 84% over the past year.

Furthermore, the percentage of total board seats occupied by independent directors has risen from 20% to 25% during the same period.

Our firm’s recent board searches for private companies demonstrate this trend. Over 40% of these searches were initiated for companies at the Series B funding stage or earlier.

The Enduring Presence of Virtual Board Meetings

The shift to remote board meetings was largely prompted by the pandemic; however, even as health concerns lessen, a significant number of boards are anticipated to continue utilizing virtual platforms, at least periodically.

Recent events have prompted organizations to re-evaluate the necessity of traditional office spaces, and this scrutiny now extends to physical boardrooms. While the majority of chief executive officers and directors still prefer in-person attendance for official board meetings, a greater acceptance of remote participation and a rise in impromptu virtual sessions are expected.

Virtual meetings offer advantages beyond simply reducing travel expenses and simplifying scheduling. A less-recognized benefit that leaders should leverage is the diminished opportunity cost associated with increased attendance.

Historically, the presence of additional personnel in the boardroom has been cited as a reason to limit the attendance of company executives. It is predicted that the virtual format will enable CEOs to utilize the developmental benefits of exposing a wider range of their leadership team to board-level discussions.

Conversely, maintaining strong relationships necessitates deliberate effort within a virtual environment. Boards must carefully weigh the convenience of virtual meetings against the importance of face-to-face interactions for cultivating rapport and encouraging collaborative decision-making.

The Rise of Stakeholder Capitalism

Growing public market demands and the increasing prevalence of value-driven consumer choices are driving a shift in how private company boards operate. Sustainability is gaining prominence as a key factor in their strategic decisions.

Larry Fink, CEO of BlackRock, highlighted the existence of a “sustainability premium” in his latest annual letter, noting that companies exceeding industry standards in ESG performance demonstrate superior results.

As publicly traded companies refine their ESG metrics and reporting, this focus on accountability will inevitably extend to the boards of private companies seeking to maintain competitiveness on a global scale.

Innovation and Boardroom Evolution

Private companies are central to innovation across diverse economic sectors, yet their boardroom structures have largely remained static for many years.

We anticipate that 2020 will mark a turning point for corporate governance. This transformation will be characterized by greater diversity, enhanced inclusion, and a stronger commitment to generating sustainable value.

The positive effects of these changes will be widespread, benefiting not only the companies themselves and their investors, but also their workforce, clientele, vendors, and the broader community.

• Increased focus on ESG factors.
• Greater boardroom diversity and inclusion.
• A commitment to sustainable value creation.

Ultimately, this evolution represents a move towards a more responsible and holistic approach to business, acknowledging the interconnectedness of corporate success and societal well-being.