Board Governance Structure: Public vs. Private Boards

The single most important element of governance for any board is creating an environment of trust and respect. The means to that end often look alike: Both must build high-functioning teams, putting each director through a set process of recruiting, orientation and evaluation. They further share data security requirements, with increasing liability for infractions extending to each and every board member. Only public boards, however, face public-meeting and public-record laws. Only private boards typically pay directors, and they alone have owners on the board. While they may share some governance requirements, different laws, traditions and protocols lead public and private board governance structures to differ in detail.

Board Composition

All boards need a demographically diverse mix of members with complementary skill sets and knowledge bases. As they anticipate turnover, they should always bear in mind how new recruits would add to that mix. If the only attorney on the board will be leaving, finding another attorney is a better idea than adding a fifth or sixth accountant to the board. To achieve that balance, however, public and private boards face different challenges.

Because public boards ask members to volunteer their time, their talent pool is limited to persons with philanthropic intent. While membership may bring networking opportunities and status, the same could be said of private boards – which can also sweeten the pot financially. A strictly strategic personal career promoter would choose private board service.

Private boards face different obstacles to achieving a well-balanced board. A history of cronyism in a company can lead to board appointments with similar skills or no skills whatsoever. The social pipeline might be heavy in one subculture or profession. Even worse, the CEO’s niece might be a surfer who can’t read a spreadsheet. The founder’s heirs might lack their forebears’ aptitude and initiative entirely.

Private board members often own stock in the company; some companies even require them to acquire company stock. The result is often a clash of personal agendas and group needs. One board member might need to cash out in the next year in order to retire, while another may want steady dividends for another 10 years while his kids are in college. Different corporate strategies would favor one over the other. How would they vote on a proposed acquisition likely to bring short-term costs but long-term gains? These often-hidden agendas can make the actual discussion of strategy something of a charade that undermines transparency and trust.

Meeting Notification

Apprising potential participants of an upcoming meeting is more complicated for public boards than their private-sector counterparts. Answering to public meeting laws, public boards must post notice of a meeting’s time and location – as well as an agenda – to the entire public within state-determined deadlines. If the notice is insufficiently accessible, seemingly secretive meetings can jeopardize widespread buy-in, even prompting rumors of scandal.

At the same time, similar tools empower all boards to get the right meeting information to the right people at the right time. Placing the notice on a secure digital portal, rather than mailing or posting paper copies, is vastly more effective for public and private boards. With the average American online for 10 hours a day, such notification is in a highly trafficked neighborhood. Secure portals keep those materials difficult for hackers to penetrate.

Agenda and Attachments

Only public boards hold closed sessions, and they must be pre-announced on the agenda to avoid even the appearance of secrecy. When the executives of a public board must discuss negotiations, accusations against personnel or legal opinions, they must protect confidential information from public perusal. The agenda itself is the place to announce such sessions, indicating: (1) when the closed session is held relative to the main meeting – before, during or after; (2) a clear account of the issue to be handled; and (3) no confidential details.

Both public and private boards, though, attach materials for directors to read. Such attachments often exceed 100 pages per meeting. All boards provide better material in far less time and with far less hassle if they post those readings on an electronic portal than if they mail out paper copies. The chairperson can simply drag-and-drop the materials from one screen to another, rather than assembling paper copies, copying them, stuffing them into boxes and paying a fortune in postage. The recipients can still access them with ease.

On a portal, the attachments referenced in the agenda are actually far more useful to readers. The best software lets the chairperson link the agenda references to documents stored in an online archive, where all data is fully searchable by keyword. Moreover, last-minute changes become instantaneously accessible without paying overnight postage.

For public boards, such electronic access further allows the public to come to meetings informed. It would be simply impossible to mail out thick reading packets to each of 50,000 residents in a jurisdiction. With secure portal posting, not only board members, but every constituent in attendance, can prepare for a meeting, increasing participation and making discussions more focused.

Minutes

As with the agenda, so with the minutes. Mailings become obsolete, as electronic posting makes them easy for all to find. Public boards get added mileage from this feature, as such postings satisfy the requirements of open meeting laws in most states. With the best board portal software, a public board can even place video of the meeting on the portal alongside the minutes.

Meeting Management

In the meeting itself, both public and private boards benefit from shifting to wholly paperless meetings. Not only do they save money and reduce the carbon footprint; they also don’t leave behind copies of confidential materials that could fall into the wrong hands. Online storage can even be kept out of reach of hackers – if everything is stored on a private cloud-based server that is sheltered from the full exposure of “the (public) cloud.” The portal software can deter hackers with full 256-bit data encryption.

Public boards face the additional challenge of crowd control in the meeting. Higher attendance multiplies the risk of chaos. Paperless meetings keep everyone staring at the same screen rather than at a pile of their own papers. Once everyone goes off on an individual quest for a report – or, worse yet, on a Google search – there is a chance that the meeting will never regain a shared focal point for the whole group.

Board Communications

It may seem that only public boards must restrict board communications. It’s true that they alone face multiple audiences for confidential documents; the board’s version often contains sensitive information that must be protected from public viewing. They therefore need distribution channels that grant authorization to documents based on the viewer’s role: The portal software brings the right version of a document to the public and to the board; non-board readers see a version of a document that is scrubbed of sensitive details.

Additionally, public meeting laws ban the inadvertent establishment of a rolling quorum if public directors start an email chain (or if they send group emails). In fact, though, the private sector also benefits from banning emails, as personal email is unencrypted and hackable. When Former US Secretary of State Colin Powell’s email was hacked, bad actors learned of M&A strategies at Salesforce, which they promptly passed on to the Wall Street Journal, causing the share price to plummet.

Both public and private boards need to ban the downloading of board materials onto personal devices. For one thing, phones, tablets and laptops can get lost or be stolen. Moreover, they are discoverable in the event of a lawsuit. Best practice for all boards is to outlaw downloading, storing all materials on a board portal. The documents remain accessible on any device that can access the internet, but – crucially – they are not stored on the hard drive.

The governance challenges facing public and private boards overlap a great deal, but differences remain. Both types of boards can meet their governance challenges with the best technology possible.

Sources:

Chas Klivans, “Navigating Governance Options in A Private Company,” Chief Executive July 19, 2013

Thomson Reuters. Brashear, Jim, “Board Communications: A Better Security Approach to Managing Data Risks”

BD: Kiley, Liz, “Are Your Board Communications Secure in a Changing Regulatory Landscape?”

BankDirector.com July 15, 2015


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