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Corporate Governance

Private Capital Governance Program: Highly effective boards across the entire business life cycle

A highly effective board of directors is critically important to the success of a corporation regardless of its stage of development. While it is essential that non-management directors provide oversight of the executive team, where they add significant value is by providing guidance to the executives who are charged with building corporate value. As societal expectations of corporations evolve over time, seasoned directors build awareness of these changes and provide a critical outside perspective to executives. For example, these directors can provide insights to executives who are increasingly being asked to consider environmental, social, and governance (ESG) issues when making decisions. In addition, outside directors ensure that the board is actively engaged in the strategic planning and risk management processes that are so important to a corporation’s success.

For venture capital-backed corporations (VCBCs) and private equity-backed corporations (PEBCs), important non-management directors are the nominees of the VC and PE investors. Employees of VC and PE investors while serving as a director to an investee corporation must be aware that their primary fiduciary duty is to that corporation. It is important for such directors to realize that when they enter a boardroom, they have to take off their investor hat and put on their director hat. In this role, these directors need to have the skills to be able to provide foresight and insight to corporate executives.

Earlier this year, the CVCA developed an advisory panel to work with the Institute of Corporate Directors (ICD) to develop a unique governance program for directors of VCBCs. The program brought together management and independent directors with VC employees who serve as their board nominees to actively engage in discussions about how to develop high-functioning VCBC boards. As one of the program advisors, Shawn Abbott of Inovia Capital, stated We want to move VCBC boards from good to great.” As the Director for this course, it was my pleasure to provide educational content, augmented with insights from expert guest speakers, that allowed the 21 participants to engage in a series of discussions of board best practices. Through the course, participants developed an understanding of how these practices must become more structured as an early-stage private corporation moves through different phases of growth.

To be successful, such a corporation has to evolve from a founder-controlled governance model to the shared control model favoured by VC investors. In this later model, a VC investor will seek to minimize its downside risk while maximizing upside potential by conducting extensive due diligence, negotiating the characteristics of the security in which they invest, and establishing control mechanisms. These mechanisms will include a robust shareholders agreement and an effective board of directors. 

All the above issues were discussed in the three-and-a-half-day CVCA/ICD Private Capital Governance Program’s inaugural VC cohort offering this past June. The program was structured as two one-day Zoom modules separated by one week, followed by one and a half days of in-class sessions. This format allowed participants the chance to reflect upon the learnings from the program between sessions and identify how they could best implement the identified best practices.

Building on the success of the VC cohort program, the CVCA has developed a new advisory group to help develop a similar program for PE board members. This program will also be offered in conjunction with the ICD and will include four days of sessions in November and December. The first two days will be offered in an interactive online format, and the final two days will involve in-class sessions in Toronto. The focus of the program will be to help participants develop best practices to be used on a PEBC board to allow the corporation to move from a founder-controlled board to a shared control or an investor-controlled board, depending on the structure of the PE financing. The sessions will include a series of class sessions, expert speakers, and case discussions focused on how a PE board member can be more effective in helping the corporation achieve its development objectives while satisfying the needs of its diverse stakeholders. By the end of the program, participants will have developed their governance skills and increased their confidence as corporate directors.

Applications are now being accepted for the private equity (PE) cohort of the new Private Capital Governance Program. Learn more and apply here.