The 5 Steps to Board Meeting Enlightenment in PE-backed Companies:
In case you missed the previous steps in the series you can find them here:
Step 5: Keep the data simple!
Portfolio company board meetings don’t add enough value for many board members and management teams despite the time, energy, and money they consume. In this series, we share ways of breaking this unproductive cycle. So far, we’ve recommended rewriting the agenda, breaking the monthly board habit, getting a high-impact CEO’s report, and briefing report authors. This article looks at the importance of using data effectively.
Our research shows that despite being a lot shorter compared to other industries (only 50 pages on average), board packs in private equity-backed businesses contain too much unnecessary information. It’s not surprising: digesting a 50-page board pack can very easily turn into a gruelling task when you have to make sense of the sheer volume of numbers to pull out what really matters.
Think about why you want what you want
The real purpose of data is to shed light on the value creation story. What you really want to know from the numbers is: “What are the true drivers of performance? How is the business doing on its various value creation initiatives? What explains the variance from plan, what is the management doing about it, and as a board member, where can I add value?” A flurry of numbers without purpose or context, or a board pack built around a backward-looking set of financial statements, won’t draw all this out.
“The data should try and link back to your story so you can have a meaningful discussion about it. Rather than ‘Here’s a bunch of numbers, make of it what you will’.”
~ PE professional we interviewed for our research
Board members need to know what matters and the reports given to them don’t do the job. As a result, the board meeting turns into an interrogation of performance data and board members demand more numbers to explain the numbers in front of them. And the cycle continues.
Bear in mind, investors on the board of a PE portfolio company have a very specific skillset — these are highly analytical individuals who feel most comfortable with data, and this vicious cycle doesn’t lessen the gravitational pull of operational and financial minutiae. Board packs that are more or less a collection of tables serve only to exacerbate this tendency and the need to understand what’s beneath the hood.
Needless to say, it doesn’t make it very easy on the management team who are fielding data requests but, to make it out of the meeting unscathed, still feel compelled to add all the detail they can to the board pack — which is often too much.
This also serves to shape the dynamic and tone of the board meeting. The emphasis naturally shifts to performance management because, ultimately, it is the information in front of the board that drives the focus of the conversation in the meeting.
“The board pack, initially, was just data and it came to a point where the board couldn’t see the wood for the trees. We changed the content — trying to get away from numbers towards summaries and better graphs — and it made it easier for the board to see what was going on.”
~ John Treharne, Founder Director & former CEO, The Gym Group
Even when data satisfies the desire to understand a point in time, the information that goes into the pack often doesn’t evolve with the business — no one wants the responsibility of taking it out of the pack when no longer relevant, lest someone enquire about that same data set six months later. But board members should remember that the KPIs that are appropriate (or even possible to produce) when a business is small and growing will be vastly different from what is needed to monitor a business three times its size.
What you then end up with is a board pack that gradually balloons, full of financial and operational detail that doesn’t generate an adequate return on the time and money it consumes to produce and digest. What’s more, investors become frustrated at the lack of progress and focus, and management view board packs and board meetings as necessarily evils — and not the powerful driver of performance they could and should be.
Nearly half of private equity Operating Partners spent less than 25% of their most recent board meeting in genuinely value-enhancing strategic discussion.
~ Poll conducted by Board Intelligence, 2019
What’s the solution?
First and foremost, take the time to truly understand how the business is creating value and the levers that need to be pulled for that value to materialise. Ensure that this understanding is then reflected in the pack with a clear link between the information and the value creation plan in line with the board’s priorities — which should ultimately sit at the heart of the pack and the board meeting.
If this is crystal clear, it leaves everyone in a much better place. As a member of the management team, you’re better able to challenge data requests — because you know what’s important in the value creation story and what’s likely to be on the mind of the board. If you’re the investor, you know what matters and you’re able to request data that satisfies what you truly want to know.
Once you know how to make the data useful, give adequate attention to making it more digestible. Here are a few things to think about:
- Use data to answer a question, and use a single graph to answer a single question. The question clarifies the purpose of the data, and a focus on a single question cuts through the noise, making it far easier to digest.
- Use a comparator, against budget or plan for example, providing the necessary context the board needs to understand the materiality and “so what”.
- Use a one-page company dashboard to give a holistic snapshot of the business, capturing both financial and non-financial performance on value creation levers.
This is the final article in this series. Follow these five steps, and you should be able to turn your board meeting into a forum for value creation. To learn more about how this works in practice, book a demo.