39 minutes | Oct 1st 2020

13. Ed Pendergast: What it takes to be a board member that every company wants

Ed Pendergast has served on numerous boards - public, private, and nonprofits - for more than 40 years.  Very few people have had the opportunity to serve on such a broad range of boards over such a long period of time as Ed, and for good reason.  He is the consummate board member.  Armed with a deep understanding of business finance and operations, and what it takes to be an effective board member, Ed exemplifies the qualitied that every company seeks on its board.     Thanks for listening! We love our listeners! Drop us a line or give us guest suggestions here.   Links https://dunnrush.com/ http://pendergastco.com/ Quotes Impact of the pandemic:   “Well, it's varied pretty dramatically.  I sit on five boards…and some of them have been hit very hard, some are booming.  It seems to depend upon the industry they're in or the impact that coronavirus has had on the business.”   “You probably have heard more talk in the last few months about supply chain than you have in the rest of your life.”   “In our investment bank, we are advising companies generally not to sell the business right now because valuations are so strange.”     Question: If you're advising a family owned, operated business, and they're thinking about forming a board for the first time, but they're hesitating and there are several reasons why they do. What advice do you give them?   Answer: Well, I advise them not to start out with their uncle's lawyer and their brother's banker, but that they try to think about “why are we having this board?” What type of skill sets do we need that would be helpful to this business and try not to pack it with all people you've known for a long time? It's okay to have a couple of people that you've known a long time, but it's very helpful to think outside of the box.   Question: When people say “we don’t have time of the money for a board, what kind of advice to give them? What do you tell them?   Answer:  Well, what's the return on the investment?  If we can bring together five people with great talent, some of which you don't have in your business who can help in business development and it costs you $50,000 and it generates a strategy that builds the business from $50 million to $250 million, pretty cheap.  On the other hand, if you don't put it together properly, it can be a pain in the ass and not be successful.   When there's a crisis is when the private company board is really helpful to calm things down. How are we going to get through this?  How are we going to work our way out of it?   Big Ideas/Thoughts Board meeting haven't changed much – we’ve had a focus on coronavirus that we didn't have before , but board meetings always have talked about risks and how do we deal with risk and what are the risks we haven't foreseen? And how do we think through that process?   One difference is that when you're in person, you have some casual time, you usually have a meal. Something when you're off the topic. When you're on a zoom board meeting, you're on topic, the fraternization, the getting together, the personal aspect of it is missing and so it's harder to gauge how people really feeling or what's going on. When you're sitting across from somebody at dinner, you really get a different approach. And that's particularly true in boards where we have traditionally had the senior leadership team present at the dinners.   And that's key because one of the major parts of being a board member is to make sure that the people are the right people. That they're performing properly, that motivated properly, and develop properly. And that's harder to do through video conferencing. Going forward, I think you're going to see a lot of closings, a lot of bankruptcies, particularly companies relying on disposable income: airlines, restaurants, hotels, casinos, even clothing.  I think it was Bloomingdale's that said they're only selling tops. On why more private companies are forming boards.  Well, part of it is that the visibility of governance has expanded dramatically.  I think a good deal of it as to what the National Association of Corporate Directors has done, to raise the visibility, the standards of sitting on a board have clarified over the years and, many people who have started their own business had worked for a larger company and have seen that there was some efficacy to the board in family businesses.  Particularly when family members say we need somebody outside of the family to have a role here so that we can listen to people who have had outside experiences.   Question:  One thing that seems to be a constant challenge for many companies is refreshing the composition of their boards.  The board that may have been right five years ago is not necessarily the right board today.  What is the best approach of reviewing the composition of the board and offboarding when necessary? Answer:  Refreshing the composition of a board is probably one of the thorniest issues any board faces. One way to address it is to have a regular evaluation process. How the board going, how individual board members are going, how committees are being operated. but it's a tough process. I have some ex-friends that I have counseled off boards and, as I sometimes say, it's not who got you here it’s who is going to get you there
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