May 2015 | 

Build a Better Board

Build a Better Board

Economic opportunities in Latin American have expanded dramatically, and for closely-held and family-owned businesses, those opportunities represent an interesting challenge. “These companies are now of interest to the international investing community,” says Christopher Geczy, Wharton finance professor and academic director of the Wharton Wealth Management Initiative. “As investors evaluate them, they are looking closely at corporate governance as critically important. The board’s performance has direct implications for how the market views these companies.”

But corporate governance can be complicated by issues such as asymmetric information (when others know something that other board members and even senior executives don’t) and potential conflicts of interest. Geczy, who leads a new program designed to address these issues and more, says is it imperative for board members of all types to understand best practices for their role. “Corporate Governance LATAM will show them how to serve multiple stakeholders who may have different incentives. The board needs to know how to navigate that web.”

Strategic issues can also be challenging for directors as they make decisions about the future of the firm. “With so many opportunities to grow through acquisition, the board must weigh decisions made by management with their knowledge of performance drivers,” explains Geczy. “There are many decisions made at the corporate level that are either value destructive or value neutral. Directors have a responsibility to advise management on how best to create value for the firm.”

In the program, Geczy and fellow Wharton professors Tom Donaldson, Mauro Guillén, and David Wessels help current and aspiring board members consider many important scenarios and key metrics that may be used to focus their efforts on linking operations to strategy. “Understanding valuation, which can vary across countries and industries, is key,” says Geczy. “If you are buying or being bought, you have to understand what drives both corporate value and valuation. We know one thing for sure. While mergers may not create value, on average, they transfer wealth from the owners of the acquiring firm to the owners of the acquired one. These situations can be contentious, so you have to be prepared for them.”

Participants in Corporate Governance don’t just learn theories, though. The program includes exercises that connect fundamental principles to real world applications. Exercises on valuation and strategy — and how the two are linked — help build and reinforce practical skills. Current corporate examples plus the experiences of participants provide an opportunity to ask questions, check out their own models, and think about how they would respond. Geczy explains that the program provides a “safe harbor” in which the participants can bring to bear their own situations and learn from one another. “Our faculty excel in facilitating these kinds of rich discussions,” he says. “It provides an invaluable opportunity to get feedback and find solutions and approaches you might otherwise not have seen.”

The program is one in a series designed by Wharton and the Family Business and Office School, a pioneer in providing education, workshops, and forums to high-net-worth families, individuals, and wealth advisors in Latin America and Miami. Other offerings include Family Governance LATAM, Mergers and Acquisitions/Private Equity LATAM, and Private Wealth Management LATAM. “These programs are highly complementary,” explains Geczy, who leads and/or teaches in all of them. “As closely-held businesses grow, so do the families that founded them. The number of people attaching to the source of wealth tends to go up over time, and there is a strong tendency for it to dissipate. Well-informed family members, senior managers, advisors, and board members are key to sustaining these businesses and their impact on the world.”