Growth Governance

Digitalization is rapidly transforming the pace of market dynamics, fueling the dematerialization of traditional business structures, and, consequently, challenging companies to independently define the dynamic interplay between owners, non-executive board and executive leadership. Proactive, owner-driven and alignment-centric governance with an emphasis on cognitive and transformational capabilities rather than domain expertise, determines long-term capital appreciation.

Private equity (PE) controlled businesses have been consistently outperforming market indices for at least two decades largely due to this proactive, owner-driven and alignment-centric governance model, often leveraging the dynamic input from ‘outside’ industrial networks. PE outperformance over publicly listed peers is rooted in two phenomena unique to the PE industry: (1) Terminal Maturity: Private equity firms usually exhibit a sense of urgency, efficiency, and effectiveness. A focus on quarterly earnings that usually dominates the life of publicly listed companies is substituted with the primacy of strategic initiatives to build exceptional value within five to ten years. Most non-PE controlled companies lack this sense of urgency and alertness 'to manage the unexpected'. (2) Strategic & Governance Engineering: Equity-based alignment between owners, senior management and board is a key tool to effective governance. 

To successfully compete, the board must serve as a competitive advantage in facilitating prediction error minimization: the board's ability to 'sense' and 'make-sense' in distributed environments is the focal point of future governance models and forms the core of the KCRI engagement model and research.

We propose and pursue the KCRI governance approach, which is based on three core beliefs: (1) hierarchy is blind to discontinuous change; (2) cognitive capabilities outweigh domain expertise; and (3) consciously embracing uncertainty is a source of competitive advantage.