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 just domain expertise, determines long-term capital appreciation.

Leading private equity (PE) controlled businesses have been consistently outperforming market indices for at least two decades largely due to a 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 the board is a key tool for effective governance. 

To support peer-outperformance, 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 practice and research.

The proprietary KCRI governance approach is based on three central beliefs: (1) the distributed nature rather than the pace of change challenges strategic goal-setting; (2) cognitive capabilities gain in importance relative to domain expertise; and (3) the board assumes a critical role in developing a firm's dynamic capabilities.