Creating More Effectively Governed Assets

How investor and PE firms can help guide and develop high performing boards

RCF Partners Blog

Much has been written about what it takes to create a good board of directors. People who have studied the issue largely agree on the importance of a good mix of personal and professional skills; strategic vision; access to the right information; independence, accountability, diversity, equity and inclusion. It makes sense: authentic and impactful oversight can only occur when company directors with different viewpoints and expertise get good information, process it with effective communications, and distill it into useful guidance for management. 

However, a great deal of the research done on this matter is based on relatively mature entities – like large public corporations – as opposed to smaller, early growth-stage companies that are constantly evolving. While the mix of factors is similar, the market dynamics facing a Fortune 500 company can be completely different to that of a startup – or in the mining industry, a company that may still be in the process of determining if it has a commercially viable project. Good governance is just as critical for such smaller companies but presents with very different challenges. 

The board of directors as a strategic asset 

Boards at earlier-stage firms are much more likely to assume multiple roles than their large-company counterparts. This can mean, at times, dealing with the minutiae of daily issues that may be outside their core expertise. As a result, even the CEO can lose sight of the big picture thinking and guidance that all organizations need – and is often the difference between the success or failure of an enterprise. That is why early and critical guidance is required to help shape and enhance the board of an earlier stage company. Often, the issue can be boiled down to a simple question: 

How do we enhance a board that got a company to where it is today, to ensure it can unlock its full potential? 

Resource Capital Funds (RCF) was established in 1998, and pioneered mining private equity. RCF has deployed capital in hundreds of companies in various ways, with over 140 exits – far more than anyone in the space. With investments in over 50 countries, RCF has a deeply embedded network within the global mining community. This means RCF’s global teams are able to identify the right individuals to enhance a board. RCF are often active investors and usually only one call away from most major deals in mining, and one or two calls away from much of the industry’s key talent.  

A typical investment by RCF can include: 

  • Taking a substantial, active position in an early stage “junior” mining company which is normally pre-revenue, and pre-operational,  
  • Investing in mining technology companies that are already in revenue phase, which usually means they have proven a technology, but they need help to scale.  

Before investing, RCF does rigorous technical, commercial, legal, ESG and financial due diligence to ensure that there is potential to create and protect future value. But these assets can only reach that potential if they are well managed – and well governed by an effective board. 

Creating effectively governed assets 

As active investors with mining expertise, RCF’s relationship with its portfolio companies is fundamentally collaborative. Companies seek investment from RCF for a combination of reasons: 

  • Technical support  
  • ESG related insight,  
  • Financial acumen,   
  • Industry experience,  
  • Strategic people management support.

RCF believes that value is enhanced when companies are “effectively governed”. Meaning, the company is positioned to grow and attract subsequent owners. Depending on our investment strategy, RCF may have explicit rights to nominate one or more board members or is recognized as a key stakeholder with critical value to add.  

Board creation is about understanding people, and acquiring that expertise necessitates resource commitment. RCF’s focus has been both on internal growth and succession planning and evaluating the people side of investments: Does this operation have a good team, at management and board level? What are the gaps? Will they be a good fit for our active approach? Today, RCF reaches deeply across the key parts of the organization to enable insights into people as it does to understand investment potential or mining structures. 

Five key lessons learned 

Much of what RCF has learned about board creation and dynamics comes from working around brilliant and highly creative people, plus a good amount of trial and error. And while it’s important for all boards to possess the qualities discussed at the beginning of this article, we believe these other lessons can be particularly relevant to early stage and developing companies, as well as the investors and PE firms supporting them, to reach their potential.  

1. Accept the need for assessment

There should be alignment with a prospective investment to undergo an assessment of board performance, individually and collectively, and by extension key management, since the board oversees the company. That isn’t always a given, especially in closely held companies, but it can considerably enhance value to shareholders if done well.  

2. Look ahead and act quickly

Rapidly evolving companies need board members who have the skills to guide for current circumstances and can anticipate what skills and governance structures will be needed in the future, well ahead of time, to ensure that they are in place when required. “Think three to five years out” – consider succession needs, what it will take to deliver value and be attractive to financial markets, and how does the company need to evolve. In mining, for example, once a company has completed initial exploration and feasibility work, the next step (if warranted) is to move into construction and operations; these types of expertise become at least as important as early-stage geology, mining engineering and metallurgy.  

3. Foster strategic alignment and genuine diversity

These seemingly contradictory traits are essential to a well-functioning board. Members need to share a basic sense of alignment on where the company is going; the theme of the investment; and potential next steps (and, while they may be personal stakeholders in the company, their behavior and actions as fiduciaries must first be aligned with the company’s broader shareholder outcomes). But these individuals must also possess different skillsets and unique points of view that not only reflect the many different types of apparent human diversity, but cognitive diversity as well. Basic agreement on strategy, combined with differing perspectives, are the qualities that enable the “positive challenge” required for good board governance. In a global-local business like mining, having local nationals and community representative people on the board and senior management is also key, especially for their invaluable and insightful local perspectives on ESG-related issues. 

4. Understand the difference between oversight and management

While there is some overlap, especially in terms of planning, oversight (board) skills are not the same as management leadership skills. There are brilliant managers who can skillfully motivate people and build an operation, but they need to have hands-on operational control. Stepping away from that to embrace a more passive strategic oversight role may not be compatible with their psyche. Conversely, just as some doctors are excellent diagnosticians but can’t perform surgery, governance is more about knowing what needs to be done rather than actually doing it – an “eyes-on hands-off” approach. 

5. Adding ESG value

Social License to Operate is a fundamental principle: the essential broad-based acceptance from local and Indigenous community, and other stakeholders impacted, based on legitimacy, credibility, and trust. But the fact is, any company that plans to raise capital in today’s market needs to be prepared to answer important questions, including whether they view ESG as a strategic imperative and key value creation driver – and whether it can be demonstrated: 

  • Has the company determined what is truly material to its activities and its unique set of stakeholders?  
  • How has ESG been “operationalized”?  
  • How is the company’s ESG story articulated – and is it balanced and transparent? 

RCF’s hands-on approach to board building requires an investment of time and effort and the process helps provide a framework to proactively address risks and challenges throughout the investment period. The end result – a properly constructed board of diverse directors – is a key source of strategic value to a developing company.  

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Important Information 

This material is provided for educational purposes only and should not be construed as research. The information presented is not a complete analysis of the board and management landscape. 

The opinions expressed may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources deemed by Resource Capital Funds and/or its affiliates (together, “RCF”) to be reliable. No representation is made that this information is accurate or complete. Reliance upon information in this material is at the sole discretion of the reader. 

None of the information constitutes a recommendation by RCF, or an offer to sell, or a solicitation of any offer to buy or sell any securities, product or service. The information is not intended to provide investment advice. RCF does not guarantee the suitability or potential value of any particular investment. The information contained herein may not be relied upon by you in evaluating the merits of investing in any investment. 

Investing involves risk, including possible loss of principal.