Although this is one area where the doctor will not profess to be an expert, especially since he primarily worked with, and for, private equity start-ups in his career, he will point out a good article from the winter edition of the McKinsey Quarterly on the voice of experience that surveyed 20 chairmen or CEOs from the UK who have served on both public and private equity boards. The survey found that not a single executive ranked public equity better while
75% of the respondents firmly believed that private equity boards clearly add more value. On a five-point scale, PE boards averaged a stellar 4.6 while public boards averaged a more meager 3.5.
According to the research, while public boards score higher on development/succession of management and governance (with respect to audits, compliance, and risk), private boards score higher on stakeholder management, performance management, and strategic leadership. Furthermore, the respondents strongly felt that PE boards were (much) more effective in adding value. The respondents universally agreed that value creation was the top priority of a private equity board, with an overall weighting that was 3.6 times as high as that for public companies, where value creation was at the bottom of the list. In comparison, the respondents were divided on whether or not governance, compliance, and risk or strategic initiatives were the most important priorities of a public board. Although this isn’t entirely illogical, as public boards are often not rewarded by a company’s success (unlike their private equity counterparts) and may lose their reputations if investors are disappointed, it does make a good point. If you want value creation, make sure your board is focussed on value creation and shares in the reward. It’ll also net you more of their time (as the survey found that PE directors spend, on average, nearly three times as many days on their roles as their public company counterparts), and that’s where the real value will come from if you have the right board.