Are the boards of private equity firms vastly different from publicly traded companies in their approach to governance? A recent article from the Harvard Business Review suggests that although public company boards are somewhat more constrained by SEC regulations and shareholder pressure, their approach to governance and oversight could use some refinement.
Acknowledging that there are significant differences in how public company boards and the boards of privately held PE companies can operate, it might be an interesting exercise for corporate boards to consider how close they are coming to executing some of the philosophies the article argues give PE firms an edge on governance:
“Specifically, boards of PE companies focus on a handful of guiding rules:
1. Don’t just review the company’s strategy. Help create it.
2. Don’t just expect trust. Build it.
3. Don’t just assess the company’s culture. Help shape it.
4. Don’t just receive information. Provide it.
5. Don’t just look different. Think different.
6. Don’t just fire CEOs. Get to know future ones.”
Viewed open-mindedly, there is value in these suggestions. This is not new information. Effective public company boards are taking many of these actions, but even for the best boards, a little constructive self-assessment can be revealing and transformative. All boards should strive to improve. Here is some of what can be gleaned from the six rules stated above:
For example, how involved is the board in creating the company’s business strategy? Most companies’ business strategies will likely be affected by artificial intelligence in some way. How involved has the board been in asking whether enough has been done to account for potential changes in the markets you serve or potential impacts the new technology might have on suppliers?
Is your board thinking differently? How much diversity of thought is in the boardroom? What processes are in place to make sure innovation continues at a high level within the organization? Is innovative thinking valued and rewarded properly?
Is your board actively searching for new leadership? Succession planning for the CEO position often focuses on recruiting former CEOs or board members from other companies. Expanding efforts to the recruitment of high-performing executives who can work at the company and advance its business strategy forward while being groomed to potentially ascend to the CEO position would increase options for the future.
