The demand for independent directors is ever-increasing and private equity boards offer nuanced roles that are becoming more and more attractive. Today, there are upwards of 4,500 private equity firms, over 8,000 alternative funds, including hedge funds, mutual funds and real estate investment trusts and over 90,000 portfolio companies listed in the Private Equity Info Database. These private entities still generate independent board seats because they are comprised of public money and have a fiduciary responsibility to their investors.

 

The overall dynamics and objectives of private equity boards and public boards have several key differences that can be significantly informative to a director weighing their options. More specifically, private equity boards differ from public boards in governance and structure, goal-setting and decision-making and reporting and transparency.

 

Board directors of private equity companies benefit from increased engagement compared to their publicly traded counterparts. They typically have fewer members but closer proximity to the executive team, fostering hands-on collaboration. Often, key executives like the CEO and CFO and representatives from the private equity firm also serve on the board.

 

Private equity boards are known to be more actively involved, with an entrepreneurial methodology in terms of governance. Their focus is on rapid value creation, often with a defined exit strategy. Rather than focusing on long-term growth and shareholder value, private equity boards strive to maximize the value of the firm’s investment and achieve financial goals set by the firm within a much shorter time frame. Their decision-making process is less restricted by formal regulatory and fiduciary duties and is more absorbed with day-to-day operations and strategic initiatives.

 

Private equity boards often aim to achieve their value objectives within just a few years, taking a valuable, hands-on approach in shaping the firm’s strategy and culture and must ensure the best interests of the firm and its investors. Research shows that private equity firms and alternative funds outperform corporate and public companies in best practices, governance and sustainability. Directors must think differently and remain flexible across all business functions to succeed in these roles.