Board directors for private equity companies are an essential resource for value creation. They provide assistance with diligence and integration, help to gather feedback and reach alignment, and serve as a system of checks and balances for management. These members also fill experience gaps that midsized PE firms may not want to hire full-time employees to fill.
Outside Board Directors (OBDs) in particular can bring unique insight to broaden a board’s scope. Former PE portfolio company CEO and PE portfolio company OBD Alan Shaffer defines the qualities of an excellent outside board director as someone who can wear many hats and move nimbly to where they are needed most. Read on to learn how OBDs can guide and shape PE-backed portfolio companies.
- Be a mentor to your CEO and a non-PE person with in-the-trenches shared experiences to talk with, who is also intimate with the company. Especially for a first-time sponsored CEO, having someone on the board not with the PE firm who can help improve communication and transparency with the firm is crucial. Understanding the culture, pace and practice expectations of a PE firm can help the CEO succeed and perform to the level expected by the PE firm. One failure mode of acquisitions is the new-to-PE CEO.
- Chair your audit committee, providing some separation from the PE firm and management. This mirrors the very good practice of public companies to avoid having exclusively members of management and the PE firm on the audit committee. Your auditors will appreciate this separation.
- Act as an on-demand operating partner when needed. Small and mid-sized PE firms often cannot justify a full-time operating partner on the payroll, especially if their portfolio is diverse, where no one OP will be the perfect fit for each industry. The need and o...