The Changing Landscape of Private Equity Boards

By Diane Adams

Traditionally many Private Equity firms invested in companies that were distressed where they could easily reduce cost, improve efficiency and quickly turn it around and reap a nice multiple. The make up of the Board was typically one or two PE members with a strong finance background, an investor and the CEO of the company. The Board would oversee and monitor key financial metrics to make sure the company was on track. Times are changing in the PE world.

Today however, many PE Firms are investing in low-mid market size companies that are founder owned, privately held or family operated. The management teams are often very lean and less sophisticated than those of a larger company. In order to earn the expected ROI on these companies many PE firms are finding that they need to be more involved in the operations of the business including basic functions like IT and Finance, in addition to overseeing critical needs like succession planning, strategic growth plans and M&A. Many PE firms are not resourced internally to support the needs of these low-mid market companies and this gap is creating the need to enlist independent Board members, Advisors and Operating Partners to work more closely with these portfolio companies. Those PE firms taking a more formalized approach to Board Structure are bringing on more diverse Board members with a broader skill set and they are finding that they are able to significantly improve and accelerate their ROI.

Public companies have recognized the need for diversity in the Boardroom because it adds value to the company and to the shareholders. Diversity goes beyond gender, race and age and includes diversity of functional expertise and diversity of thought. Private equity is adapting the trends of public boards and looking to include board members beyond the CEO, CFO and COO roles to include Chief Talent Officers and Chief Marketing Officers. Chief Talent Officers bring insights into the changing workforce and bridging the baby boomer/millennial divide and transforming organizational structure. Chief Marketing Officers have a clear understanding of voice of customer, which is fundamental to guiding a growth strategy. The voice of customer is the foundation for developing the channel strategy, digital platforms and innovation pipeline. The complexities of driving growth in B2B companies is particularly challenging given the pace of disruption transforming this sector. Demonstrating growth and having a clear plan to accelerate future growth is resulting in faster transactions and significantly increased multiples for private equity.

Private Equity Boards are changing and those who recognize the evolving needs and gaps on their Boards will benefit with improved shareholder return.

Diane Adams is an Eleven Canterbury expert executive. She is a C-Level executive with over 30 years of general management and operational experience. She has led sales and marketing teams for family owned, privately held and private equity owned companies and has a breadth of experience in B2B, B2C and DTC (direct-to-consumer) sectors across multiple industries.