Serving on a Private Equity Board: Rewards and Reality

“Should I join a private equity board, and if so, what does it take?” That’s the opening question I posed to a panel of experienced board members and private equity leaders when I moderated a recent webinar entitled, “Serving on a Private Equity Board: Rewards and Reality.”  

The discussion, which was hosted by the Northern California Chapter of the National Association of Corporate Directors (NACD), addressed the risks, rewards, and realities of serving on a PE-backed board.

Panelists:

• Bethany Mayer -Chair, Box; Independent Board Member, Hewlett Packard Enterprise, Lam Research, Astera Labs, Mainspring Energy, Celestial AI
• Alex Kaufman- Member, Private Equity, Mintz
• Mike Sabbatis -Chair, CaseWare; Independent US Board Member, Iris Software Group
• Mallory Brown- Vice President, TPG Global

Drawing on their extensive experience serving on PE boards and working with a range of companies across industries, our panelists shared valuable perspectives on topics including how PE boards are constructed, director relationship differences, board seat allocation, compensation impact, portfolio company investment, and crisis planning.

Below is a summary of the key takeaways.

How are PE boards constructed and how do members add value?

• Mallory: Most often the PE board is comprised of members of the deal team who were working on that particular investment, as well as the CEO or founder of the company being acquired. In addition, we look for people who come from that industrial sector and have experience with operations and strategy. These people can help us achieve the value we see in the acquired company. We dig deep into our network of people to get recommendations.
• Bethany: There are a wide range of opportunities on a PE board. One is being an operating partner; in some cases, this is a full-time job. It can also include helping the private equity firm review, create, and drive a thesis, say cybersecurity or networking for example, around different parts of the market. Another option is to sit on the board as an independent board member. There’s variation; if you are the operating partner, you are second to the CEO and you dive very deeply into the company.

What is the difference between the relationships on a public company board versus a private equity board?

• Michael: Both when I was CEO and working for publicly traded companies, the activity level of the board with the operations team was relatively low. They provided value, no doubt, but they were rarely involved with day-to-day activity. That’s a big distinction. By contrast, I chair the board at CaseWare, and I was just on a call for four hours. It’s our monthly operations call with every executive there and then I have a one-on-one with the CEO each week at a minimum.
• Bethany: I agree, at public companies the board members don’t engage much outside the quarterly meetings, they take a fairly hands-off approach. That’s the difference. On a private equity board, I did recruiting, I looked at go-to-market plans, I looked at product roadmaps, I spent time with operations and talked to the CEO throughout the week. It’s a different requirement and you have to be aware of that before you take on a private equity role.
• Mike: I find that by being active, I understand the business much better. I mean, I’m intimate with the business without having to try that hard to keep up because I am so often talking about it and it’s something I enjoy.
• Mallory: I agree, and I would encourage people who have a propensity for mentorship that you have a role on a private equity board.

What about the limited number of seats--how are they allocated?

• Alex: It’s fairly common to allocate one or two seats to someone who brings industry expertise. Independent directors also play a secondary role, in which they are the directors who have to approve interested party transactions. Sometimes that is a pressure spot because being that person increases their potential exposure to liability, so you want to make sure that the companies you join have adequate Directors and Officers (D&O) insurance. 

Does compensation by the PE firm, outside of the board role, affect independence in transactions?

• Alex: Independence is usually viewed in the context of the transaction. The independent director is being paid by somebody, but for purposes of defining an interested party transaction, the most relevant inquiry is the director’s interest in the transaction, as opposed to his or her independence. These are all very fact intensive inquiries.
• Bethany: Normally, compensation is very similar to a public market board where you are paid a minimum amount of cash and then you are paid in equity just like any other director of a public company. You haven’t made an investment in the company; you don’t do that.
• Steve: When you are making a decision, you have to think about the facts and circumstances of that person’s independence for that decision. In a lot of situations, we have board members who may have some small stipend from a sponsor that is one very small aspect of their overall financial picture.
• Mike: You worry less about the independence issue, that’s a legal issue and for the PE company to worry about. The main question is the one we started with: Should we join a private equity board and, if so, what does it take?

How do you find out who is looking for board members other than networking?

• Bethany: I’ve never seen a listing for an opening from a private equity firm. They move too fast. You network a lot.

Is it common for the board to invest in the PE firm or a specific portfolio company? Is it a requirement?

• Mike: You might get an opportunity, but I’ve never found it to be a requirement.
• Bethany: There are plenty of Limited Partners (LPs) who are willing to fund a good private equity portfolio company. They are financially astute, but many times they have not served in a company per se. Many boards want members who have lived it and can see around the corners. That’s the value proposition you bring to the private equity firm.

What about crisis planning and black swan events like the pandemic when the company is a little lost? The tariffs are a bit of a black swan event. How can you add value?

• Bethany: Covid was a huge event, and then there was the supply chain backlash. I was on a private equity board that had product problems with regard to getting anything into the factory and then out of the country to customers. Because of the experience, board members can bring analogies with them.
• Mike: The first activity anybody does when they see a crisis is they pull back, everybody kind of stops, which is natural. I think it’s a smart move. You don’t jump in the fire, you kind of figure it out first. With the tariffs, we’ve hired Deloitte to look at the tariff issues across all of our portfolios to see what impacts us. I’m a Canadian based company in one aspect and a UK based company in another. I don’t know if that will have an impact on how we sell software in the U.S.
• Alex: One thing you can do is review policies and procedures. And think about the crisis that is likely to hit your company. For example, if you are a technology company, you will have a cybersecurity event. Plan for it now.
• Bethany: What I think is unique about private equity companies, that I really like, is as a portfolio company, you do have resources. In the private equity firm, you have a bunch of different expertise and sort of an operating group that can help you in different circumstances, whether it's a cybersecurity attack, whether it's a supply chain issue, whether it's a change of management, whatever it is. You have groups within the private equity firm that have studied these issues, and they spend all their time trying to make the companies that they own better around these different areas. And that is not something you necessarily have in the public market. I mean, you can go hire McKinsey or whoever, but at a public company you don't have a stable of people who really have various expertise that you can draw on.

The full recording of our discussion is available here.

The Mintz Private Equity team provides clients with high-touch and tailored advice on their most important business transactions, grounded in commercial realities and backed by industry-leading best practices. We build our teams with a focus on our clients and their specific objectives, covering every aspect of the private equity market, including fundraising and investment fund formation, direct investments, portfolio company management and representation, and platform exits. Our clients include commingled funds, independent sponsors, and family offices from around the world.

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