What is the role of the board in private equity?

The role of the board is fundamental to value creation, driving transformational change, setting strategy and tracking KPIs. But boards are only effective when they feature the right people, asking the right questions and maintaining focus. Clarity of board responsibilities and processes are key if value creation for the business is to be maximised.

In this article you’ll discover:

  • Roles and responsibilities of PE-backed boards and key directors
  • How to get the best out of board meetings
  • Top tips for building an effective board

Having sat on numerous boards throughout his career, Jon is passionate about the need to structure boards in PE-backed businesses so that their people and protocols are forward looking and focused on value creation. In a healthy business, 50-70% of board time should be spent on driving future value, and this can only be achieved when each director is clear about their roles and responsibilities.

Roles and responsibilities of PE-backed boards and key directors

  • The Chair. Acting like the conductor of the orchestra, their role is to ensure that the board is balanced, focused and has all the information it needs to make decisions. A good Chair will keep the meeting to time and bring in a wide range of diverse voices and expert opinions.
  • The CEO. Owning key messages and responsible for the ‘board pack’, the CEO should always be on the front foot, driven by progress towards KPIs and growth objectives. They need to own the agenda and be the primary communications link with investors.
  • Non-executive shareholders. Looking after the interests of investors, their role is to guide, support and provide constructive feedback, maintaining focus on value creation.

Jon explains that getting the structure of the board right is key:

“You want a balanced board where all opinions and diverse opinions, different opinions, are informing the decision making. What you don’t want is a board that doubles down on operational matters and the detail at the expense of assessing progress on value creation activities.”

Getting the best out of board meetings – practical tips to optimise people and process

So many board meetings are ineffective and lack clarity. Having the right people in the room who are focused on KPI delivery prevents them descending into lengthy cabaret performances with huge casts. Here’s how:

  • Carry out the finance review before the meeting so that only important issues are taken into the room. Some boards are going further to separate reviewing performance from driving strategy; there is an increasing trend towards monthly board meetings only focused on performance (for say an hour) with more strategic and detailed hour board meetings held quarterly and lasting 2-3 hours
  • Distribute well-structured board packs at least 48 hours ahead
  • Circulate and sign off minutes soon afterwards 
  • Focus on KPI dashboards to track performance (have traffic light visuals and trend graphs, ensuring focus is given to key issues)  
  • Review progress against the investment thesis and value creation objectives
  • The chair keeps the agenda on track and keeps to time (no more than three hours)
  • Maintain good governance – minute carefully and bring in diverse executive voices
  • Look outwards, addressing market and consumer trends

“Have the board review the management accounts outside the board meeting, then it’s not dominated by finance, and you can then look more at value creation and make the board meeting very decision-driven.”

When all’s said and done, Jon concludes that “the ultimate purpose of a PE-backed board is to get together to drive shareholder value, because at the end of the day, that’s what you’re there for”. PE-backed boards are required to be agile and able to act quickly – every board member is a shareholder and therefore has a vested interest in driving value and building a bigger and better business. With the right structure and steered effectively by a Chair who maintains discipline and rigour to keep discussions on track, the board meeting plays a vital role in setting strategy and driving value.

“The ultimate purpose of a PE-backed board is to get together to drive shareholder value, because at the end of the day, that’s what you’re there for.”

Top tips for building an effective board

  1. Invest time in planning the agenda and building a detailed, but not unwieldy, board pack that is distributed at least 48 hours in advance of the meeting.
  2. Manage time effectively – aim to limit the meeting to two to three hours, discuss management accounts beforehand and ensure minutes and matters arising from the previous meeting have already been agreed.
  3. A board meeting should never be about turning the pages of the board pack. Be issue and action focused, otherwise it’s just group therapy.
  4. Use an impactful KPI dashboard to assess the health of the business and steer the focus for the rest of the board meeting.  Business health should appraise more than just financial metrics.  It should also assess employee health and customer health in equal measure. 
  5. Half to two thirds of board time should focus on value creation activities in a healthy business.
  6. Get the balance of the board right: drive input and contribution alongside the Chair and encourage diversity of thought. 
  7.  A pre-board meeting dinner can be very useful to align on issues, socialise around discussion points and, perhaps, get your retaliation in early.


You might also like

Enquire about joining the PepTalks Community