Building on last month’s article which asked “Do private equity or non-executive directors impact company growth?”, I dig into the differences between boards in private and public companies and what tends to drive higher performance in private companies.

I have since chatted to more folk that serve on Private Equity (PE) and on publicly listed boards and have found that there is consensus that privately owned companies have boards which are often incentivized to help create value, typically via shareholding, directly or indirectly.

Public companies on the other hand are required to have Non-Executive Directors (NEDs) that are motivated to limit risk, mainly due to requirements of the relevant authorities. An interesting comment from a PE fund manager is that board members of private companies are often forced to sell down their shareholding when the company lists; what a disincentive to further value creation! But this is in line with the “rules”.

This same fund manager also pointed out that whereas privately held boards ask the executives how they are going to “10x” the business in a few years and discuss the strategy to get there, public boards focus on governance and stability.

Another theme that emerged is the short term versus long term nature of the focus by leadership. In a listed company, because quarterly earnings dominate discussions, it is difficult for leadership to take long term risks. Few executives or NEDs will promote a five year plan if they are measured quarterly on profitability by the public market (with Amazon founder Jeff Bezos being  a notable exception).

Large privately owned companies on the other hand have a top-down strategy that is around (typically) a five year plan. Risks are planned and performance is less about immediate profit than qualitative anf measurable progress against a plan.

Another factor that is often mentioned as something to aim for is diversity in boards, particularly public ones. This is a contentious topic as in Europe it may mean female board members, in the USA it may mean minority groups and South Africa it is clearly about Black, preferably female members.  But one of my interviewees pointed out that this often overrides other selection criteria. Indeed, by putting the diversity requirement in front of the skill requirements of the board may actually be exacerbating a problem.

On the other hand, diversity includes youth – and youth should be represented on boards, particularly of companies that hope to target Gen Z and Millennials. In the public company situation, there is an obsession about appointing the “right” names to boards. And these folk are rarely young.

But there is a very real problem in inducting young members to a public company board level team. How does one get experience as a board member when most board members are either “professional” or gain the experience over a long career? Is there a formal programme for a young person to grow into board roles? I suspect not.

PE and VC backed company boards welcome experienced and successful entrepreneurs as non-executive directors and these tend to be much younger than those in public companies.

Where does the responsibility lie to change this status quo in public companies. In my last article I proposed that the IoD as a vehicle has a role but someone prompted a new thought for me. The “rules” today are imposed by the regulators and stock exchanges. Could the equivalent of the Financial Conduct Authority in the UK be the body to bring about these changes – in the name of competitiveness of companies listed in London.

The Non-Executive Board members of high performing private companies tend to be incentivized towards long term value growth, and consist of diverse, particularly younger, more entrepreneurial members. Perhaps the boards of public markets can also learn from them?