Private Equity/Entrepreneurship

We have posted many entries about corporate governance in public and private corporations. Several times we pointed out that public corporations as well as family owned firms could learn a lot from professional private equity players regarding firm governance.

Harvard Professor Malcolm Salter points out in "Learning from Private Equity Boards" that boards of professionally sponsored buyouts are typically more informed, more hands-on, and more interventionist than public company boards. Reasons he mentions are:

• "Private-equity boards typically have the advantage of in-depth due diligence that precedes a buyout, and they use this highly specific knowledge to oversee the ongoing business.
• Private-equity directors typically spend more time with their companies after the buyout than many of their public company counterparts.
• Private-equity boards are typically small working groups composed of individuals with relevant operating and financial knowledge.
• Private-equity boards are typically composed of members with substantial wealth at risk.
• Private-equity boards know how to structure financial incentives that deter reckless gambling and reward profitable growth.
• Private-equity boards rarely rely upon quarterly or monthly meetings alone. They review a continuing flow of detailed monthly earnings reports, and many directors engage in weekly and often daily conversations with management. The idea is to pursue a candid, informal, and continuing dialogue with management.
• Finally, most private-equity boards operate with a time horizon stretching beyond quarterly earnings reports, reflecting the complexity of corporate restructurings and other long-term growth strategies."

Other MarketObservation post about a similar subject:

Prof. Jensen about Private Equity