Insight
The private equity portfolio company lead director can be key to building board agendas, serving as a mentor to the CEO, and leading oversight of strategy development and execution.
At 4.5 years, the median holding period for a private equity portfolio company in 2018 was the shortest in almost a decade, according to research firm Preqin. This collapsing time frame for capital investments to prove fruitful or strategic shifts to gain traction puts significant emphasis on having the right management team, executing effectively and transparently as soon as the term sheet is in place.
For this reason, private equity investors and executives are advancing their views on board leadership, bringing in a lead director or non-executive chair to professionalize the board and manage the relationship between institutional investors and the chief executive.
Less formalized than the role developing at listed companies, the portfolio company lead director can be key to building board agendas, serving as a mentor to the CEO, and leading oversight of strategy development and execution.
“We expect [them] to lead from behind and serve as a confidant or coach for the management team,” said one institutional investor who ensures that the role is built into both majority and minority investments. “They can help to accelerate communication, particularly for a CEO who is new to institutional ownership.” While not required, the role is often best filled by a former CEO “who knows what he/she didn’t get from their own board.”
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“If a lead director is good at the role, the management team embraces him/her and brings them into ongoing strategic planning and reviews. Conversely, the lead director can help to pull an issue forward in a more casual, apolitical way than the lead investor.”
To be sure, the private equity investor who appointed the lead director can also leverage the individual’s insight and experience by pairing him/her with the junior professional on the deal. This alignment not only serves to elevate the corporate director capabilities of the junior professional, but also serves as a check on the health of the CEO/lead director relationship.
The role of lead director is particularly helpful for family-owned or founder-led businesses transitioning to new ownership following a private equity investment. “When a founder is stepping out of the way but retaining the chair title, the lead director can help advance the board agenda and corporate strategy while also serving as a buffer between the founder/founding family and the new investors.”
Beyond private equity, the KPMG Board Leadership Center’s Lead Director Initiative has engaged in ongoing dialogue with public company lead directors on how the role is being shaped. Their insights, captured in the paper, Facilitating the board’s engagement in strategy, offer tips on how lead directors can help to drive the company forward by:
- Setting expectations with the CEO and directors for the board’s engagement in strategy
- Planning the setup and staging of board strategy discussions and providing the backdrop to drive the right focus and dynamics
- Building consensus about the proposed direction of the strategy—the fifty-thousand-foot view
- Encouraging the board, CEO, and management to develop a vivid picture of the future—where the industry and competition are headed—and its impact on strategy
- Insisting on diverse—and dissenting—points of view, including third-party input
- Assessing whether the company’s strategy process enables the company to recalibrate strategy as needed while maintaining critical alignments
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The private equity portfolio company lead director can be key to building board agendas, serving as a mentor to the CEO, and leading oversight of strategy development and execution.