Advocates of the private-equity model have long argued that the better PE firms perform better than public companies do. This advantage, these advocates say, stems not only from financial engineering but also from stronger operational performance.
Directors who have served on the boards of both public and private companies agree—and add that the behavior of the board is one key element in driving superior operational performance. Among the 20 chairmen or CEOs we recently interviewed as part of a study in the United Kingdom,1 most said that PE boards were significantly more effective than were those of their public counterparts. The results are not comprehensive, nor do they fully reflect the wide diversity of public- and private-company boards. Nevertheless, our findings raise some important issues for public boards and their chairmen.
When asked to compare the overall effectiveness of PE and public boards, 15 of the 20 respondents said that PE boards clearly added more value; none said that their public counterparts were better. This sentiment was reflected in the scores the respondents gave each type of board, on a five-point scale (where 1 was poor and 5 was world class): PE boards averaged 4.6, public boards 3.5.
Clearly,...