Thriving in the Boardroom: The Risks and Rewards of Serving on a Private Equity Board

Serving on a private equity (PE) board carries risks and rewards that differ from those of public boards, but that doesn’t mean that business leaders should shy away from these opportunities; on the contrary, a successful deal can result in considerable financial rewards. The secret is to learn to navigate the terrain of a PE board so that you and your fellow board members can flourish.

The Benefits of Serving on a PE Board

For the right person, perhaps yourself, a PE board offers considerable rewards and benefits, including the following:

Compensation

PE board members receive compensation for their services, typically in the form of direct cash payments as well as equity, such as restricted stock units (RSUs). The exact ratio of cash-to-equity varies between companies, and compensation packages can vary between board members. 

Lead positions, such as the board chair or co-chair, tend to receive the most, but all board members will receive some form of compensation. As of 2022, the median cash retainer for board positions was $30,000, though some PE firms offer compensation packages that are significantly higher.

Influence

Taking a leadership position of any form provides you with an opportunity to shape the future of your organization; when working with a portfolio company, you’ll have the privilege of shaping and guiding the strategic direction of the company.

That is true regardless of what position you occupy within the board; while the CEO or board chair may have the most direct influence over the company’s decisions, all board members take on an advisory role, which means you can promote strategies that align with your most deeply-held values.

Experience

During your first time working with a PE board, you’ll receive an immersive education in the complexities that go into PE operations. 

Your experience will serve as a hands-on learning opportunity where you can discover how the process of managing strategy and making decisions differs from that of public companies, and the knowledge you gain can be remarkably valuable when adapted to a board of a public company. 

Alternatively, it could also be a launching point for future involvement; for example, you could leverage your experience into a more lucrative or influential PE board appointment. You might also develop skills and expertise that help you take on a more influential role in your next company position. 

Navigating a PE Board

The following are some of the things that make a PE board unique, and they are aspects that all board members should know before they commit to serving on a PE board:

Small but Active Shareholder Base

At a PE firm, you’ll find that you have fewer shareholders, at least compared to a public company, but unlike the latter, PE shareholders tend to be highly active and engaged. 

It’s not unusual to have as few as one or two investors, but they will be active to the point that they could even sit in on boardroom meetings. In fact, investors are so active that some board members may be tasked with resolving conflicts between investors, such as when to exit a company or take a particular position on an investment.

Thin Line Between Management and Oversight

When serving on the board for a public company, you’ll mostly be serving in an advisory capacity, while other managers are the ones who actually carry out the decisions of the executive team. On a PE board, in contrast, the line between management and oversight is thin — and blurry. 

As a PE board member, you’ll be expected to take on an active role in the deal-making process, and that can be frustrating, especially if you’re not used to those parts of the equation. Be prepared for deals to take time and for them to not always be successful. 

If you’re new to a PE firm, you might aim for types of deals that reflect your background or interests so you can put your best foot forward.

The Importance of Due Diligence

Given the sheer magnitude of the deals conducted by PE firms, it’s easy for emotions to run high for you as well as the investors. With that said, it’s all the more reason to practice due diligence to guard against unnecessary risk. PE board members should be prepared to review relevant documents and learn as much as they can about the company before completing a deal. 

It also helps to learn what you can about the board members themselves when first joining a PE board. Too many board members from similar backgrounds can lead to “groupthink,” which can stifle diversification. You may find that you have a better experience joining a board with a diverse cross-section of board members.

Focus on the Long Game

PE boards can easily fall into the trap of short-term rewards, but it’s just as important to focus on the long-term gains that come from PE deals and investments. The goal should be to not just make money but to leave the company in a better position than it was prior to the investment.

That may create challenges when dealing with short-term investors, but boards that can push past them and build toward long-term growth may see greater gains over time. In addition, a longer timeline provides greater opportunities to continue investing and making decisions about the company’s future and making strategic decisions to drive change.

Private Equity vs. Public Boards

At the end of the day, knowing whether serving on a PE board is better than doing so for a public company (or vice versa) depends on your own background and temperament, but even then, the answer doesn’t have to be either one. Both PE firms and private companies offer rewarding opportunities for service. 

Nevertheless, just be prepared to adjust your expectations. PE firms tend to be smaller and with fewer resources than large, publicly traded companies. The more you can calibrate your own expectations to the values and resources of the PE firm, the better the experience will be for you, your fellow board members, and your investors.