For over two decades, I have served on several public and private company boards spanning various industries and sizes. I have developed a strong conviction that boards and C-suites of public companies can learn a lot from private equity companies. I also believe that CEOs of public companies with prior experience at a private equity firm see tremendous success, as illustrated by Ed Breen at DowDuPont (formerly at Tyco) and Kevin Clark at Aptiv (formerly Delphi Technologies).
PE firms have delivered better returns to investors in the last decade in rising public equity markets compared to index funds, hedge funds and active investors; even though their liquidity is limited and the cost of capital and fees are higher compared with their public counterparts. It is no surprise that the PE industry is growing much faster than public markets, and that the number of public companies has shrunk by nearly 50% in the last 20 years.
From my experience, there are several unique features to the PE approach that public companies should consider to enhance value creation:
* Before making an investment decision in a highly competitive market place, PE firms develop a detailed understanding of the market, clear investment thesis, well-defined performance metrics, and a target return in four to six years.
* Second, they attract top talent to the board and C-suite because of true pay for performance, total alignment between the owners, board, and management, and without the distraction of activists and quarterly earnings pressures.
* Finally, they make rapid and, more importantly, bold decisions without the bureaucracy and regulations seen at large public...