BoardMatters Quarterly, September 2013

Private company board service

Benefits, challenges and finding the right fit

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Joining a board of directors is a significant responsibility. But it’s also an opportunity for experienced executives to use their skills to tackle new challenges, cultivate additional knowledge and expand their networks.

When a company is privately held, its directors can be more involved in growing the business, rather than acting as a watchdog for shareholders.

When deciding whether to serve on a private or public company board, many directors see a distinct advantage in serving on the board of a private company. This is because it’s free of the rigidity that can constrain public boards, where mounting regulation and shareholder scrutiny have made it harder and more time consuming to serve.1

The opportunities for independent board directors, those who are not part of the ownership or the fund backing the company, are many. Private company boards don’t have the same legal liabilities and risks that can come along with serving on a public company board.

For example, when a company is privately held, its directors can be more involved in growing the business, rather than acting as a watchdog for shareholders. They also may have greater latitude to work more closely with the CEO and other members of the management team.

That doesn’t mean private board service is void of challenges. If it’s a closely held company, a director may have limited influence. The governing body may be of limited use if the CEO or chairman has assembled a board that’s afraid to challenge the C-suite’s perspective and decisions.

What’s your type?

Board composition, benefits and challenges can vary depending on how the company is funded, such as by venture capital (VC), private equity (PE) or family ownership. Different board skills may be needed in different phases of each of these types of businesses.

Venture capital

Like any private company, the board composition of a VC-funded entity depends on the company’s stage of growth. Early on, VC company boards are comprised primarily — often exclusively — of the owners: the venture capitalists and the founders.

Because these companies frequently aim to go public, they often want directors with the insight associated with public company experience.

As VC-backed companies expand, they also need board members who can objectively critique and advise the management team as it designs and executes strategy. As the company progresses directors with specific skills, such as expertise in corporate governance or audit committee service, are typically needed.

Directors who have served on the boards of successful VC-funded companies tend to be highly sought after. They understand the dynamics of private company investment and have the ability to help other companies navigate the various stages of development and growth.

Private equity

Boards of PE-backed companies are tasked with ensuring these companies are ready for an IPO or an acquisition. One of the benefits of serving on this type of board is the level of business sophistication and operational maturity the PE funds infuse into private companies as they are positioned for exit.

PE portfolio board composition typically consists of the lead investment professionals, who sponsored the deal, the CEO and may include other operating executives from the PE firms. Over time, the board may evolve to include a select group of independent directors.

But good governance and enterprise-wide risk management are growth drivers, and PE-backed boards are adept at using these elements to enhance performance. All of this means that independent directors with operational, industry and governance experience are highly prized by PE funds.


Because they are not subject to investors’ expectations, family businesses can be more nimble and focus on long-term strategy. However, many family-owned companies benchmark themselves against their public competitors, so they want directors armed with relevant experience and leading practices.

Directors of family-owned companies often serve as coach, counselor and peer advisor. They must also consider how strategic and operational recommendations, such as succession planning and dividend policy, will affect family dynamics.

These boards typically include family members active in the business, key management executives as well as independent board members, who may include trusted advisors such as an accountant, attorney or consultant, or they may be respected business leaders or professionals in the community.

Understanding the needs, capabilities as well as limitations of the business owners will help a potential independent board member know the best way to contribute to the success of the organization through board participation.

Identifying opportunities

Seasoned executives seeking a board appointment should be proactive, making their desires known to peers, search firms or headhunters that cover a particular industry. Compensation is not something to overlook, given the time commitment.

Finally, fit is crucial. Consider the company’s stage of growth, ownership structure, industry, growth plans, existing board composition and leadership.

Questions for private company directors or prospective directors to consider


1Steven M. Davidoff, “Despite Worries, Serving at the Top Carries Little Risk,” The New York Times, 7 June 2011, ©2013 The New York Times Company.

Questions for private company directors or prospective directors to considerc

  • Where is the company in its life cycle: early stage, rapid growth or preparing for an exit? Is the company backed by venture capital, private equity or is it family-owned?
  • What skills are needed on the board to help propel the organization to the next stage?
  • What experiences or competencies are lacking on the board or in senior management? What could a new director add to the mix?
  • Do board members have the right mix of experiences, including industry, governance and function?