Private Company Boards are Smaller and Less Independent

Statistics show that private company Boards are smaller and less independent than public company Boards.

This matters. The rationale that leads public company Boards to be larger and more independent also applies to private company governance.

1. Board independence. Private company boards are overwhelmingly composed of related Directors – owners, executives and suppliers like company lawyers and accountants. For the past decade, public company Boards have put significant emphasis on attracting outside Directors who can make decisions independent of any relationship to the Company. Does this help? Sure it does. Lots have private business owners have told me their business performs better when they get outside perspective and someone who holds them accountable for performance.

2. Board size. There is no perfect size, but larger public Boards seem to reflect the greater mix of skills and expertise they attract with the goal of increasing performance. The chart below is fascinating. It is from the Spencer Stuart 2016 Board Index, and shows the public company Director Composition ‘Wishlist’ – the skills, expertise and other traits that public Boards would like to attract.

Public Company Board Director Wishlist

Mix of skills and expertise desired by public company boards of directors

What it shows about public company Board composition:

  1. The on-going challenge to increase the # of women and minorities.
  2. Steady demand for current and past operating experience; financial expertise; global expertise.
  3. Increase in demand for technology, marketing, social media, cyber risk expertise. A couple of these are new to the ‘wishlist’ in the past five years.
  4. Decline in the importance (but still important) of industry expertise. This appears to reflect a growing recognition about the importance of attracting ‘outside’ perspective and learning.

Business owners I talk to have almost never expressed interest in attracting this mix of skills and expertise. Truthfully, I cannot think of one reason why they shouldn’t.

Private business owners interested in solid corporate governance can learn things from their public company counterparts. Other than ownership, everyone is competing in the same business landscape.