Statistics show that private company Boards are smaller and composed of fewer unrelated Directors than public company Boards.

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

Private Company Boards are Less Independent

Private company boards are overwhelmingly composed of related Directors – owners, family, executives and professionals associated with company including 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. 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.

Private Company Boards are Smaller

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 interesting. 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 the ‘wishlist’ shows about public company Board composition:

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

Is There Learning for Private Company Boards?

Perhaps, depending on the Board. Our work with private company Boards confirms that they are less independent, with a narrower range of expertise than the public company Boards that we work with. From our perspective, independence and breadth of expertise are important. Independence helps Boards be more objective about risk. Expertise helps them be better prepared, both for identifying risk and also for setting and executing strategies.

Size of a private company Board is only relevant if the Board is simply too small to accommodate necessary skills and independence. Many public company Boards are not large (typically less than eleven Directors). However, most of them are primarily composed of independent Directors.