Effective private equity boards function as strategic advisory councils rather than governance bodies. Board members are expected to be co-investors who actively help with strategy, networking, and operational challenges like procurement, making them a key part of the value creation engine.
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Capital has become commoditized with thousands of PE firms competing. The old model of buying low and selling high with minor tweaks no longer works. True value creation has shifted to hands-on operational improvements that drive long-term growth, a skill many investors lack.
A16z's decision to add Hollywood agent Michael Ovitz to their board was controversial but genius. It directly led to modeling the firm after Creative Artists Agency (CAA), a novel approach in venture capital. This shows the power of seeking board-level expertise from outside your industry to challenge core assumptions and unlock game-changing strategies.
A board member's role includes flagging strategic risks, including geopolitical exposure that could drastically limit future acquirers or prevent an IPO. Advising a CEO to relocate teams from a high-risk country is not operational meddling, but a core governance duty.
To build stronger alignment and leverage board expertise, Chili's CEO pairs each executive with a specific board member as a mentor. This formal structure moves beyond typical board presentations to create genuine working relationships and opportunities for targeted guidance.
To maximize value creation, young private equity firm Teopo Capital made a strategic decision to hire a full-time operating partner dedicated to portfolio companies before building out a fundraising team. This signals a deep commitment to hands-on operational improvement as their core strategy.
When assessing a co-investment, LPs should request data on employee participation. Deals where the PE firm's own staff invest their personal capital tend to be the better-performing ones, serving as a powerful, internal signal of conviction that goes beyond the official pitch.
TA Associates uses a hybrid investment committee. A central group reviews deals but delegates final approval to a small team of four partners (two from the deal team, two from the committee) who conduct deep, in-person diligence. This decentralizes decision-making to those closest to the information.
Exor's governance model focuses on finding the right leaders and then giving them space to execute. They review plans and organizational structures but avoid micromanagement, viewing their role as a supportive yet challenging partner to the CEOs of their portfolio companies.
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