VALUE CREATION TOOL BOX


Building an Effective PE Portfolio Company Board
Building an Effective PE Portfolio Company Board

One of the key success factors for creating value in PE portfolio companies is the board. A good, effective board can make the difference between good performance and great performance. Unfortunately, assembling the board is usually not given the amount of thought and attention it requires. It is the intent of this GenNx360 Module (gMOD) to outline what constitutes a good board and how to ensure that it operates effectively. Let's start at the beginning---how to staff the board.

At GenNx360, we start with our minus-100-Day Plan to assess the key skill gaps of the portfolio company's senior leadership team and to identify issues that may arise from the execution of our investment strategy. Once we have identified these, we use this to screen board candidates from within GenNx360 and within our Retained Advisors Team (RAT) to select board members who can best address these items. By using this approach, we are able to assemble a board with a custom-designed skill set to meet the needs of the business from day one.

Once the board is staffed, it is important to make sure that there is clarity on what are the key issues and ends that the board should focus on and what they should not. Many boards get off track and become ineffective because they get bogged down in dealing only with the problems of the month. They become fire fighters. At GenNx360, we believe that our portfolio boards should do five things:

  1. Select the right "C Suite" leaders for the business.
  2. Work with the senior leaders to develop strategy.
  3. Allocate resources (people & capital) to drive the strategy.
  4. Oversee the establishment and maintenance of Governance and Risk management of the business.
  5. Once the board has done items 1-4 above well, it should stay out of the way of management. It should not micromanage!

It is also a best practice to establish an operating rhythm for the board that is tied to the fiscal calendar year of the business. This will lay out for both management and board members the timing of the annual board review of budgets, core growth strategy of the business, key talent performance reviews, succession plans, competition, and M & A.

Having a well thought-out and well-staffed board that is operating with a clearly defined operating rhythm will be a great asset to the management team and the business. An added benefit will be that board meetings will be robust and lively while still being efficient in their use of time and effective in their impact on the business.

Prepared by: Arthur H. Harper, Founder and Managing Partner








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