The Role of a Private Equity NED

Transparency is key to any business’s success. Family-run businesses in particular need an open and honest relationship within the leadership team to drive success, particularly if it is looking to evolve with a combination of brought-in talent as well as family members looking to progress in the business. This coupled with the business’ own inflection points like expansion overseas or developing digital strategies can be the perfect time in introduce an experienced non-exec director/chair to learn ideas from others who have navigated this path successfully.

The right leadership is key to a company’s success. But precisely how and who comprises this may evolve as a company grows and may mean different skillsets are required. Appointing non-executive directors can be an extremely effective way of bringing in specific expertise but just as importantly, an impartial individual who has access to those who have been on similar journeys. While expertise in a company’s market is an obvious starting point for any company looking to appoint directors, this can be overplayed. Chemistry, great people skills and a good contact base come much more into play if growth plans involve external funders for example – family-run businesses are no exception where maintaining control of the company’s destiny is critical whilst embracing the benefits a minority investor may bring. When this is the case, it is very helpful to ensure at least one board director has worked within private equity before and knows “what good looks like”. This experience should support a successful execution of the plans which management, the board and the private equity partner have agreed to pursue.

Non-execs should focus on the big strategic picture as boards serve to help companies maximise value. This value used to focus on shareholders, but increasingly it’s about ensuring a wider stakeholder group is considered as a company grows, such as the social and environmental impact of the business – and this is increasingly impacting attracting new talent, customers and investors. As part of this, a board gives management food for thought – it should put forth arguments for and against ideas and proposals which management are considering. In this sense it’s about focusing on the big picture to support management to make the right decisions rather than getting involved in the day-to-day running of a business.   

Communicating is crucial. Non-execs, particularly chairs, should have a timely and consistent contact with senior management and the shareholders – which can be family members and a potential external investor such as a private equity firm. This may mean weekly calls with the CEO, fortnightly calls with key shareholders and monthly calls with key management. The schedule is less important than the consistency; it’s about keeping the channels of communication open to keep the relationship dynamic. This is particularly important when private equity is financing a company. Private equity’s key strength is the decisiveness and speed of resources it can deploy whether introductions to key companies/people or being able to bring deep pockets to support an acquisitions or significant investment as opportunities arise. Sometimes there is nothing big to discuss, but each call inevitably results in constructive dialogue. Maintaining regular contacts makes any tricky discussions easier as there is a relationship based on trust and openness.

Collaboration is key between non-executive directors and management as they pursue their goals together. This collaboration should be for agreeing a path and then updating as they embark on the journey. The common objective is the success of the company and I find that this collaboration leads not just to increasing the decisiveness of the business and the ability for all to add value, but also sharing of a common passion and sense of achievement when things go right and shared disappointment when things unfortunately don’t.  It is usually the experience of non-execs that make them very valuable, and collaborating on specific initiatives that private equity may be supporting – namely M&A, international expansion or digital enhancement – will progress more swiftly with a non-exec experienced in these areas and with private equity backing to challenge and propel management along the way.

David Whileman is an Inflexion Private Equity Partner and is a member of its Executive and Investment Committees.  David leads Inflexion’s specialist £1 billion Partnership Capital Fund II, investing £10 - £300m for minority stakes in growing businesses.  He has served on as a Non Executive Director on over 20 Boards, including numerous family business.