The PE vs Public Company Chairman

There are plenty of chairmen who make the leap from a public to private-equity backed company and vice versa. Over the past couple of years, the size of the gap between the two roles has increased as the risks, liabilities and scrutiny that come with chairing a Plc stand in stark contrast to the rewards and returns that can be derived from working in PE.

After sitting in both camps, Geoff Brady, Chairman of high street retailer Robert Dyas, is clear about what he prefers: “You are constantly trying to look out for breaches of the Combined Code in a public company and whether something has been done or said that is creating a false market in your shares, or if anything around the board could constitute a conflict of interest.”

For others, this in itself, given the level of responsibility and the right organisation, has genuine appeal. Lady Barbara Judge, Chairman of the Pension Protection Fund, says: “People in public companies are [inevitably] more versed in the governance role… running the board rather than running the business. There is a lot of prestige in chairing a public company.”

But the depth of involvement to be found in PE companies, along with the potential rewards if there is a good exit, certainly has its attractions too. Bharat Shah, Chairman of the Dairy business Nijjar Holdings, says: “I always look at where I can make a difference, add significant value and be able to work [closely] with the people. Given that, I tend to go for PE.”

Roger Parry, a serial chairman who has sat on the boards of Plc and private ventures and is now Chairman of market research company YouGov, says that, with PE there is a closer involvement in the business and that, “if you are offered two PE companies, the probability is that you will choose the one with the greatest upside of making a gain”.

The ‘skin in the game’ element is another important consideration for Bharat, who, when comparing the two roles, says that the rewards for Plcs, both financial and emotional, “are not commensurate with the increases in time, pressure, stress and the risks you are taking”.

There will be those who disagree but the point is it’s crucial to weigh up the options and analyse what the various stakeholders will expect. Roger says: “As chairman or chairwoman, you have to remind yourself absolutely which ownership structure you are functioning in and modify your behaviour accordingly. It is quite possible for the same individual to be very successful in both contexts, [as long as] they maintain a consistently different behaviour set across the two.”

Alison Carnwarth, Chairman of commercial property company Land Securities Group, says: “The differences are in who appoints the chairman… [Plc] shareholders are not in a position to actively select the chairman of the business, whereas the private equity shareholders are.

“While the chairman is responsible to a number of shareholders around the globe, he or she isn’t going to please all of the people all of the time because the investors dip in and out… The whole [Plc] area is much more fluid and there is less direct accountability between the chairman of the Plc and the shareholder than there is in the private equity world.”

Sir Brian Bender, Chairman of the London Metal Exchange and a Criticaleye Associate, says: “A lot of it comes down to personal preference and motivation. So, for example, there are those who – and I speak as someone with no direct experience of private equity – are more attracted to PE.

“This is because they find three things more interesting: the much clearer focus… ; the prospect of being able to achieve goals with a little less public scrutiny because you are not accountable to dozens or thousands of shareholders (though you can get cases with a lot of public scrutiny), and you do not have the publication requirements of a listed company; and the financial rewards.”

That said, there are complementary skills. Debbie Hewitt, Chairman of clothing retailer Moss Bros, says: “The chairman’s priorities are about ensuring that the business has a clear strategy, that it has the right resources to deliver it and that the right priorities are relentlessly pursued, mindful of the risks being taken. This is true whether it is a Plc or PE environment.

“Plc chairmen need to be skilled at handling external communication – particularly when the business is going through… a fundraising, acquisition or executive change. Although the public communication role is not so necessary in the PE world, successful chairmen… provide an ambassadorial role for the business, particularly at the time leading up to an exit.”

With that in mind, it’s easier to prioritise your areas of interest and gauge what you can offer an organisation.  Lady Judge says: “I couldn’t say [public chairmanship isn’t worth the effort] – it is. Each role has different rewards and obligations… but I think you can do a meaningful combination.”

In fact, switching between both camps can certainly help hone the effectiveness of a chairman given the broader range of business experience. Debbie says: “As for the incentives, they are different, as are the risks and rewards. But that in itself doesn’t mean an individual can only be a success in one or the other environment.”

Diversification is one of the cornerstones of a healthy non-executive career, so aspiring chairmen can and should be open to the opportunities presented by both PE and Plc positions.

Though there is a different emphasis for both roles, they are not as far apart as you may think.

Please get in touch if you have any comments about the issues raised here.

I hope to see you soon

Matthew

www.twitter.com/criticaleyeuk

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