From McKinsey Public vs Private

The voice of experience: Public versus private equity

Few directors have served on the boards of both private and public companies. Those who have give their views here about which model works best.

DECEMBER 2008 • Viral Acharya, Conor Kehoe, and Michael Reyner

In This Article

• Exhibit 1: Among UK directors interviewed, most say the boards of private-equity portfolio companies are more effective than those of their public counterparts.
• Exhibit 2: Nonexecutive directors of public companies focus more on avoiding risk than on creating value.

Advocates of the private-equity model have long argued that the better PE firms perform better than public companies do. This advantage, these advocates say, stems not only from financial engineering but also from stronger operational performance.

Directors who have served on the boards of both public and private companies agree—and add that the behavior of the board is one key element in driving superior operational performance. Among the 20 chairmen or CEOs we recently interviewed as part of a study in the United Kingdom,¹ most said that PE boards were significantly more effective than were those of their public counterparts. The results are not comprehensive, nor do they fully reflect the wide diversity of public- and private-company boards. Nevertheless, our findings raise some important issues for public boards and their chairmen.