Public-company boards are at a crossroads. For decades, many of them have operated in administrative mode, focusing on checking boxes rather than confronting the sticky issues that determine a company’s fate. Discussions of capital allocation, CEO performance, and strategic direction are often squeezed between risk updates and reports from the environmental, social, and governance committee. But expectations for board performance are shifting—and fast.
Public companies feel an urgency to evolve. They know they must adapt to compete with a growing pool of competitors backed by private equity (PE). In the United States over the past 25 years, the number of public companies fell by one-third, while private businesses surged.1 And research shows that these PE-backed companies have consistently outperformed their public counterparts.2 The PE model, which is largely focused on value creation, isn’t a magic bullet that solves every boardroom challenge. But it’s working to create positive outcomes for companies across industries.
In this article, we share seven common PE practices that public companies can use to build more vigor and accountability into their boards. These practices don’t require structural overhauls or new regulation. But they do require intent, courage, and a renewed focus on what boards are there to do: help companies create value.
Putting some of these practices into place requires a cultural mind shift, such as a willingness to tackle tough topics. For example, public-company boards at underperforming companies frequently hold meetings that are polite and scripted; the central issue of underperformance goes unaddressed. This kid-gloved approach is more common than many would think—and it’s costing shareholders. Meanwhile, a PE-backed-company board may devote a full board meeting to an uncomfortable but necessary conversation with the CEO about a failing plan. Our research, based on the 2024 McKinsey Global survey of boards of directors, finds that PE-backed-company boards spend 21 percent more time discussing strategic initiatives during board meetings than public-company boards do.3
Other advantages of PE-backed-company boards are structural, making them more difficult for public-company boards to adopt. After all, PE-backed-company boards face comparatively fewer public-disclosure requirements, have longer time horizons to deliver value, and can create stronger director alignment through incentive structures. Public-company boards, on the other hand, must meet far more requirements (see sidebar, “Public-company boards face distinct challenges”).
There’s one main PE practice that public-company boards can apply right away: a new approach to value creation. When public companies strengthen their boards by applying proven PE principles, they can improve medium- and long-term value creation. Our survey research shows that 47 percent of PE-backed-company boards say they have a very high impact on value creation, versus only 11 percent of public-company boards (Exhibit 1).
When public-company boards are ready for change, they can deploy some of or all the following seven strategies used by PE-backed companies’ boards to infuse more energy into their boardrooms. These practices put value creation at the center of board governance.
1. Establish clear expectations for board directors
In many public companies, board responsibilities are left vague or implicit, often guided more by tradition than by current strategic needs. By contrast, PE-backed companies are deliberate in articulating what they expect of directors, often summarized in a few written principles and periodically revised, from the outset. At the core, PE-backed-company directors think and act as owners. They’re expected to immerse themselves in the business and actively engage with company leaders between meetings. They’re also expected to understand the investment thesis—how the company aims to meet its target returns, where it stands on that journey, and what role the board plays in achieving those goals.
The PE model makes every director a steward for value creation. Directors shape everything from agenda design to discussion tone, and they’re invited to bring candor to conversations and challenge other members on tough topics. However, this kind of intensity only works if board directors trust one another and are committed to healthy conflict resolution. A strong chair who can synthesize viewpoints and manage heated discussions constructively can help this process.
Public-company boards could benefit from clearly codifying expectations for directors when they join. Onboarding is a critical period to define roles and get directors excited about what lies ahead. Since public-company board directors haven’t been involved in a due diligence or deal process the way that PE-backed-company board directors often have, their onboarding materials should include deep dives into the industry, the value creation potential, and all strategic initiatives.
2. Create smaller, more carefully composed boards
Public-company boards tend to be large—often unnecessarily so. The average S&P 500 board has an average of 10.8 directors, while PE-backed-company boards typically have a median of seven.4 Smaller boards make meetings easier to schedule and decision-making more straightforward. But it’s not just the number that matters; it’s also the composition. Directors of PE-backed-company boards are rarely selected for prestige value alone; instead, their selection is for the ability to move the needle. The best PE-backed-company board directors bring operational expertise and familiarity with value creation levers. Creating an aligned group of decision-makers supported to share their honest opinions is something that many PE-backed-company boards get right.
By contrast, public-company boards often prioritize representation through geographic diversity, legacy credentials, and stakeholder signaling. These have value, but when they displace functional impact, a board can become less effective. Thus, public-company boards have an opportunity to rethink composition as a strategic advantage rather than a compliance obligation. Smaller, more deliberate boards are often more effective. Our survey research shows PE-backed companies are four times more likely than public companies to rate their boards as very effective (Exhibit 2).
3. Spend more time with important stakeholders
Some key differences between public- and private-company boards are how directors allocate their time and who they spend it with. Our survey research found that PE-backed-company board directors, when compared with public-company ones, spend 55 percent more time engaging with shareholders, 41 percent more time with management, and 19 percent more time with customers and employees (Exhibit 3).
These aren’t symbolic interactions. They’re high-value engagements that uncover performance blockers. It’s fairly common for PE-backed-company board directors to listen to call centers’ customer recordings, meet dissatisfied investors, and shadow high-performing employees. The overarching goal of many board directors is to uncover uncomfortable truths by listening closely to as many stakeholders as possible. These interactions by PE-backed-company boards should be common for public-company boards too.
4. Create and circulate a value creation bridge
Every high-performing PE-backed company has a value creation bridge. This is a graphic showing current equity value on one side and four to eight specific value drivers that must be executed to reach that target return. PE boards use value creation bridges to understand the different factors that contribute to an overall increase in value for an investment over time. Often, the bridge includes one or two negative value blocks to account for risks that need to be neutralized. The bridge is a focal point of every board discussion. According to our survey research, PE-backed-company boards spend significantly more time discussing strategy and value creation in meetings than public-company boards do (Exhibit 4).
Public-company boards often lack a value creation bridge. This lack frequently stems from time constraints, since public-company boards must strike a balance between strategic thinking and detailed oversight responsibilities. Even when such boards endeavor to spend more time on strategic discussions, they often get bogged down in reviewing lengthy and complex compliance materials.
Public-company boards can develop and agree on a value creation bridge during the typical strategy process and share it at least a week before every board meeting in a concise premeeting read (preread). Directors are expected to arrive having fully reviewed the preread so that they can dive straight into a discussion of what matters. Prereads don’t need to be dense compendiums. In fact, a PE-backed-company board’s preread is very often lean. It’s filled with numbers that show how the company is performing toward its investment thesis, wasting little space on updates that aren’t central to value creation. Prereads for public-company boards will also need to provide required information on governance and compliance topics, but these components can be short and to the point.
5. Use meeting time to discuss, not to present
Board meetings in PE-backed companies have few presentations. Management rarely engages in show-and-tell to describe the company’s most recent accomplishments, which are already summarized in the preread. Instead, time is reserved for what only the board can do well: debate, decide, and drive.
In many PE-backed-company board meetings, the CEO, but not broader management, is in the room. This isn’t exclusionary; it instead creates space for open discussion. If a particular business line is struggling, its leader can be invited to discuss strategies to get it back on track. But there’s no need for line managers to show up solely to present their wins, walking everyone through slides they have already seen in the preread. Most importantly, PE-backed-company boards allocate time with intent. Most of the agenda is devoted to strategy execution and creation through pointed discussions about pricing, commercial acceleration, and cost levers.
For public-company boards, making a shift from reporting to acting can be transformational. We see some of them introducing practices such as a board-only dinner the evening before the meeting to invite honest and transparent conversation. This is at least a starting point. But going forward, public-company boards could strip their meetings down to the important details, relegating updates to the preread only.
6. Spend more time outside formal meetings
For private companies, much of the board’s impact happens between meetings at offsite activities, deep dives, and direct engagements with business leaders. PE-backed-company board directors often attend customer events and join talent reviews, for example. By engaging directly with customers and employees, they build trust and gain insight into the company’s strengths and weaknesses. Another option is to hold more frequent, shorter board meetings that invite one-on-one interactions. In these less formal settings, communication is often more casual, inviting honesty.
In a public company, this type of after-hours approach would need to be managed in full transparency to avoid information asymmetry among board directors and to meet privacy requirements. There’s also a risk of creating too much extra work for the executive team if board directors are continually asking them to join customer or employee meetings. However, public-company boards can and should create opportunities for regular conversations by board directors outside of their standing, periodic board meetings.
7. Simplify incentives, and tie them directly to value creation
One of PE-backed companies’ most effective board governance levers is clarity of incentives. Their board directors’ compensation ties directly to absolute value creation, producing a strong incentive for them to make decisions that increase the company’s overall value. Meanwhile, public-company board directors’ compensation generally tends to be a fixed amount that’s not tied directly to value creation.
While public-company boards have comparatively less flexibility in how they compensate board directors, they can explore ways to tie directors’ performance more directly to their rewards. For example, they can invite directors to take part in optional stock buy-ins. This is more flexible than granting shares, which can be limited by financial regulations and shareholder rights.
But equity isn’t a silver bullet for board effectiveness. For public-company boards, equity compensation plans for directors should be based on the company meeting both short- and longer-term performance targets. These plans should also carefully safeguard board director independence. Directors can be required to hold their shares for longer time horizons. This would motivate them to focus on delivering shareholder value each quarter but not at the expense of the strategic decision-making that drives long-term company resiliency.
By borrowing from the PE playbook, public-company boards can become increasingly effective. Those that embrace a more flexible mindset can gain competitive advantage while still meeting their stringent fiduciary and oversight responsibilities. They can shift from oversight to strategic stewardship and from box checking to bold decision-making. The scrutiny of public markets is here to stay, but so is the imperative for boards to drive performance and stay relentlessly focused on what moves the needle.
