Sunday, June 29, 2008

Run Your Company like a PrivateEquity Firm Board

If Private Equity Sized Up Your Business.
By: Pozen, Robert C.,
Harvard Business Review,
Nov 2007, Vol. 85, Issue 11

A broad review of what happens at companies in the aftermath of private equity buyouts reveals five major thrusts of reform. These translate into five key questions that directors should pose to senior management and impress upon them to come out with a thoughtful response and action.

• Have we left too much cash on our balance sheet instead of raising our cash dividends or buying back our own shares?

• Do we have the optimal capital structure with the lowest weighted after-tax cost of total capital, including debt and equity?

• Do we have an operating plan that will significantly increase shareholder value, with specific metrics to monitor performance?

• Are the compensation rewards for our top executives tied closely enough to increases in shareholder value, with real penalties for nonperformance?

• Have our board members dedicated enough time and do they have sufficient industry expertise and financial incentive to maximize shareholder value?

Robert C. Pozen ( is the chairman of MFS Investment Management, a global money management firm. He is based in Boston.

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