November 2, 2022

Are Operating Partners sitting on Portfolio Company Boards? 

And How can that Dynamic Impact Firm Culture?

“Do your Operating Partners take Board seats, or not?”  I feel like this is one of those questions in our community which doesn’t always necessarily elicit an authentic answer.  I don’t mean that people are untruthful in their responses, but I do think they may be following the party line in delivering their answer.  

I know that there are legitimate arguments on both sides of this debate.  If we think about the reasons for NOT serving, they’re hard to argue with.  Can it create a weird condition with the CEO you’re attempting to help?  Possibly… but hasn’t that already been an age-old dynamic in PE that pre-dated the pervasive employment of Operating Partners? (Moreover in concept, wouldn’t an Operator actually be a more valuable contributor in Board meetings than an Investor?)  Could there be a more nuanced way to achieve the same result through an informal Board observer role?  Sure, maybe that could make sense.

Are there firms out there that keep the Board seats for deal guys only, and have a “policy” around making that exclusive to one element of the firm?  Yes… and in many cases even very junior deal people get a Board seat.  For me, that one is harder to argue in support of.  

When I’m recruiting sitting Operating Partners to potentially make a lateral move to another shop, the number one reason why people pick up their heads relates to firm culture.  Full stop, every time.  The phrase “second class citizen” has a hard and fast connotation in PE for a reason.  Can you even think of another profession where that phrase is bandied about as much as it is in PE?

Earlier this month I put this question out to the community via my LinkedIn page and received a number of responses.  We framed the question as follows:

“How many of your firm’s portfolio companies’ Boards are you presently serving on?”

Here’s what the data shows…

  • 7% responded “More than 5”
  • 49% responded “3-5”
  • 17% responded “2 or less”
  • 27% responded “none”

For the bottom quartile that don’t serve on any Boards, I wonder if they might choose differently if they had their druthers.  If we wanted to create an environment of positive firm culture, I think this would be an easy place to start given that 75% of the industry seems to already be there.  Offer a Board seat to your Ops Partner.  Maybe he or she will refuse for very valid reasons, but the invitation itself is a step in the right direction.



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