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May 5, 2009

5 Questions Board Directors Can Learn From Private Equity

If Private Equity gets involved with a company, as either a minority partner or over 50% ownership, there are usually five major thrusts of reform.
These translate into five key questions that directors should pose to senior management and expect a thoughtful analysis in response. If you are a Board Member, take note and try asking them at your next Board meeting:
1. Have we left too much cash on our balance sheet instead of raising our cash dividends or buying back our own shares?
2. Do we have the optimal capital structure with the lowest weighted after-tax cost of total capital, including debt and equity?
3. Do we have an operating plan that will significantly increase shareholder value, with specific metrics to monitor performance?
4. Are the compensation rewards for our top executives tied closely enough to increases in shareholder value, with real penalties for nonperformance?
5. Have our board members dedicated enough time and do they have sufficient industry expertise and financial incentive to maximize shareholder value?

Jacoline Loewen is a partner with Loewen & Partners and has been a Board Member for Bilingo China, Innovation Exchange, The Women's Post, Strategic Leadership Forum and more.
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