The Handbook of Board Governance, 2nd Edition

5The Nonexecutive Chairman: Toward a Shareholder Value Maximization Role

Henry D. Wolfe

Chairman of De La Vega Occidental & Oriental Holdings, Activist Investor, and Author of Governance Arbitrage

We talked earlier about the fact that there are two basic ways to get public companies to maximize value. They can either go private or they can take a number of steps that make them look and act more like the companies under the private equity model.

—Michael Jensen, Jesse Isador Strauss Professor of Business Administration Emeritus, Harvard Business School¹

Until the onset of the economic crisis, which has skewed results and valuations across the board, multiple studies reflected that portfolio companies of the top private equity firms outperformed their publicly traded peers in the growth in enterprise value.² This outperformance was not due to financial engineering, arbitrage, and so on, but was driven by actual improvement in revenue and EBITDA growth. And, more relevantly, these studies found that at the core of this outperformance was the more robust and engaged corporate governance model developed and executed by private equity firms.

The applicability of the private equity shareholder-focused model of governance to publicly traded companies is not a new subject. As represented by the above quote from Michael Jensen, Morgan Stanley hosted a high-level roundtable in April 2006 to address this very issue. However, very little to nothing has been achieved to date in this regard. ...