My kids taught me why the private equity governance model works
My wife and I are trying to bring up our kids to be financially responsible human beings. Four things jump out at me in this process:
Good alignment, long-term horizons, good information, and direct relationships are the hallmarks of a private equity GP’s relationship with the management team of a portfolio company. Let’s paint a very different picture. What if someone told us that the responsibility for our children’s financial education was going to be split equally between all of the parents in their respective classes – and we were going to take a similar role for all the other children?
Yet isn’t that pretty much the model used for shareholder governance in the tens of thousands of public companies? Shareholder representatives with little or no incentive when things go well or badly; short term horizons with the ability to sell out at will; limited information and limited time to digest that information; and poor coordination between large and diverse groups of investors? What could possibly go wrong?
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