Primary Functions of a Board of Directors in Middle-Market, Privately-Held Companies

Watch any movie featuring a large company and there will likely be a passing reference to a Board of Directors. It is automatically assumed that corporations of such size could not possibly operate without one and, in many cases, that is correct. But what about the smaller companies? Specifically, what about the middle market?

The middle market refers to any business that brings in somewhere between $10 million and $1 billion in annual revenue. They are often (but not always) privately-held and either family or private equity owned. These middle market companies are critical to the economy and navigating them towards a prosperous future can be somewhat tricky in a constantly changing environment. Because of their private status, they are not legally required to create a Board of Directors. In many cases, however, it can be quite beneficial.


Family-owned middle market businesses stand to gain confidence and peace of mind in the direction of their future when working under the guidance of a Board of Directors. The addition of well-chosen, outside points-of-view assists in ensuring the longevity of your company is not compromised by the personal sentiments that often come with building a successful business.

In this capacity, the primary function of the Board of Directors would be to:

● Consider the future direction of the company as it relates to its entire existence as opposed to a single goal.

● Provide insight and expertise on subjects that the CEO or other family owners may not have the experience to handle on their own.

● Create an environment of accountability with owners/managers of the business to deliver on commitments made to the Board in terms of both financial and non-financial performance measures (example: sustainability, EH&S, Net Promoter Score, etc.)

● Reduce risk by suggesting and enacting strategies, like succession planning, that have the best interest of the company in mind.

● Improve the credibility and public opinion of the company by presenting a well-rounded, non-biased group of individuals working to protect interests.

Private Equity Owned

A Board of Directors for a Private Equity (PE) Owned company might look slightly different than a traditional board. While still middle-market, the main goal of a PE Board is to protect the short and long-term investments of the managing PE firm. As a result, these boards usually consist of 2-4 members from the PE firm itself, but only 1-3 outside directors.

Most private equity boards work by utilizing the CEO and CEO performance to drive execution, but governance and strategy are equally as important to their long-term success. Traditionally, a PE-owned company with a Board of Directors can be a much more rigorous path for a CEO, as he or she must work hard to implement and execute the wishes of the majority owner while at the same time keeping his/her fiduciary responsibilities to shareholders first and foremost. The role of a CEO for a PE-owned company is actually quite simple, increase shareholder value in line with expectations, and a savvy Board of Directors can provide guidance and insights to the CEO on how to improve EBITDA— a crucial measure of any CEO’s performance.