private boards vs public boards

Private Boards vs Public Boards: What’s the Difference?

Both private company board service and public company board service come with a great deal of responsibility. In each instance, directors will be expected to review data and reports, attend meetings, serve on committees, and much more. In most cases, the experiences of serving on these two types of boards will be similar. There are, however, a few key differences that distinguish them.

Private companies come in many different sizes. You could have a board for a private company that earns $2 million a year or one that earns $120.4 billion a year—like food and agricultural conglomerate, Cargill. Oftentimes, private companies begin as family-owned businesses, which can heavily influence the make up of the board and how it operates.

For instance, in a family-created business, the CEO could also be a major shareholder. In a situation like that, the board would operate more in an advisory role since firing the CEO would be nearly out of the question.

The biggest difference between these two types of board service is in information disclosure. Public companies face a large number of requirements in relation to financial reporting, transparency, and more.

Influence of the Sarbanes-Oxley Act

The Sarbanes-Oxley Act of 2002 (also known as the “Corporate and Auditing Accountability, Responsibility, and Transparency Act) was a bill created in reaction to a string of highly publicized corporate and accounting scandals. It is the piece of legislation that has most greatly defined the responsibilities for modern public company boards of directors.

Sarbanes-Oxley contains eleven sections that outline various requirements and responsibilities—as well as punishments if they are not fulfilled. Some public companies have adopted strategies created by SOX in order to ensure that they are operating a more ethical and financially sound organization. They are not, however, bound to the same degree of scrutiny as public companies.

Public company boards also usually face a different type of ownership; they are typically beholden to thousands of shareholders. This alters public board decisions, which must be more risk-averse than some of the smaller and more nimble private companies.

Regardless of whether you serve on a private or public company board, collaboration is the key to effective decision-making. At Directorpoint, we help board members communicate more easily, so they can focus on strategy. To learn how Directorpoint’s board meeting software can transform your board, schedule a free demo.

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