73% of PE-backed CEOs are replaced during the investment; 58% within 2 years. Misalignment with strategy is the top reason, yet many replacements occur after the first year, implying lost time. Highlights the high cost of keeping a wrong-fit CEO.
Confirms leadership as the #1 factor in deal success, stating: “75% of deals that go wrong, it’s due to the wrong team.” Highlights a gap between recognizing leadership’s importance and actively investing in leadership diligence/optimization, noting firms prioritize financial or market diligence instead. Identifies leadership impact quantification as one of academia’s most under-researched areas.
92% of PE firms acknowledged that slow action on talent issues led to underperformance, with nearly 70% experiencing this in over half their deals. Yet 93% viewed CEO changes as risky; paradoxically, CEO replacements succeeded 75% of the time. Emphasizes the need for faster, data-driven talent decisions aligned with the value-creation plan.
Reported that ~50% of PE firms replaced portfolio CEOs unexpectedly 60% of the time. Identified three critical leadership skills essential for PE success: (1) strategic & systemic thinking, (2) building alignment & commitment, and (3) developing team talent. Only ~25% of CEOs assessed excelled in all three, highlighting a talent gap. Advocates for more rigorous CEO evaluation methods, such as 360-degree feedback.
Argues PE firms historically under-invest in leadership development, focusing narrowly on CEO/CFO selection and incentives. With increasing market competition, the article urges a shift towards comprehensive leadership strategies—systematic leadership assessments, targeted development, and proactive culture-building within PE portfolios.
Describes industry shifts where value creation increasingly stems from strategic growth and operational improvements rather than leverage alone. Effective leadership now plays a heightened role, requiring active partnerships between PE firms and management, clearly defined value creation goals, cultures of accountability, and effective change management. Emphasizes recruiting and developing robust executive teams (often through enhanced HR capabilities) as critical to executing successful plans.
Empirical studies (e.g., Davis et al. 2014; Cohn et al. 2014) indicate PE-owned companies typically outperform industry peers in productivity and profitability, largely due to improved governance and operational practices. However, leadership/team factors are rarely isolated in these analyses, creating a research gap. Evidence suggests leadership quality alone accounts for approximately 10–15% of variance in company performance. Calls for more targeted research on the impact of specific leadership practices—such as team composition, interim roles, and organizational culture—on financial outcomes.