How to Be a Successful CEO in a Private Equity-Controlled Company

I’ve worked for and with PE firms, and I’ve coached CEOs and other executives in firms owned by PE. I highly respect some of those firms and disdain others. It’s about how they go about their business. (Most of my comments apply to any tightly controlled ownership group, e.g., family businesses.)

The line isn’t bright, but there are effectively two camps: those that are sure they’re the smartest people in the room and those who know they might not be.

After reflecting on the knowledge from my operating days, my experience coaching CEOs and other executives who worked in PE-owned companies, and conversations with many other CEOs with this background, I developed eight rules to give you, the CEO, a fighting chance of a successful engagement.

1. Understand what a win is. It isn’t a mystery as to what PE firms want: the largest return possible in the shortest amount of time. Never forget that. Your job, if you accept it, is to facilitate this. There’s nothing inherently wrong with this, but the short-term thinking it can drive may be frustrating. If you believe professional development, an inclusive culture or customer satisfaction are more important than the return on invested capital, find another job. If cost cutting your way to greatness is your skill set, good for you, but I’d be much happier about working for a PE firm who wanted to grow their way to success.

2. Get it all in writing. If your offer (compensation, benefits, stock ownership) is verbalized in a statement that sounds something like “My word is my bond,” reply “Then there should be no problem putting it in writing to make sure I fully understood all the details.” I’m pretty sure their purchase agreement, loan documents, limited partner agreements and office lease are documented, so why wouldn’t your agreement be? If they won’t give it to you in writing, run — don’t walk. 

3. Look at the partners’ backgrounds for real operating experience (e.g., CEO or senior leadership roles). If there isn’t any, you may be deluged with unreasonable requests. Pay specific attention to the next rule!

4. Agree on how deep they’ll be in your details. Here are a few questions to explore this:

a. “Will you be involved in detailed operational issues?” 

b. “At what level of financial event will you be involved?”

c. “What process do you use to approve strategic plans and budget?”

d. “What is my spending authority?”

e. “Will you give direction to my teammates, or will it come from me?” (The answer to this one might, and should, cause you to run for the hills.)

f. “Will I make all hiring and firing decisions?”

g. “Are there any decisions that I won’t be involved in?”

It’s important for you to reach agreement on these issues at the onset, not when you or they reach a boiling point!

5. Agree on whom you’ll interact with and how often. Consider the following:

a. Will your direction come from the board? 

b. Will the senior partner overrule the board? 

c. Will you take direction from everyone in the PE firm (run very fast!)? 

d. On average, how many times a month do they interact with the other portfolio companies’ CEOs? 

e. Who will be on the board, and how are they appointed? 

f. If you’re in the middle of a value-creating activity (e.g., a customer visit or a team meeting), will they agree that they won’t demand your time without notice?

6. Insist on transparency (and deliver it). Can you agree that they will be completely transparent with you and you with them? You should be willing to share all the good and bad news, and they should not have a cabal.

7. Call the PE firm’s current and previous portfolio CEOs to understand how you can be most successful. Inform the firm ahead of time; if they balk, you have problems. 

8. Be ready to walk away, don’t violate your values and know where your leverage is. No silly threats, but stand your ground. 

If you did a good job with the questions above, there should be relative clarity around how you’ll work together. If you leave it to chance, you’re in trouble.

PE is a very valuable component of our economy. There are many wonderful people involved, and there are some who believe their family tree, degree or bank account caused them to be the smartest person in the room. The eight rules above will help sort that out.

Some of you are partners or operators in a PE firm. If you struggle to develop a positive and effective relationship with your CEOs or to get them to create and execute a winning strategy, understand that you own that. Call me and we’ll work on it. You’ll likely get a better return on your investments and have more fun!