Predicting the Scalability of Leadership in Private Equity

Rianne Silvey | 24 January 2024

In this latest piece, Rianne Silvey shares insight into how you can accurately predict the value of your portco leadership, in leveraging independent assessments in human capital due diligence.

Leadership dynamics in private equity present distinctive challenges that set them apart from public companies and family businesses, and give rise to several unique challenges:

  • PE investors aim for swift returns within a 5-to-7-year holding period. This can create significant psychological pressure and can mean not enough investment is given to leadership development and HR.
  • PE firms and the portco’s executives may hold differing perspectives on what constitutes an exceptional leader.
  • Portcos, particularly platforms or carve-outs, can often lack a robust management structure.
  • PE fund managers will likely adopt a more hands-on approach in managing the portcos, which can lead to potential tensions and disagreements between owners and operators.

Given these contextual factors the necessity to understand the capability of the portco leadership is central. Yet we often see these ‘mistakes’ across the due diligence process in a bid to get under the skin of the leadership team in question:

  • Relying solely on routine background checks instead of implementing a formal assessment process.
  • Trusting gut instincts over independent analysis.
  • Falling victim to ‘deal fever’ and confirmation bias, leading to overestimations of leadership capabilities.
  • Overemphasising charisma, confidence, and presentation skills in evaluating leadership talent.
  • Utilising recruitment-style candidate assessments unfit for the nuanced and sensitive deal context.
  • Focusing solely on the CEO without considering the broader leadership capability across the top team.


What do you need to consider? – The Power of Independent Assessment

A well-crafted deal thesis should identify the specific management capabilities required to effectively execute the chosen strategy, understanding that different approaches (e.g., cost-cutting vs. aggressive growth) demand varying leadership skills. Therefore, the human capital due diligence is a critical phase where leadership should be meticulously evaluated to align with the deal thesis. Look for alignment with the strategy, identify key personnel to retain, assess the organisational culture, and gauge wider, employee engagement.

Conducting an independent leadership assessment as part of deal due diligence is a simple yet effective solution to prevent setbacks and maximise returns. By predicting leadership performance, you can gauge how well leaders align with the future strategy and take proactive steps to mitigate risks and accelerate investment success.

Engaging a human capital due diligence specialist offers expert, objective analysis using evidence-based methodologies. This process is not time-consuming and can be seamlessly integrated into conventional due diligence activities. It also proves cost-effective, given the substantial sums involved in your investments.

The assessment should scrutinise leadership capabilities across the entire leadership team, not just the CEO, focusing on team dynamics and complementary skills.

Independent assessors understand their responsibility to individuals, investors, and the company, ensuring a transparent and fair process that instils confidence in the leaders being assessed. Through independent assessment, you can gain a comprehensive understanding of each leader’s capabilities and motivations, assessing their suitability for their expected roles. It allows you to predict the effectiveness of leadership both individually and collectively.

An appropriate assessment methodology can highlight red flags regarding future performance and identify positive traits needed for post-acquisition roles. It is indeed possible to predict future performance with a high degree of accuracy, as specific values, skills, behaviours, motivations, and cultural fit can be measured.

Incorporating independent leadership assessments into the private equity due diligence process is a proactive approach that can significantly enhance the chances of investment success and maximise returns while mitigating risks associated with leadership challenges.

Discover more about our leadership assessments, or if you’d like to speak to one of our consultants, please contact us.

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