Most CEOs of private-equity-owned companies agree that private-equity (PE) firms can help their companies and advance their individual careers. But CEOs and PE firms often do not fully appreciate each other’s perspectives. This mutual misunderstanding can damage the relationship between the CEO and the PE sponsor.
Threats to a Vital Relationship
We believe that the PE-CEO relationship is vital to the central task of creating value at portfolio companies. The most common reasons for breakdowns in this rela- tionship are a lack of understanding of the other side’s perspective; a lack of flexibility and pragmatism on both sides; a mutual lack of trust and transparency; and a failure to appreciate all that the other side has to offer.
Keeping the Peace—and Creating Value
A few basic best practices can prevent the relationship from running off the rails. Both sides need to make the effort to understand the other’s mindset. PE firms and their professionals need to tailor their interactions with each portfolio company to suit the operating style and strengths of the CEO. CEOs need to accept the high de- gree of accountability that PE firms demand. Both sides need to do all they can to be open with each other. And PE firms should highlight the support they can offer.