SOURCE: The Boston Consulting Group

The Boston Consulting Group

November 20, 2013 00:01 ET

PE Firms and Their CEOs Need Each Other to Succeed

Private-Equity Firms and Their Portfolio-Company CEOs Can Take Tangible Steps to Improve Their Partnerships, Says a New Report From BCG; The Report Features Perspectives Shared by PE Firms and CEOs

LONDON, UNITED KINGDOME--(Marketwired - Nov 20, 2013) - Although the relationship between private-equity firms (PE) and their portfolio-company CEOs is crucial to the success of PE investments, that relationship is often marred by mutual misunderstanding and skewed expectations. A new report by The Boston Consulting Group can help PE firms and CEOs nurture and maintain a productive relationship that delivers significant benefits for both parties. The report, "Private Equity and the CEO: Partners in the Quest for Value," is being released today.

BCG recently interviewed and surveyed more than 60 PE professionals and current and former CEOs of PE portfolio companies on the subject of their relationship. "Private Equity and the CEO: Partners in the Quest for Value" covers the most revealing and salient results of these studies.

"One lesson that stands out is that while most PE professionals would describe their relationships with their CEOs as partnerships, even the most successful partnerships have points of friction," said Antoon Schneider, a BCG partner and coauthor of the report. "For example, CEOs accustomed to running their own show often bristle when PE firms intervene in management issues."

By the same token, PE firms have the right to remove underperforming CEOs -- and they are quick to assert that right when necessary. BCG's research into 198 companies currently under PE ownership found that 57 percent have already changed CEOs since being acquired.

Tensions between a CEO and a PE firm often arise because the CEO fails to grasp what PE firms prioritize when they select and evaluate a chief executive. PE firms, for example, generally want their CEOs to focus primarily on operational matters, while CEOs view themselves as strategists first and operators second.

Yet despite the inevitable challenges and complexities of the relationship, more than 90 percent of CEOs at portfolio companies agree that the PE owner has had a positive effect on their company's performance. An almost equal percentage of CEOs say that the PE firm has enabled them to succeed in their role and has made them better at their jobs.

Properly managed, the PE-CEO relationship can spur value creation in a powerful way. BCG recommends that CEOs and PE firms alike keep four key imperatives in mind.

The first is to understand where the other side is coming from. For CEOs, this often means refreshing or gaining new technical and financial skills. For the PE firms, this often means taking time to identify and dispel any preconceived notions about PE that CEOs might hold.

Second, firms and CEOs should also set clear and achievable objectives together, defining roles in detail and avoiding a one-size-fits-all approach.

The third imperative is, simply, be transparent. PE firms and CEOs need to maintain transparency when the news is bad as well as when it is good.

Fourth and finally, PE firms and CEOs must consciously and continually strive to extract the full benefits of their partnership. A PE deal works best when the PE professionals and the CEO are each other's greatest ally. In a world where private equity is focused on driving real value creation, making the relationship work should be a priority for PE firms and CEOs alike.

A copy of the report can be downloaded at www.bcgperspectives.com.

To arrange an interview with one of the authors, please contact Eric Gregoire at +1 617 850 3783 or gregoire.eric@bcg.com.

About The Boston Consulting Group
The Boston Consulting Group (BCG) is a global management consulting firm and the world's leading advisor on business strategy. We partner with clients from the private, public, and not-for-profit sectors in all regions to identify their highest-value opportunities, address their most critical challenges, and transform their enterprises. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 78 offices in 43 countries. For more information, please visit bcg.com.

About bcgperspectives.com
Bcgperspectives.com features the latest thinking from BCG experts as well as from CEOs, academics, and other leaders. It covers issues at the top of senior management's agenda. It also provides unprecedented access to BCG's extensive archive of thought leadership stretching back 50 years to the days of Bruce Henderson, the firm's founder and one of the architects of modern management consulting. All of our content -- including videos, podcasts, commentaries, and reports -- can be accessed by PC, mobile, iPad, Facebook, Twitter, and LinkedIn.

Contact Information

  • The Boston Consulting Group
    Eric Gregoire
    Global Media Relations Manager

    Tel +1 617 850 3783
    Fax +1 617 850 3701
    gregoire.eric@bcg.com