Leadership Development in PE-Backed Companies

How do you think about hiring for vs. cultivating the skills important in a PE-backed context?

The “hire vs. develop” question is actually a false choice- in today’s hyper-competitive PE market, you need to do both — and here’s why:

The private equity market has grown threefold – over the last decade, but the supply of PE-ready executives hasn’t kept pace. This gap between supply and demand has resulted in a “war for talent” that incentivizes companies to find or develop good talent however they can.

Use the 80/20 rule to assess talent readiness – the “hire vs. develop” question is a false choice. The most successful firms take a strategic, systematic approach to doing both. Assume that even your best hires will arrive with 80% of the skills you need, and that you must deliberately develop the remaining 20% through a development program, board support, or coaching.

Create internal pipelines for critical roles – certain positions, such as CFOs, are in high demand and very difficult to find, leaving firms with no choice but to figure out how to cultivate talent from within. This requires planning, program development, and strategic hiring.

Think of leadership development as an ongoing project – even the most experienced executives need to be continuously sharpening the axe. In a world as dynamic as ours, the idea of true “plug and play” leadership is a fallacy.

How do you assess the areas of leadership need across your port-co or company management teams?

Answer 4 questions to assess whether you have a “fit for purpose” leadership team:

What is the investment thesis and value creation plan?
What capabilities are required to deliver on that investment thesis—and in what roles?
To what degree do those capabilities exist in the business today?
How can we fill those gaps (options include replacing, repurposing, or retraining/ developing talent)?

Develop a clear people plan – after answering these 4 questions, you should be crystal clear on all talent, skill, or capability gaps in your organization and the specific actions you will take to shore them up.

Note: always conduct this exercise before writing a big check – it might be tempting to skip this process and hire someone who looks like the perfect candidate, but it’s always better to be disciplined, thoughtful, and realistic about your leadership needs before diving into the hiring process.

Keep an eye out for the most common leadership gaps that PE firms see among leaders who are new to the PE world:

“PE 101”, which includes understanding the environment you’re in and how to communicate with partners (e.g., PE vocabulary)
Value creation thinking
Financial literacy
Data orientation
Building adaptability

What programs/ activities should companies run to develop leadership skills among their employees/ future leaders?

Leadership development should start with self-awareness – before diving into skills or experiential learning, future leaders need a baseline awareness of their own strengths and weaknesses.

How to develop self-awareness as a leadership skill

Build self-awareness through structured assessment – start with a comprehensive 360 focused on what matters most in PE leadership, like driving value creation and leading transformation. Pair this with coaching to help leaders extract meaningful insights and create focused development plans.

Create clarity through leadership blueprints – have leaders create a “Guide to Working with Me” that captures their strengths, triggers, values, and working style. This both forces leaders to get clear on who they are and gives their team a blueprint for working with them effectively.

Develop emotional regulation as a leadership skill – in PE’s pressure-cooker environment, one triggered response in a board meeting can undo months of careful leadership. Help leaders map their specific triggers and develop practiced “return to center” protocols they can use to maintain effectiveness in heated moments.

Find a leadership development program that is PE-specific – leaders in PE-backed companies need a different playbook. Find a program or leadership accelerator that trains emerging leaders to avoid the pitfalls that are most likely to derail an executive’s first tour of duty in a PE-backed company.

Cultivate the skills that make the greatest impact in a PE-backed company – there are universal qualities that make someone a good leader, but executives in this environment are more likely to succeed of they exhibit the following abilities/traits:

The ability to switch gears seamlessly – the dynamic nature of PE demands exceptional adaptability. The most effective leaders can pivot from boardroom to shop floor, from strategic planning to tactical execution, from directing to empowering – in the same day.
A bifocal point of view – leaders must simultaneously develop a clear long-term vision for the business and aggressively drive near-term results.
Understands the importance of value creation – while the obsession with creating equity value comes naturally to investors, it can be less familiar to many corporate and founder-led executives.
Leads through change – PE firms don’t buy companies hoping that they’ll stay the same. The best PE leaders excel at driving aggressive change while preserving what made the business valuable in the first place. This is a delicate balance and can present a challenge, especially in founder-led businesses where “that’s how we’ve always done it” can be the enemy of value creation.
Makes smart decisions, fast – PE leaders face a constant tension: the need for speed in an environment where leverage amplifies every mistake. The best have mastered ‘informed urgency’: gathering just enough intelligence to make smart calls, then moving forward with unwavering conviction.

What are practices that leaders from non-PE backgrounds should adopt to ease their transition?

Understand what’s unique about the PE environment – PE operates in parallel timelines: a longer-term horizon with near-term urgency. Develop the habit of framing decisions in both immediate impact terms (e.g., this quarter) and exit value terms (e.g., 3-5 years out).

Ask your board what you need to work on – when you begin working together, ask, “if you imagine a scenario where I failed in the first 180 days, what are the top 2-3 most likely reasons why that would be?” Use this as the basis for your learning and development objectives.

Take your onboarding into your own hands – PE firms rarely provide structured onboarding for port-co executives. Draft your own structured learning agenda covering the firm’s investment thesis, value creation plan, and expected communication cadence.

Common pitfalls that derail new-to-PE executives	“The Antidote”
Not speaking “PE”	Get exposure – find a mentor, join a peer group, or take experienced PE professionals out for coffee to learn the language and expectations.
Under-communicating with the board	Communicate proactively, precisely, and predictably.
Distinguishing between the board’s suggestions and mandates	Learn to listen for the iron fist inside the velvet glove. In PE, “suggestions” can be marching orders in disguise. When in doubt, clarify.
Slow-walking talent decisions	Be decisive and resolute. Hesitation costs compound daily in PE.
Navigating by P&L only	Make sure you have (or build) 3-statement fluency.
Treating debt as “not my problem”	Own your capital structure and manage it proactively instead of strictly following the PE firm’s lead.
Projecting certainty over acknowledging risk	PE investors respect leaders who define the known, unknown, and their plan to close the gap.

How can portfolio leaders improve their communication with their PE sponsors?

There’s no substitute for exposure to the board – invite junior leaders to sit in on board meetings to observe the dynamics and expectations firsthand.

Attend trainings – the best way to develop a skill is to practice. Find a low-risk environment (e.g., a training program) where you can learn to communicate and work with board members more effectively, and bring those skills into your next meeting.

The guiding principles of communication with the board
Good news should travel fast, bad news should travel faster.
Communicate in terms that PE firms think about (eg. value creation).
Don’t present a problem without a solution… or at least a plan to get to a solution.
Don’t wait for the board meeting. Use informal channels to set context before official updates. A board meeting should never be the first time the board is hearing something.
Be objective and fact-based; PE sponsors speak in numbers. Use their language.
Distinguish between the deal team and the operating team. Each has a different perspective and different set of objectives.
Executive communication 101: lead with the headline, answer questions with Yes/No/Number… then backfill with support.

Who should own a leadership development program: the PE firm or the port-co?

Ownership depends on the PE firm’s engagement model – some firms take a very active role in portfolio company management, while others focus on hiring great CEOs and setting clear expectations. This division of responsibility should be communicated clearly and align with this overall approach.

Firm capability influences involvement – if a PE firm has strong capabilities in leadership development, they’ll naturally want to be more involved. If the port-co has greater leadership development capabilities, a lighter touch makes sense.

Both parties are responsible for aligning on a definition of success – PE firms and port-co executives should align on what constitutes great leadership in their specific situation. Be as tangible as possible when setting expectations for what leadership should look like on a cultural and behavioral basis.
The highest leverage point is hiring a CEO who prioritizes talent – the most effective approach is often to hire a CEO with a natural affinity for multiplying talent and a personal commitment to developing leaders.