We recently received a call from a client concerned about a portfolio company. The lead investor was frank: "We can't figure out what's happening. The organization has so much potential but has been underperforming since we closed the deal last year. Can you help us?"
Ampersand met with members of the management team and uncovered a consistent theme: "We have no idea what the Board wants, let alone how to talk to them." We quickly realized that before anything could be done to address the missed expectations, both sides needed to hit the reset button on their relationship.
With expertise helping middle-market private equity diagnose and resolve pain points within their portfolios, we see this all too often. Not unlike a marriage, hope runs high up front when two parties enter into a promising relationship with the best of intentions, only to find themselves confused over what the other needs or wants from the partnership.
We interviewed 25 PE investment professionals and portfolio company CEOs to isolate causes of communication issues and misalignment of expectations between Boards and CEOs. Our research confirmed these disconnects are commonplace.
In particular, help CEOs understand what the Board and investors are really trying to accomplish, and why. One interviewee noted that investors tend to play their cards close to the vest. Even with the best of intentions, such as giving a CEO plenty of room to lead, the risk of doing so is high.
On the flip side, we have been in situations where the Board itself is not aligned, leaving CEOs caught in the middle. Putting it out there early opens the door to work through areas where all are not on the same page, and gives both sides a full view into the other's goals.
Align on the what and the how of communication. Investors and Boards often share a reporting calendar but are slow to communicate what information is most and least helpful. CEOs can be uncertain as to when to reach out between formal meetings. Success requires both transparency and vulnerability. The most effective CEOs and Board members take the plunge early to discuss their preferences for communication, their hot buttons, and their strengths and weaknesses.
Often said but not to be underestimated: surprises do nothing to improve Board-CEO relationships. Too often a group-generated solution is the best one, yet it is not uncommon for a new leader to want to prove their mettle by keeping the cards close until a solution is found.
Both sides should adopt a mindset of "they are trying to help." In all interactions, first seek to understand, and second seek to help design a solution. For CEOs, it is helpful to identify a handful of people on the Board or within the investor group to leverage as sounding boards between scheduled interactions. For the Board, challenge your assumptions: ask yourselves how much can be shared with CEOs, and know that deeper insight often helps them lead more effectively.