Coaching The Private Equity-Backed Management Team
Executive coaches can accelerate value creation by helping management teams perform at their best and build productive, high-trust working relationships.
Originally published in Forbes, September 2023.
This is the third in a series about the people-oriented pressures, needs and opportunities facing PE investors and their portfolios - and how an executive coach can add value. Specifically, this article highlights how an experienced coach can measurably accelerate value creation efforts by aligning senior executives around the investment thesis, offering insights on productive working relationships, and helping leaders build a high-performing management team.
Chris “Mitch” Mitchell
When a private equity portfolio company CEO invites her executive coach to also coach her management team, she is inviting the coach to serve as a convener and centralizing force that continually reminds the players that “we’re all on the same team and we win together.” This can accelerate value in a way that nothing else can, especially when you consider the human elements (ego, fear, mistrust, etc.) that can run amuck under the kind of pressure that will surely come with growth and scale.
On a more tactical level, the coach can help teams reach and maintain the alignment required to support the growth and scale of the business. That alignment is the golden thread that weaves together critical elements of the business’ planned trajectory, namely:
The Transaction Thesis: The investors’ belief in this company’s future and their ability to accelerate its performance.
The Strategic Narrative: The company’s story of who they are, where they are going and how they will get there.
The Value Creation Plan: A comprehensive overview shared by all stakeholders, outlining exactly how and why the value of the business will increase.
For private equity firms to realize expected returns within their desired accelerated timeframes, management teams within their portfolio companies must be on precisely the same page concerning these elements. Fortunately, executive leadership coaches can play a critical role in helping these leaders achieve deep alignment early on in the investment lifecycle, helping them achieve a shortened timeframe at a heightened multiple.
When private equity firms buy a business, they usually retain some management leaders while replacing others—adding capabilities that will be required for growth and scale. These leaders, many of whom are new to each other and the business, are expected to immediately accelerate performance across the business to meet the ambitious financial targets outlined in the value creation plan.
Unfortunately, leaders often begin taking action before achieving real alignment on the plan and, crucially, without establishing the necessary foundation of trust among themselves, the CEO and the board. They often don’t realize they’ve missed these fundamental steps until months (or even longer) into the investment’s hold period, creating avoidable problems, headaches and delays resulting in missed performance targets.
Engaging with the management team at the earliest possible opportunity allows executive leadership coaches to facilitate the initial alignment and trust required to ensure top leaders are entirely in sync and working purposefully, in unison, toward their big-picture objectives. This can de-risk the potential for misalignment and mistrust, which can thwart even the most compelling investment theses, strategic narratives and value-creation plans.
Of course, facilitating alignment and trust at the beginning of a management team’s tenure doesn’t guarantee that will continue, especially in a high-stakes environment. The enormous pressure to accelerate returns can incite defensive, self-protective postures among leaders and derail even well-established productive working relationships.
For this reason, savvy private equity firms and their portfolio companies often engage executive coaches and advisors to work with management teams on an ongoing, quarterly or even monthly basis, helping them sort through the inevitable people-oriented challenges that can erode value. Coaching these leaders as individuals and as a group can help keep them on track and unified, especially if engagements include regular team sessions with the CEO and board, creating an overarching positive dynamic in which everyone feels like they’re on the same team.
“Engaging with the management team at the earliest possible opportunity allows executive leadership coaches to facilitate the initial alignment and trust required to ensure top leaders are entirely in sync and working purposefully, in unison, toward their big-picture objectives. ”
Executive leadership coaches engaged in such work would be wise to educate themselves on the scope of challenges inherent in these environments if they aren’t already deeply familiar. To illustrate, first-time leaders at private equity-backed companies consistently experience a deep sense of shock when confronted with their investors’ expectations, especially about the pace of work. In essence, they knew the job would be challenging but not as challenging as it truly is. They didn’t know what they didn’t know.
Keeping these leaders highly focused is critical to helping them perform at their best while alleviating any anxieties that begin to take hold. One way to achieve this is to weave into coaching sessions the same principal questions, such as:
Where are we now?
Where are we going?
How are we going to get there?
This framework ensures that sessions never devolve into forums devoted to complaints; they might allow for a certain amount of venting but continuously ladder up to a big-picture strategy.
Embracing these kinds of best practices can serve as a force multiplier leading to exponential increases in efficiency and effectiveness. These efforts can also keep teams from fracturing in times of stress and subsequently eroding value, which is often unrecoverable.
Next up: coaching the private equity board.
Read this article as it originally appeared in Forbes here.
Mitch Mitchell is a Principal at FMG Leading. He leads the firm’s private equity practice, partnering with senior executives, investors, and boards to accelerate growth and create exponential value.