Few segments of the financial industry are more personality driven than private equity. When a private equity firm is launched, it’s largely done so on the founder’s reputation more than anything else. Subsequently, regardless of whether or not the founder’s name is on the door, he/she is the personification of the firm, the embodiment of the investment strategy, and the owner of the vast majority of longest-tenured limited-partner relationships. The reputation of the firm and its founder (or founders) is intrinsically linked.
Add in the fact that GPs do not transition leadership anywhere near the frequency of publicly owned companies, internal and external stakeholders have little appreciation for “life after the founder.” As a result, the stakes and anxiety levels are especially high when ushering in the next generation of senior leadership at a particular firm and aligning them with limited partners.
Since most private equity firm leadership succession plans rely on internal candidates, there are a number of unique communications issues to consider. For example, while the newly named senior managing partner is known among stakeholders, he/she also is likely to be a first-time senior managing partner. As a result, the partner will face skeptics internally and externally, as well as existing perceptions that may need to be dislodged. Therefore, it will be critical to establish his/her:
- Experience that will help make the firm even stronger in the future
- Leadership philosophy
- Broad observations on the firm and the markets served
- Unrelenting commitment to strong ethics and integrity
- Presence in civic and industry organizations
- Clarifying and creating buy-in for changes in priorities, procedures, etc., under new leadership
- Establishing an authentic and differentiated leadership “voice” and communications style – especially given the founder’s typically strong presence and engaging persona
Other areas of emphasis during a leadership transition include:
- Creating realistic and measurable near- and long-term expectations to help create a common focal point for the organization, as well as stemming the flow of inaccurate information and speculation
- Building credibility for reconfigured leadership team (i.e., who will step into the previous role of the new senior managing director and who will fill roles of other internal candidates who might be leaving the organization)
- Redefining the working relationships with limited partners, directors of the portfolio companies, colleagues and business associates
Without question, those firms that are able to consistently perform will have a competitive advantage in the marketplace. But consistency over a number of years, of course, requires smooth leadership transitions.
Robert Berick is a senior vice president and managing director at Falls Communications, a public relations firm.