What Private Equity Can Teach Boards About Succession

Go slow first to go faster later

The instinct after an acquisition is to move quickly: establish priorities, assign accountability, and execute. Sponsors should bring the same urgency to preparing the board — not just preparing the business.

Before an appointment becomes urgent, help the chair and directors establish how they will judge readiness, involve the incumbent, resolve competing assessments, and decide when development has had enough time. Make responsibility for the work between meetings explicit.

This preparation matters because directors can mistake different risk tolerances for different assessments of talent. One believes the CEO can grow into the new mandate. Another agrees — but thinks the business cannot afford the time. More discussion of the executive's strengths will not resolve that disagreement.

Ask instead: What must this person demonstrate, by when, for us to continue backing them?

The sponsor must also make its own assumptions open to challenge. An influential owner can unintentionally turn a board discussion into a search for agreement with its preferred answer. Building a capable board means giving directors room to question that answer.

The objective is not identical confidence. It is a shared basis for deciding. Preparing that basis early does not defer action on an immediate performance or conduct problem. It prevents foreseeable decisions from becoming emergencies because the board never agreed on how to handle them.

Make the investment plan carry its succession assumptions

Sponsors help shape ambitious plans. They should help boards examine the leadership commitments those plans contain.

A vacancy requires one appointment. A growth plan may require a population of successors.

A company opening locations needs people ready to run them, regional managers ready to oversee them, and successors beneath the managers who move up. An acquisition strategy requires leaders who can integrate businesses without becoming permanent substitutes for local management.

The sponsor's question should be: Which parts of this investment plan depend on people becoming ready for responsibilities they have not yet demonstrated?

Management should make those dependencies visible: the critical roles, the number of people required, when they must be ready, and the gaps that remain. The board then tests those assumptions alongside the expansion plan.

If leadership capacity will lag, the response cannot simply be "develop people faster." The sponsor and board must examine recruitment, additional support, or a different sequence of growth. The financial plan should reflect those choices.

This is oversight, not board management of promotions. The CEO owns the pipeline. Business leaders own the preparation of successors, supported by the people function. The sponsor helps the board ensure that an approved growth plan has more behind it than an untested expectation that capable leaders will appear.

Fund preparation — and test what it leaves behind

Sponsors can encourage internal succession while backing operating plans that leave managers no time to prepare anyone. Boards need to recognize that contradiction.

Consider a strong location manager being considered for a regional role. Her record demonstrates that she can run an operation. It may reveal little about whether she can develop the managers who run several.

Give her responsibility for helping another manager improve a struggling location, with coaching and clear authority. Then assess what happened. Did she fix the problem herself, or make the local manager more capable of handling the next one?

The assignment requires an investment. Someone must cover responsibilities she leaves behind. Someone must coach and provide candid feedback. The board should ensure that management has made room for this work rather than quietly adding it to an already full job.

The sponsor can help secure that commitment and, where useful, provide expertise. But the objective is to strengthen the company's own ability to prepare successors — not make every important transition dependent on outside intervention.

Mindset matters as much as experience: from doing to coaching, from defending a function to making enterprise trade-offs, from being indispensable to preparing someone who can take over.

Readiness for greater responsibility should include evidence of capability beneath the candidate. Otherwise, each promotion simply moves the succession problem.

Not everyone will become ready within the available time. A useful process reveals that early enough to preserve alternatives.

Carry the learning — not a fixed playbook — across investments

A sponsor can encounter succession decisions across several businesses. That experience is useful only if it changes subsequent judgment.

Help each board separate four disagreements that often sound like one: what the job requires, what the person has demonstrated, whether the gap can close, and how much uncertainty the business can accept.

Then agree on the evidence or assignment that will test the question, the support required, an owner, and a decision date.

When that date arrives, revisit the original assessment. What did directors expect? What happened? Was the person unready, the support inadequate, or the job changing again? Did loyalty prolong the trial — or impatience end it too soon?

The sponsor should examine its own contribution too. Did its expectations help clarify the job? Did pressure for speed undermine preparation? Did an approach borrowed from another investment fit this company?

Management teams have knowledge sponsors need. Rising leaders can explain which operating assumptions deserve reconsideration and what different futures would require. Coordinate those exchanges with the CEO. They should reveal reasoning and learning — not become private sponsorship campaigns or promises of promotion. Directors should hear that reasoning, not merely polished reports of readiness.

Lessons can then travel across investments without becoming universal prescriptions. A successful transition may suggest a useful assignment elsewhere. An unsuccessful one may reveal a misleading readiness signal. Neither establishes a formula.

The question returns. The learning should accumulate.

Leave something the next owner can use

A buyer can assess the executives in place. It should also be able to examine how the company prepares people to follow them.

The evidence is practical: internal successors who have performed in larger roles, managers who repeatedly develop others, operations that remain strong after leaders move, and assessments revised when experience proves them wrong.

That capability must live in the company. If succession works only because a sponsor's operating partner intervenes, it remains dependent on support that may disappear at the sale.

The sponsor's economic opportunity has two parts: help the business execute during ownership with less dependence on particular individuals, and leave the next buyer evidence that leadership capacity can keep renewing itself. That value rests on demonstrated evidence — not on a succession chart prepared for diligence.

The next owner may change the strategy and the team. What it should not have to rebuild is the company's ability to prepare people for changing responsibilities.

Any board can put succession on its agenda. The harder task is making each pass leave the organization more capable — and determining whether the next buyer will pay more for a company that can demonstrably prepare the successors its next strategy requires.