Category: Talent Development

There are numerous perspectives and fundamental disagreement about the true definition of leadership. The good news is, most definitions of leadership fit into two broad categories. On one hand, we can think of a person who has a supervisory or management title as being a leader. On the other hand, we can think of a person who supports and guides a group to work toward common goals as being a leader. The first definition is based on a person’s formal role within an organization. The second definition is based on the function the leader serves and the group’s outcome.

Most books about leadership either explicitly or implicitly define leadership in terms of who is in charge, as does much of the academic study of leadership. The assumption is that leadership is about the position rather than the person. How do you know someone is a leader? You see if they have a title that implies they are in a leadership role. How do you study leadership to understand what it is about? You find people who are in leadership positions and study what they are doing. Who writes books about leadership? People who have been in leadership positions. Whose leadership books get published? Those who have had leadership titles in companies with recognizable brands. How does one get better at leadership? They read those books. The authors must know something about leadership, because they have been in leadership positions, right?

In the final analysis, business is about money and people. By definition, successful private equity firms understand finance, but on average they tend to be less sophisticated about people issues. This makes sense: deal partners and analysts are trained in finance and are good at spotting undervalued assets. But savvy private equity players also understand that reviving an underperforming business depends to a large degree on people issues—in particular, it depends on the leadership of the portfolio company and its working relationship with new ownership.

Considerable evidence suggests that PE firms could do a better job evaluating the ability of the leadership team in their acquired companies. A recent survey by Alix Partners found that nearly three-quarters of portfolio company CEOs are removed during the investment life cycle. Over half are replaced in the first two years; but only 15% are replaced at the outset. These data suggest that, for 4 out of the 5 replaced CEOs, the decision takes too long, thereby delaying strategic milestones and prolonging the hold time.