In an optimal PE setting, sponsor and management interests would align in one harmonious effort. Unfortunately, reality often fails to reflect this standard.
Many challenges of the delicate yet critical relationship between sponsors and management are an inevitability in private equity to be embraced rather than avoided. When problems arise between you and your sponsor, consider these solutions to address common problems that block sponsor-management alignment.
Problem: Management Lacks a Voice
“I lacked trust in the sponsor, as they made promises but did not follow through. They micromanaged and second-guessed management decisions.”— Anonymous review (CFO)
Strong, qualified leaders expect a voice at the table when making key business decisions. When sponsors routinely reject their ideas and feedback, morale sinks, as CXOs may perceive their fund does not trust them to run the business. And though individual governance style varies, sponsor involvement is the norm in PE. It’s best to determine during diligence if their method and level of involvement matches your work style.
However, diligence won’t always reveal every detail about a fund’s operational style. PE operators are risk-averse by nature. Often, their reluctance to accept new ideas stems not from lack of faith in individual executive ability, but from the PE-backed environme...