Establishing a collaborative relationship between sponsor and management is one of the fundamental challenges in value creation. While there are many aspects that determine a good sponsor-executive fit — see PECXO’s Nine Dimensions of Governance Fit in our recent study — there is the caveat that one governance model is not superior to another, so long as management is well-suited for a specific fund’s approach. But there is one common element that is necessary for success regardless of governance model: transparency.
The Impact of Transparency on Executive Satisfaction
“Lack of transparency and misalignment with expectations led to disappointing performance and a poor experience for all parties.”— Anonymous review (CEO)
Sponsors have a responsibility to be transparent and realistic with their portfolio executives. Sharing accurate and realistic financials (particularly during diligence) and clarity on exit strategy are key. When as much as 50% of equity vesting can be tied to a successful exit, vague or inaccurate information results in misalignment. Many executive reviews emphasized ‘alignment’ as a key determinant to a positive experience, indicating that misalignment poses a threat to the kind of recruitment and retention that funds should be prioritizing in a market which favors talent.
To this end, when executives in our survey described previous challenges with sponsors, overall negative fund reviews were almost 3X more likely to reference a lack of transparency*, indicating...