A capable chairman is key to any thriving boardroom. Yet in a private equity (PE) backed business, the position requires more control and entrepreneurial flair than its public-listed counterpart. The guidance that a good PE chairman provides can serve to enrich the top team and steer the overall performance of the business. So what are the key ingredients needed for him or her to be a success?

Private equity (PE) owners expect their chairman to be key to the process of creating shareholder value. The chairman must therefore add value through developing relationships, thoroughly understanding the business and cultivating new ideas that will ultimately affect the strategic decisions he or she takes. Many of these themes were discussed at the recent PE Chairman’s event hosted by Lloyds Development Capital (LDC).
At its heart, a board must exercise control and make difficult decisions. As such, a good chairman is an important catalyst in this process, so the chemistry between the chairman and the CEO is vital.
Mike McTighe, Chairman of Pace, says: “Most of the difficult decisions within a PE-backed business revolve around people. The conflicting personalities that exist between the management team, the PE investors and the CEO mean that the PE board chairman must be diplomatic yet confident in his or her approach. Because of this ongoing triumvirate of tensions, one of the keys to being a chairman of a PE backed business is stakeholder management. Remember, you’ll spend a lot of time interacting with the CEO, so this relationship is fundamental - even ahead of the relationship you have with the board.

Similarly, the chairman’s freedom of action is directly related to his or her relationship with the financial sponsor, so there should be mutual trust and respect. Quite simply, if you, as chairman, haven’t got chemistry with all the key stakeholders, why would you take on the role in the first place?”
Mike outlines three clear criteria to consider before taking on a PE-backed chairmanship:
  1. Can you get excited about the proposition? Is it something you want to take on? Don’t be afraid to say no, because there will be other opportunities
  2. Has the CEO got his or her ego in check and can he or she take and consume input? Do they appear to want to learn and grow? Are they the type of people who will integrate the chairman into their decision-making processes?
  3. Is there mutual trust and respect with the financial sponsor? Will they give the chairman the freedom of action to make a difference and do his or her job effectively?

“The role of the CEO – covering vision, leadership, team building, motivation, and running the business in all aspects – can be the loneliest job in the company”, says Kevin Lyon, Chairman of Wyndeham Press Group Ltd, “so, the relationship between the CEO and chairman is of great importance both to the business and to the CEO. In addition to bringing business knowledge, sound judgement and the ability to challenge the team and the strategy, the chairman must also find a way to mentor and support the CEO.”
Rob Crossland, CEO, Parasol, believes it comes down to one key ingredient – balance. He says: “Being able to bridge the gap between investor and management on a fair and equitable basis is all about balance. It can’t be easy at times, especially when sometimes the chairman has been appointed by the PE house and perhaps worked with them before. So, establishing credibility and dealing with any pre-conceptions appears to be on the critical path for me.”
What if you have dual roles on the board? Take Ian Edmondson, Chairman and MD at Dunlop Aircraft Tyres Limited. He says: “The answer is partly through the relationship I have with the PE non-executive directors of the company, partly through the networking vehicle that Criticaleye provides and partly through recognising that I need to switch hats frequently. It’s also about the ability to juggle these roles in order to handle both strategy and tactics. Is this recommended? Not necessarily; it can depend on the nature and size of the company as well as the background of the person. The qualities needed to be a great chairman are the same as most senior management positions: leadership, listening and coaching skills. A chairman must also have vision and the ability to see strategic solutions that fulfil that vision and address business improvement challenges.”
John Cole, Chairman of Motorclean Group and Associate at Criticaleye, is a former FTSE 100 CEO who has chaired a number or private equity owned businesses through to successful exits, including Condor Group, St Tropez, Telecom Service Centres and EPCglobal. He says: “Most CEOs do not want a chairman who is likely to be seen as an alternative CEO. Why would they? In corporate life I have worked for a chairman who wanted to be CEO and I wouldn’t do that to anyone. But it is a two-way street. If the CEO isn’t up to the task then – after an appropriate investment in coaching or training – I find a new CEO. I am no more prepared to ‘carry’ a CEO than most CEOs want a chairman who meddles in day-to-day management.”

A great private equity chairman helps the management team to define the strategy but, more importantly, adds value in delivering it. Sam Smith, MD, Marble Hill Partners, says: “A PE chairman has to be a risk-taker by nature; he or she has skin in the game. The PE chairman should make a significant personal financial investment in the company he or she is chairing, which aligns his or her interests completely with those of the management team and the investors. Everybody shares the common goal of achieving the most profitable exit. The most successful chairmen have a talent for mentoring and coaching the management team, helping them to fulfil their true potential and business goals to achieve this exit.” 
David Soskin, Chairman of Mysupermarket.co.uk and co-founder of Howzat Media LLP, says: “Critical to the role of a chairman in a PE-backed business is impartiality. He or she must take a neutral stance between financial investors and the management team. They shouldn’t come into the process naturally supporting one or another. He or she must also be able to communicate clearly to the board team, ensuring a seamless and effective operation between the PE investors and the operating management. That requires diplomacy and, whatever the tensions, he or she must always have the best interests of the company at heart.”


Often, executive directors of PE-backed companies already have their sector expertise and knowledge, so the right choice of chairman might be one who brings a fresh perspective. Furthermore, those chairmen that bring significant turnaround and recession proven skills have proven invaluable in recent years. Bob Brannan, Non-executive Director of William Jackson Food Group, says: “A great PE chairman in the current climate has the ability to keep management focused on building value for the medium-term regardless of the uncertainty which may exist over the ultimate exit. The chairman must have the ability to maintain alignment of interests when they appear to be diverging, and the ability to challenge on behalf of investors while retaining the confidence of management. Above all, the PE chair must possess that master skill: tenacity.”


In essence, a great PE chairman must have clarity of thought - and the ability to articulate it. Hazel Cameron, Chairman Network Director at LDC, says: “He or she is able not only to ensure that the business has a clear strategy and direction, but also to obtain buy-in about where the business is trying to go and how it will get there.  Such individuals will ensure there is a detailed risk analysis and adequate resources - intellectual, financial, fixed assets - available to deliver this vision. They will create an open culture and, without question, give the time required for the vision to succeed.”

Please get in touch if you have any comments about the issues raised here. 
I hope to see you soon,