The CEO Question Private Equity Keeps Getting Backwards

“We need to look at the CEO.”

I have heard that sentence in enough board conversations to recognise its rhythm. It tends to arrive somewhere between month fourteen and month twenty of a hold period, usually with a slide behind it showing the gap between plan and actual. It is said with conviction. It is almost never said with evidence.

And it is a perfectly reasonable thing to say. The CEO is accountable. The numbers are not where the thesis said they would be. Somebody has to be the subject of the sentence.

But the speed with which boards get from ‘performance is behind’ to ‘the leader is wrong’ should bother us more than it does.

We keep confusing context with cause

This is not a private equity problem. It is a thinking problem that private equity happens to pay for at an unusually high price.

What happens is old and well-documented. Performance deteriorated while this person was in the chair, therefore this person caused it. The reasoning is post hoc, and in almost any other setting we would say so. In a boardroom, with a hold period running, it passes for decisiveness instead.

Lee Ross named the deeper version of this in 1977: the fundamental attribution error, our habit of explaining what someone does by who they are rather than by the situation they are standing in. We overweight character. We underweight circumstance. We do it hardest when we are looking at one person and the circumstance is diffuse, invisible and boring — which is a fair description of most operating models.

So the question worth asking is not ‘is this the right CEO’. It is this: what exactly are we observing when we observe a CEO failing?

Four situations that all look identical from the board table

In my experience they collapse into four, and they demand four different responses.

1. The constrained operator. A genuinely capable executive inherits a fragmented leadership team, decision rights nobody has written down, a finance function built for a founder-owned business, and an organisation that has not yet understood what the next three years will ask of it. They are not underperforming. They are performing exactly as well as the structure permits. Replace them, and in eighteen months you will be having this conversation again, about a different person, with the same slide.
2. The comfortable incumbent. The structure is sound. The capital is there, the team is adequate, the plan is clear. And the CEO will not make the call — will not exit the underperformer they hired, will not kill the product line they championed, treats the value-creation plan as a document that was circulated rather than an instruction that was given. This is the case where a change genuinely is the answer, and where boards are often slowest to act, because the person is likeable and the deterioration is gradual.
3. The entangled case. Leadership weakness has shaped the organisation, and the organisation now reinforces the leadership weakness. A CEO who avoids conflict builds a structure with no clear accountability; the structure with no clear accountability then makes conflict avoidable. Which came first stops being an answerable question. This is the hardest case, the most common one, and the one most likely to be mislabelled as simply ‘a people issue’.
4. The misaligned mandate. Nobody here is failing. The sponsor wants margin, the board wants growth, the CEO was recruited for a buy-and-build and is now being measured on organic performance. Everyone is succeeding at something, and none of it is the same something. It is the same unclear mandate that sinks post-deal transitions in the first ninety days, arriving two years late. A search solves nothing here, because the brief for the next person will be written by the same group that could not agree on the brief for this one.

Notice that only one of the four is actually a search problem.

Both wrong answers cost the same thing

The expensive version of this mistake runs in both directions, and I am not sure the industry is equally alert to each. We overrate how easily a wrong hire can be corrected, and underrate how long a structural constraint survives a change of leadership.

Run a search when the constraint is structural and you will find somebody excellent. Genuinely excellent — the process works, the assessment holds up, the references are strong. Then they walk into the same fragmented team, the same undefined decision rights, the same board that has not resolved what it wants, and within a year they are producing the predecessor’s results with better slides. You have spent nine months and a great deal of credibility proving that the problem was never the person.

Run the operational programme when the constraint is the leader and the symmetry holds. New governance cadence, redesigned reporting lines, a strengthened CFO, a consultant engagement. All of it reasonable, none of it binding, because every one of those changes still routes through someone who will not use them.

In private equity, both errors are denominated in the same currency. Not money — time. A hold period is finite, value creation compounds from an early base, and a wrong diagnosis in year two is not a mistake you get to make twice.

The question that settles it

There are several worth asking before a brief gets written. Whether the incumbent lacks the capability or lacks the conditions to use it. Whether the leadership team, as a group, could deliver the plan under anyone. Whether the sponsor, the board and management are measuring the same thing — and would say so separately, which is a different test from agreeing in a room.

But one question does more work than the rest, and I ask it early.

If a new CEO started on Monday, what would be materially different by Friday?

Not in the narrative. In the business. Which decision gets made that is not being made now, which conversation happens that is not happening, which constraint lifts.

If the honest answer is a long list, you have a leadership problem and a search is the right instrument. If the honest answer is ‘the name on the organisation chart, and a certain amount of renewed board optimism’, you have something else, and nine months of search process will not touch it.

I have watched that question change the direction of a mandate in a single meeting. It is uncomfortable precisely because it is answerable.

What this asks of search

Jim Collins gave us ‘first who, then what’, and it has had a very good run. In a portfolio company I would reverse it — or at least interrupt it. First what the business actually needs to be able to do, then who could do it, then whether the organisation would let them.

Which means the most useful part of a search often happens before anyone opens a longlist. Understanding the thesis. Understanding where the operating model binds. Understanding which capabilities already sit in the business and are simply not being used, and which genuinely are not there.

Sometimes that work confirms what the board already believed, and we run the search faster and better for having done it. Sometimes it reframes the brief — the business needs a different COO, not a different CEO. Occasionally it concludes that the leadership and the structure have to change together, in sequence, and that the sequence matters more than either decision in isolation.

I would rather tell a client in week two that the search they have asked for is the wrong instrument than hand them an excellent candidate in month three who cannot succeed.

What interests me now is how rarely the diagnostic step is treated as a discipline in its own right. We have built sophisticated machinery for assessing individuals — structured interviews, psychometrics, referencing that goes three layers deep. We have built very little for assessing whether the individual is the variable that matters. It is the same gap that shows up in diligence, where the financial and operational work is forensic and leadership is assessed less rigorously, and later.

That gap is where the next good work in this field sits, and I suspect the firms that close it will stop being measured on time-to-placement and start being measured on something considerably more interesting.

Clifford Nash | Executive Search & Leadership Advisory