Leadership Risk in Your PE Portfolio

Leadership Risk in Your PE Portfolio: How to Spot It Before Execution Stalls
Our organizational alignment research shows that execution is the cornerstone of value creation, particularly in private equity portfolio companies. While strategic planning retreat facilitation often set the right direction, the ability to execute depends almost entirely on:

• Senior leaders.
• Mid-level leaders.
• Frontline managers.

Misaligned or underperforming leaders are frequently the hidden cause behind missed operational milestones, delayed transformations, and underwhelming EBITDA growth.

Research and change management training data underscore this reality. McKinsey reports that 70% of transformations fail — most often due to poor execution and leadership misalignment. These failures rarely manifest as traditional HR issues. Instead, they appear in key operational metrics:

• Margin erosion.
• Missed growth targets.
• Declining operational discipline.

Put simply, the problem is rarely the plan — it’s the leaders charged with executing the strategy and the work culture they must operate in to succeed.

Leadership Risk in Your PE Portfolio: Why Traditional Leadership Assessments Fall Short

Despite the growing complexity of post-close execution, many firms continue to rely on low-validity methods for evaluating leadership potential. Common approaches include:

• Unstructured interviews.
• Resume-based pattern recognition.
• Informal references from shared networks.

Industrial-organizational psychology research consistently demonstrates the limitations of these techniques. Schmidt & Hunter (1998) found that unstructured interviews predict job success with only 14% validity, and  reference checks provide little to no predictive accuracy.

Statistically, these conventional methods are no better than chance — yet they remain widespread in private equity-backed environments.

Leadership Risk in Your PE Portfolio: How It Shows Up on the Frontline

Leadership misalignment rarely appears in board decks — it shows in day-to-day operations. Early warning signs include:

• Continuous Improvement initiatives that lose momentum.
• Site-level resistance to change or ERP adoption.
• First-line managers promoted technical skills rather than leadership capability.
• Degrading culture or productivity at specific sites.

Gartner research indicates that over 50% of internal promotions for “high potentials” fail within 18 months, usually because the individual was unprepared for the role’s scope, complexity, or ambiguity. Technical skills alone cannot substitute for leadership. Action learning leadership development programs tell us that being a superstar individual contributor or team lead does not prepare a manager to lead teams through change — a gap that becomes critical under pressure.

A Better Approach: Simulation-Based Leadership Assessment
Unlike interviews or self-report surveys, simulation assessment centers recreate high-pressure, role-relevant business scenarios. This allows observers to evaluate how individuals actually think, respond, and lead in context.

Key leadership dimensions assessed include:

• Navigating competing priorities.
• Leading through change and uncertainty.
• Resolving conflict and team dynamics.
• Providing feedback and coaching.

Our leadership simulation assessment data reinforces the value of this approach. Leaders assessed through simulations are four times more likely to perform at the top of their role and three times more likely to scale as the company grows. One recent client saw a 13% increase in the quality of leadership hires within six months, while another PE-backed firm experienced a 26% improvement in leadership retention.

Leadership Risk Across the PE Lifecycle
Leadership misalignment is not solely a pre-exit concern. It emerges early and compounds across the portfolio:

• Post-Close: Misalignment delays execution of 100-day plans and early wins.
• Mid-VCP: Change, growth, and Continuous Improvement initiatives stall due to weak execution leadership.
• Pre-Exit: Gaps in promotable talent reduce scalability and complicate exit underwriting.

This demonstrates that leadership risk is not a checkbox for late-stage diligence — it is a live operational concern from day one.

The Bottom Line
By spotting leadership risk early, private equity firms can protect execution velocity, safeguard EBITDA growth, and ensure that operational strategy translates into tangible results.  Traditional assessments often fail to detect it.  Simulation-based assessments offer a validated, operationally relevant, and scalable solution — giving PE firms confidence that their strategy is supported by leaders capable of driving results.

To learn more about taking your leaders to the next level using leadership simulation assessments, download How to Fast Track Your Leaders with Just-in-Time Action Learning

by Tristam Brown: CEO

Tristam Brown is an executive business consultant and organizational development expert with more than three decades of experience helping organizations accelerate performance, build high-impact teams, and turn strategy into execution. As CEO of LSA Global, he works with leaders to get and stay aligned™ through research-backed strategy, culture, and talent solutions that produce measurable, business-critical results. See full bio.