The Elephant in the Private Equity Boardroom

It turns out that these words, written by the British naval historian, C. Northcote Parkinson, who immortalized Parkinson’s Law, provide a sage caveat for the private equity industry. PE firms spend hundreds of thousands of dollars on outside counsel (legal, financial and strategy consultants) as part of their due diligence, but are missing information that is as critical, or even more critical, than anything customary due diligence processes uncover: an understanding of the leadership quotient of the organization. The absence of a rigorous human capital evaluation results in a prolonged investment holding period, suboptimal fund and deal IRRs (internal rate of return), and a lot of avoidable turmoil.