What makes a good private equity Chair?

In the world of private equity, the role of Chair is a vital component in any investment, serving as the buffer between lead shareholder and management. In the latest in our Insights series, we asked Managing Partner Richard Daw to reflect on the qualities that make an effective private equity Chair. We also asked some of those who have held the role at past and present Phoenix partner companies to share their thoughts on the hallmarks of a great Chair.

The first time Alun Cathcart, a serial non-executive who has chaired companies including Avis, Rank and Selfridges, meets a chief executive around the Board table, he has a simple message for them: “You have nothing that I want. My role is to make you more successful.”

“My top priority as Chair is to focus support on the CEO. It can be a lonely and challenging role and the Chair can provide counsel and encouragement, as well as challenge. If the CEO is successful, all shareholders benefit.”
Jim Faulds, Chair of Nexus Vehicle Rental
“A good Chair is available to help on anything or nothing as the situation demands. Implication: EQ is every bit as important as IQ.”
Simon McMurtrie, former Chair of Riviera Travel

So what should an effective Chair be doing? They need to help the team focus on the right priorities and ensure that there is a well thought through strategy and set of objectives in place.

Rather than dealing with myriad corporate governance issues, as one would expect at a plc, Chairs of private-equity backed companies need to ensure Board meetings are all about focusing on a small number of strategic goals.

For this reason, we prefer to find Chairs who have what we might term situational experience, rather than sectoral experience.

For example, if we are investing in a company that wants to expand overseas, we’d want a Chair who has experience of doing that. With one or two exceptions (such as financial services or healthcare, which are heavily regulated and have particular constraints) the industry they have worked in is less important to us. Situation trumps sector every time - we want to appoint a Chair who can help guide the management team, rather than one who opens doors because he or she knows everyone in a particular industry.

The Chair plays an additional, crucial role in acting as the conduit between the private equity owner and the management team. Unlike publicly-listed companies, private equity-backed businesses usually have their lead investor on the Board. It is vital, therefore, that the Chair has the trust of both. It is an extraordinarily delicate balancing act to get it right.

“A great Chair listens far more than talks - influences rather than tells - and never takes the credit.”
Sean Williams, Chair of Travel Chapter
“The single most useful thing that a Chair does is to know when and how to intervene on four big issues - people, performance, risk and strategy. It is as much about character as competence.”
Vanda Murray, Chair of Just Childcare

Alun chaired a logistics business we invested in, Palletways, and as with any Chairman coming on to a Board and getting to know the management team, it was vital that he won their trust quickly. This statement seemed to do just that. We eventually sold Palletways for more than four times our original investment, and the Chairman must take his share of the credit for that result.

The role of Chair is a vital component in any private equity investment, serving as the buffer between the lead investor and the management team, but it is rarely well scrutinised. What makes a good Chair, and how do they have a positive impact on the outcome of an investment?

The notion that the Chair is there simply to scroll through their Rolodex in the hope that their vast network of contacts will help grow the business rarely works out in practice and misses the point. Equally, our hearts sink when we hear a Chair advise a member of the management team, “When I used to run my business, we would do things this way…”. It’s counter-productive, and this sort of approach doesn’t help the management team do their job.

“A good Chair will continually assess a company in three key areas: governance, strategy and team. In my experience any issues almost always boil down to one of these.”
Geoff Unwin, Chair of GNS

When we appoint a Chair at the outset of a new investment, rather than force our preferred candidate on a chief executive, we identify a selection together, often with the help of a search firm, and the CEO can spend time ensuring the chemistry is right. It needs to be a joint decision, or that confidence and two-way trust is unlikely to develop. There is no value in a management team feeling that a Chair has been imposed on them, whether they like it or not. And we know we’ve got it right when our partner company CEOs genuinely value the relationship with their Chair, and will use them as an informal sounding board.

All of this is easier said than done. There is no shortage of people who would like to chair a private equity-backed business. But the number of potential candidates who have the relevant experience, high levels of EQ and interpersonal skills, as well as the business nous and the ability to contribute to the strategic debate is far smaller.

Nonetheless, putting in the hours to find someone suitable is worth the effort - the right Chairman can help make the difference between a good investment and a great one.