Insights
A portfolio company board meeting usually runs on one large slide deck, full of numbers and KPIs. Everyone prepares by reading the same pages, and during the meeting everyone has the same pages in front of them. However, the investor and the CEO read them for different things, and from different perspectives.
The investor reads for the value case. Is EBITDA on track against the entry case, and does the exit story still hold? The CEO reads for the operations. How is the business running, and what does the organisation need to deliver the next step?
Neither reading is wrong, and an organisation needs both. The problem is that the board meeting rarely connects them. A delay in operations shows up somewhere in the deck, while its effect on exit value is not discussed at all. Therefore both sides fill the gap with their own assumptions and their own view of what the organisation needs next, and in practice those two views almost never meet. That missing link, more than any difference in ambition, is what turns board meetings into reviews of the past.
Every portfolio company starts with a value creation plan, agreed between investor and management at the time of the deal. That plan and reality will always drift apart, because no plan survives a few years of markets, customers and people unchanged. What matters is how both sides respond once the drift becomes visible.
Surveys among investors and portfolio leaders show that results often start to diverge from the value creation plan after about a year. Shortly after, around the second year of ownership, CEO turnover peaks, and many of those changes were never planned.
A leadership change at that stage costs time and momentum. In many cases the underlying issue was never the CEO or the investor. It was a translation problem that nobody owned.
A value creation plan can be well written and still be overtaken by circumstances nobody could foresee, without anyone being at fault. Often, nobody says it out loud. A CEO may feel that admitting a broken assumption signals weak leadership. An investor may hesitate to reopen the plan, because the plan also anchors the fund’s own reporting. So both keep reporting against a plan that no longer describes the business, and the conversation that matters gets postponed.
Many initiatives cost money before they return any, and in EBITDA that cost is visible long before the benefit. Investors need a forecast they can rely on, because they report upward to their investment committee and to their LPs. CEOs need room for that run-up period. When both sides have not agreed upfront how long the run-up takes and what progress looks like in the meantime, the forecast turns into a negotiation. It stops being the best estimate of what will happen, and trust suffers on both sides.
PE investors ask a lot of their CEOs: more reporting, in more detail and at a higher pace. That request is reasonable, because the investor carries the value case and needs to see how it develops. However, a CEO who spends most of the week preparing for the board has less time to steer the company. The board then spends its meeting on last month, and both sides end up looking backwards while both would prefer to look ahead.
The CEO usually sees problems first. Those early signals rarely reach the board in a form that shows what they mean for value. By the time they appear in EBITDA, the room to intervene has narrowed. The investor then asks why this was not raised earlier, while the CEO feels it was raised, only in a different language.
The solution starts with the same slide deck everyone already reads. Investor and CEO need one shared way of reading it, agreed at the start of the hold and kept up throughout.
Agree on the handful of operational drivers that determine whether the investment case holds, and keep that list short. A company that tracks a hundred KPIs can hardly steer on any of them, because nobody knows which ones matter when they move in different directions. A small, agreed set of drivers is what makes steering possible. Link each of them to its effect on EBITDA and on exit value. Then the CEO can keep talking about the operations, the investor sees directly what it means for the value case, and both read the same story in the same way.
Run every material deviation through the same short cycle. What is the signal? What causes it? Which intervention addresses that cause? Who owns the intervention? Did it deliver the value expected? This turns a board discussion about numbers into a discussion about decisions. It also gives the CEO a clear route to raise problems early, without it feeling like a confession.
The value creation plan is written with the information available at the deal. It should therefore be treated as a dynamic plan, one that both sides are allowed, and expected, to improve on compared to the first version. Agree upfront that assumptions are tested at fixed moments, for example every quarter, with a deeper review around the end of the first year. A changed assumption then becomes part of the process and no longer reads as failure. This is continuous improvement, applied to the plan itself.
The investor needs early visibility and a forecast that holds. The CEO needs room to run the company and a board that helps decide. Both are legitimate. Make them explicit in the first 100 days, including how much run-up time the major initiatives need, and review them once a year. A lot of friction comes from expectations that each side assumed the other already knew.
Investors and CEOs want the same thing: a company that is worth more at exit than at entry. Still, it goes wrong more often than either side would like, because they look at the same numbers from a different perspective. The bridge between those perspectives has to be built on purpose, and by both sides. Once it is in place, the board can spend its time on a healthy discussion about what to do next. From that point, the deck in front of everyone is the starting point for the next quarter.
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