Beyond Dealmaking: Unlocking Value in PE Portfolios with Governance, Executive Assessment, and AI

As part of our ongoing commitment to elevating top leadership topics in the private equity space, Egon Zehnder recently hosted two insightful gatherings in Shanghai and Hong Kong with over 20 operating partners and investors from leading firms. These discussions centered on two critical themes: how to build an effective board and best practices for hiring and assessing executives. The conversations revealed both shared challenges and distinct regional approaches, shaped by differing investment strategies, governance models, and leadership philosophies. 

In this article, we highlight the key insights and offer actionable recommendations for private equity firms seeking to enhance board effectiveness and executive leadership within their portfolios, as well as the emerging focus of AI.  

The discussion on board effectiveness began with a sobering observation: many boards underperform due to structural and cultural shortcomings. A participant noted that boards are often composed of friends, related parties, or deal partners rather than truly independent voices with relevant expertise. This lack of diversity stifles robust debate and limits strategic value. Compounding this issue is the scarcity of seasoned chairs—individuals who can skillfully facilitate discussions, challenge management constructively, and extract meaningful insights from board members. 

Participants agreed that board composition must be tailored to a company’s specific needs and the governance model of the private equity owner. A participant emphasized that boards should reflect the business’s operational realities—whether that means expertise in distribution, manufacturing, or digital transformation. Equally important is the onboarding process; board members, including independent non-executive directors and non-executive Chair, must deeply understand the business and have strong alignment with the PE investor and management team to contribute effectively. The role of the Chair emerged as particularly crucial, especially in founder-led businesses where replacing the CEO is not an option. A strong Chair acts as both a leader and a coach, balancing assertiveness with diplomacy, knowing when to challenge assumptions, and when to guide discussions toward productive outcomes.

Interestingly, the group identified two divergent governance models. One PE firm, representing a China-centric buyout approach, treats the board and management as one unified entity, ensuring absolute alignment but relying on senior advisors rather than independent directors for external perspectives. In contrast, another PE firm’s global buyout model emphasizes structured governance, with independent directors, subcommittees, and clear oversight. While the former prioritizes control and execution, the latter values diversity of thought and adaptive leadership. The key takeaway is that neither approach is universally superior—the optimal board structure depends on the firm’s strategy, ownership model, and regional context.

To enhance board effectiveness, PE firms should invest in developing or recruiting skilled chairs who can navigate complex dynamics. Even in controlled environments, independent perspectives can mitigate blind spots. Additionally, boards should serve as conduits between investment/portfolio committees and management, ensuring strategic alignment at all levels.

The conversation on executive assessment revealed a persistent challenge in private equity: managing founder-led businesses. Many portfolio companies in China are led by founders who may be resistant to coaching or change. A quick survey during the discussion found that none of the attendees had founder-CEOs actively receiving coaching, highlighting a significant gap in leadership development. This reluctance to seek external guidance often stems from a deeply ingrained ownership mentality—one that cannot be instilled through equity alone. True ownership, participants argued, comes from emotional investment in the company’s success, coupled with self-awareness and a willingness to adapt.

Hiring executives in private equity often involves a tension between immediate impact and long-term development. Many firms prioritize "plug-and-play" leaders who can deliver quick results, particularly given the short time frames typical in PE ownership. CFO roles, with their defined skill sets, are easier to fill with ready-made talent, but CEO roles demand a more nuanced blend of strategic vision, cultural fit, and operational expertise. One PE firm’s approach stood out: they systematically adjust the leadership styles of nearly every CEO post-acquisition, suggesting a refined and repeatable process for executive integration.

However, the assessment process itself can be flawed. One participant pointed out that deal teams—often composed of investment professionals without operating experience—are sometimes tasked with evaluating CEO candidates, leading to misjudgments. A more effective approach involves including operating partners in the hiring process or prioritizing candidates who have successfully navigated similar transitions in the past.

The group agreed that decisive action is critical when an executive underperforms. Coaching should be viewed not as a remedial measure but as a value-creation tool, particularly for founder-CEOs who may lack exposure to best practices in scaling businesses.

While not the primary focus, AI sparked a lively debate. One participant shared insights from a recent conference where portfolio companies explored practical AI applications—automating receivables, enhancing CRM systems, and other "small wins" that drive efficiency. Further, participants from several large cap private equity firms shared their firm’s adoption or experiment with AI—analyzing IC votes to investment outcome, extracting key insights and issues from board packs and legal documents, writing investment memos, etc. The consensus was that while AI presents opportunities, disciplined experimentation—rather than reckless investment—will separate winners from losers. Some even speculated about AI’s potential role in governance, such as assisting investment committees, though skepticism remains.

The discussions underscored that effective governance and leadership are not one-size-fits-all. Boards must evolve from ceremonial bodies to strategic assets, with chairs playing a pivotal role in driving engagement and accountability. Executive assessment, meanwhile, should balance immediate needs with long-term development, recognizing that leadership potential is as critical as past performance.

Regional differences—such as China’s founder-heavy landscape versus global governance standards—demand tailored approaches. Private equity firms that prioritize board effectiveness, leadership agility, and technological awareness will be best positioned to create value in an increasingly complex environment.