Research has found that 73 percent of PE CEOs are replaced at some point during the holding period, most often within the first two years, because PE boards demand faster proof that the CEO is meeting performance goals. Being replaced may lead to substantial financial loss for the CEO because, in PE deals, the CEO and some of the upper management team are usually required to invest personal wealth in the deal. In return, they’re granted a portion of the increase in equity realized at exit, the amount of which varies but is generally between 2 percent and 4 percent.

As opposed to the hourglass model of the public company— in which the CEO controls the flow of information to the board— the PE model is a leadership triad. The PE firm deal lead and board directors have full access to information and are closely involved in the running of the company.

Opinion about the high-engagement PE model is not universally positive. Some criticize the intense involvement of PE firms for turning the CEO into more of a “COO plus.” In this view, PE firms are primarily interested in hiring executives great at execution, who will put strong emphasis on operational improvements. They aren’t looking for input— or not much— into the strategy for growth, and they curtail CEO power.

In the past, primary emphasis was placed on financial and operations acumen— still, obviously, important— but today the vanguard of innovators in the sector increasingly appreciate a CEO’s people leadership skills for achieving the above-market returns investors expect.

Improving the performance of companies that are performing fairly well is now the predominant objective, and PE firms have learned that a CEO’s people leadership abilities are the vital complement to strength in finance and operations for this new frontier of performance improvement.