The Silent Saboteurs: How Poor Executive Leadership Leads to Failed Investments
As someone who is responsible for evaluating potential deals for investment for a PE firm, an investment banker, or a company looking to acquire an asset, you're no stranger to the high stakes involved in acquiring a portfolio company. You know the deal itself is just the beginning. What often gets missed—and can be catastrophic post-acquisition—is the health of the executive leadership team. A stellar product or service can only go so far if the people at the helm aren’t equipped to steer the ship. Poor leadership at the executive level can quickly turn what seemed like a solid investment into a failure.
Here are three often-overlooked factors you need to assess in the health of the management team during the due diligence process—and what’s at risk if you don’t.
Alignment of Vision and Execution:
Many companies boast an impressive strategic vision, but when you dig deeper, you find that the leadership team lacks the ability to execute on that vision. It’s critical that the management team has a unified approach to how they’re going to achieve that vision. Are they aligned in their strategy? Do they communicate that strategy clearly down the ranks?
Without this alignment, you risk acquiring a company where the leadership is pulling in different directions, creating internal friction and confusion that derails growth.
How to Assess: During due diligence, ask for specific examples of how the leadership team has successfully translated vision into actionable steps. Are they merely strategists or do they have a track record of successful execution?*
Team Dynamics and Communication:
Too often, due diligence focuses on individual resumes and misses the bigger picture: how the executive team functions together. Dysfunctional team dynamics, poor communication, or an overreliance on a single leader can cripple a company’s ability to respond to challenges. After the acquisition, cracks in communication and collaboration become glaring and expensive to fix.
How to Assess: Look beyond one-on-one interviews. Conduct joint sessions with key leaders to observe how they communicate and collaborate. Do they challenge each other constructively? Is there mutual respect? Are they equipped to handle conflict?
Leadership Agility and Emotional Intelligence:
The business landscape is fast-moving, and companies that fail often do so because their leaders are unable—or unwilling—to pivot when necessary. But it’s not just about being nimble in operations. It’s about having leaders with high emotional intelligence (EQ) who can inspire, manage, and retain talent, even during turbulent times.
A lack of agility, essential skills of leaders (one is the ability to commit to action despite disagreement amongst the team), and team trust in key executives can result in high employee turnover, poor morale, and a diminished ability to innovate. Post-deal, you’ll find yourself scrambling to repair the cultural and operational damage, diverting focus from scaling the business.
How to Assess: Use our proprietary Leadership Health Checklist to evaluate the agility, strength, and leadership capabilities of the executive team. This process gives you a detailed snapshot of whether the leadership team has the essential skills and leadership acumen to thrive in a fast-growth or challenging environment.
The Cost of Poor Leadership: What’s at Stake
Failing to accurately assess the health of the management team can lead to:
Lost Time and Opportunity Costs: You’ll find yourself fixing leadership issues instead of scaling the business.
Increased Employee Turnover: Poor leadership can lead to key employees jumping ship, and replacing them is costly in both time and resources.
Cultural Misalignment: The executive team sets the tone for company culture. A toxic or dysfunctional culture will impact everything from employee retention to customer satisfaction.
The reality is that poor leadership can undermine the very reasons you acquired the company in the first place. You’ll be left fighting fires instead of focusing on growth and increasing EBITDA, which is the whole point of your investment.
Let’s Talk Strategy—Before You Make the Wrong Bet
We get it. Due diligence already feels like an exhaustive process. But can you really afford to overlook the people who will drive the success or failure of your acquisition?
Our proprietary Leadership Health Assessment is designed specifically for you to assess the health of the executive team before you sign on the dotted line. It’s not about adding more to your plate—it’s about protecting your investment. Let’s discuss how we can help you make better-informed decisions that save time, money, and headaches down the road.
Reach out for a no-strings-attached conversation. We’d love to share our insights and learn more about the challenges you’re facing with your current or upcoming acquisitions. After all, sometimes it’s the things you don’t see that make all the difference.
Take control of your firm’s future today and turn your frustrations into success. We’re ready when you are.