How to Manage Succession Planning in Private Equity

This 7-step guide will help investors, chairs and leadership teams understand how to do succession planning at any stage of a value creation plan.

By: Leadership Dynamics team



Linkedin Leadership DynamicsTwitter Leadership DynamicsFacebook Leadership Dynamics

This article on succession planning is part of our series on change management.

There are many traditional succession planning frameworks out there, but they typically focus on companies that do not have the same concerns as in private equity. The pressurised nature of a three-to-five-year PE investment journey makes it even more critical to have the right team in place. 

We have written this guide to help investors, chairs and leadership teams at portfolio companies understand how to do succession planning at any stage of a value creation plan – whether it’s a primary, secondary or even tertiary investment (or in series A, series B and series C fundraising).

If you need to refresh your memory on the basics, read our succession planning explainer to learn what it is, and why it’s important, and then come back here for our practical guidance.


  • The 7 steps of succession planning

  • Succession planning tips

  • Who owns succession planning?

  • How to overcome the emotional obstacle

  • How often should you do succession planning?

  • Exploring leadership capital partners

  • Where succession planning fits with your strategy

The 7 steps for succession planning

Search online and you will find various models of succession planning but they essentially all cover these stages: assessment, evaluation, development and monitoring. 

But in our experience, a good succession planning framework involves the following six steps in some form or other, always making sure the succession plan maps to the value creation plan.

Step 1: Be clear on your value creation plan

The tight timelines in private equity mean that there is very little room for error during succession planning. You need a clear and defined value creation plan so that you know when to anticipate change and growth, and therefore what to look for in your leadership hires.

Step 2: Identify gaps within a leadership team

Start the succession planning process by identifying the key roles and their requirements at key moments in your value creation plan. You can use analysis tools, (such as ours) which will assess the skills, competencies and behaviours of your company against the competitors in your sector or who are on a similar growth journey.

Step 3: Identify high-potential talent within the business

Assess your current pool of talent in the C-suite and two levels below (VP, Director etc), to identify high-potential employees who can do the job either now or at a key point in the growth journey.  

Data-driven analysis of these individuals is quicker and more accurate than brainstorming. Critically, it also removes any of the bias decision-makers may have and brings in new insights into employees.

Step 4: Model the impact of leadership change before it’s taken.

Use the data from your individual profiling of employees, validate and test your thinking around potential succession planning options through modelling leadership changes of key roles critical to your value creation plan.

Step 5: Map out the timeline

Now you have the right people in mind, write down the key moments in the value creation plan where changes will be made. Align the succession plan with this timeline.

This is where you need to get buy-in from all stakeholders. The leadership team needs to be on board with the plan just as much as the investors and chairs.

Step 6: Build development plans 

Development plans need to align personal development and business performance. Depending on your timelines, you will have to assess whether it is better to support the development of your existing leaders, and that of your high-potential employees, or to replace the role with an external candidate. Note that each option has its time impact. It can take 3 months to find a suitable external candidate and 3 months to serve their notice, while the readiness of your potential internal hires depends entirely on how long it takes to achieve the competencies needed.

  • If you are replacing for an unplanned exit, make sure you capture the knowledge of the departing leader or make it a condition of their notice to train their replacement. 

  • If you are positioning high-potential employees, decide the length of time needed for them to develop competencies before the succession plan mandates their promotion. 

Step 7: Monitor & ensure the long-term sustainability of your leadership team

Whenever changes are made, and handovers are completed, it’s time to look back on the process so you can improve on next time.

In order to maintain the sustainability of your investment and the ability of your leadership team to achieve the desired results, there should always be a plan in place, constantly updated to reflect performance and changes in the value creation plan. 

Document how well the new dynamic is performing – is it as you expected in Step 3? 

As the needs of your company change as it grows, we recommend an annual review of the leadership team to ensure development goals are being hit and the behaviours needed for the next phase of growth are in place.

Succession planning tips

1. Exhaust the possibilities before looking externally. 

It takes time to search, entice and hire a new role. For leadership roles, first look internally, as much as two levels below the C-suite (VP Director, Head of, etc.). While external hires can certainly learn the dynamic quickly, internal hires retain institutional knowledge and an idea of brand behaviours. Think about whether the culture should stay the course or change too.

2. Assess the balance

When identifying gaps in Step 1, look objectively at the functional balance in a team. Structural analysis can show you where there are gaps in competencies. This is where data-driven tools can quickly and accurately present a visual picture of the team's status.

3. Compare with peers

Ask the team which business they most want to replicate. You can run a structural analysis on those leadership teams and compare it with your current team. This is a handy tool when someone needs to be convinced that change is needed, but also a good way to model a “north star” objective for the team.

4. Prioritise effectiveness over agreeableness

“Cultural fit” should only be considered when all other desired competencies have been fulfilled. As we have found with our analysis, harmony is not always conducive to success. And sometimes, negative emotional intelligence can drive effectiveness (as long as there is the right balance of behaviours in the team).

5. Engineer the culture of the company

It’s not just about individual potential, but the collective ability of the team. Succession planning is an opportunity to engineer the culture of your organisation to make it effective and aligned with your value creation plan.

Who owns succession planning?

In a typical organisation, the management of succession planning sits with the HR director of the business itself, where it can be called talent planning or succession management. And as a company gets bigger, the plan becomes more formalised. 

However, in PE-backed businesses, the pressure of the value creation plan makes changes more of a concern for investors and chairmen. Within a business, leaders need to be shown exactly why each change is the best option for the business.

How to overcome the emotion obstacle

Simply put, by using data to make an unimpeachable argument. 

Sophisticated assessment tools can model individual leaders and leadership teams against their top-performing peers, to spot where the gaps are, or how a team can be improved.

Here is a typical story. A PE fund is looking to buy a primary company run by friends, who’ve known each other for decades, but the investors have reservations about the CFO. Although he is doing a decent job now, it’s clear he doesn’t have the skills or experience to handle the sophisticated high-growth business they will be running next year. They discuss the matter with the other two co-founders, but the conversation is either put off or the argument falls on deaf ears. Why would they want to get rid of their friend? 

The answer is, by using rich data to benchmark their leadership team against one they want to emulate in their sector or who is on a similar growth journey.  The team makes their own minds up about what is best for the business by reviewing objective facts to counter the emotions around the discussion. And when the leader in question sees it for themselves, they often initiate the decision to step back.

Founder succession is another story, which comes with its own sensitive intricacies. If replacing a CFO is like swapping out a jigsaw piece; replacing a founder is more like a heart transplant. The soul and creative vision of the company sits with the founder, so it’s critical that the business case for replacing them is solid and relies on data and facts.

How often should you do succession planning?

In a listed company, with no target date for the exit, it’s good to update your plan at least once a year. 

For PE investments it’s both a proactive and reactive process. Investors should have a plan ready before the investment is made, and then regularly updated in line with performance and after unexpected changes.

Exploring leadership capital partners

PE investors often bring in leadership capital partners to conduct evaluations of leadership teams and high-potential employees.

It’s important to interrogate the soundness of their analysis tools as the results will only be as good as the data that drives them.

Many providers use behavioural data drawn from the general population, which means much of it is not relevant to the behaviours and competencies needed in high-growth companies. Ensure you make the correct choices using only the psychometrics of successful leadership teams.

When it comes time to sell, your partner can help negotiate a better price by presenting a data-backed succession plan, validating the current and future leadership team and culture for your buyer.

Where succession planning fits with your strategy

However you create your succession planning strategy, the key is to be objective. In PE, the targets are rigid and the timelines finite. By following a data-driven plan created without bias or emotion, you can mitigate the impacts of unexpected departures and get back on track. With an agreed-upon plan, you can make expected change happen without unsettling your team.

Latest insights & impact pieces