Engineering Leadership for PE Exits

A: So, we're diving into this new report, the LCap Group Leadership Capital Report 2025, 7th Edition. And it's really spotlighting the strategic CFO in private equity.

B: Right. And the big takeaway is that the CFO's role, specifically their presence, timing, and profile, is super linked to how well a business performs when it exits, isn't it?

A: Exactly! They found that in top-quartile companies, like, 61% of CFOs stick around right up to exit, compared to only 45% in the bottom-quartile. That continuity seems crucial.

B: That makes sense. But then, the report also mentioned top-performing investors actually *change* CFOs more often? That sounds counterintuitive.

A: It does, but it's about being proactive. High-performing Q1 investors change CFOs in 30% of cases, versus 22-24% in others. The key is *when*. They do it significantly earlier, often just over a year into the investment, to align with strategic goals.

B: So it's not reactive, it's about shaping the leadership from the start. What kind of CFO profile makes that difference, then?

A: That's the interesting bit. The best CFOs have this really balanced profile: strong situational, functional, and domain experience. Q4 CFOs, on the other hand, often lack that situational and functional depth, which just isn't cut out for dynamic PE environments.

A: So we've talked a lot about the CFO, but it makes sense that it's not just about one person, right? It's about their whole finance team, that C-1 layer, as the report calls it.

B: Absolutely. It's the engine room. And the report highlights how top-quartile companies, the Q1s, are way more proactive in engineering that team. They reshape their C-1 finance teams in over 30% of cases, versus maybe 22-24% in the lower quartiles.

A: That's a significant difference. So they're not just letting the existing structure ride. What kind of changes are they making? Are there specific roles they're prioritizing?

B: Totally. Q1 and Q2 businesses are actually twice as likely to have an M&A or corporate finance director. It shows a clear intent, doesn't it? They're setting themselves up to *execute* value creation.

A: That's smart. And what about the skills they're looking for in those C-1 appointments?

B: They're prioritizing situational skills. They want people who can adapt and drive transformation in a PE environment. Lower-performing teams, the Q4s, they tend to overweight domain expertise. It's like, 'Okay, you know the industry,' but not necessarily how to *build* in it under pressure.

A: Interesting. And if a new CFO comes in, do they tend to make immediate changes to that C-1 layer?

B: They do. Finance Directors are the most frequently changed role, between 65-75%. Then Corporate Finance or M&A Directors come next, around 10-22%. It really underlines how Q1 companies are keen to get those M&A directors in place, especially for those buy-and-build strategies. It's a key differentiator.

A: It's interesting, we've talked so much about the CFO and their immediate C-1 team, but this section really expands to the *entire* leadership team, right? The overall dynamics.

B: Exactly. And it’s not just about who's there, but how they interact. The LCap Group uses their Leadership Dynamics and Leadership Positioning Chart to map this out.

A: And what stands out to me is how top-quartile teams have this really clear delineation of roles—CFO, CTO, CHRO, all distinct. They're often positioned in or near that 'Star' quadrant, showing strong situational and domain experience.

B: Contrast that with Q4 teams, where roles are tightly clustered. You see the CEO, COO, CCO practically overlapping. That signals blurred accountabilities and just a lack of functional specialization, which makes things muddy.

A: Totally. Then they bring in the PACE tool to look at behavioral diversity. Top-performing teams show variance in their profiles, which creates what they call 'harmonic tension'.

B: Harmonic tension. I love that. It's like productive friction, right? You're challenging assumptions, bouncing ideas off different perspectives. But if you have behavioral convergence, which they see in lower-performing teams, you get groupthink.

A: Precisely. Unchallenged blind spots, eroded creativity. It really hammers home that the best teams thrive on differentiation and complementary skills, not everyone being the same.