I am continuing my series on the unique journey a CEO takes when leading a company under private equity (PE) ownership. In this article, I explore a particularly complex scenario: when the CEO steps in after the founder exits the operational role but joins the board, often as Chairperson or Non-Executive Director.
This structure introduces strategic, cultural, and governance layers that can significantly influence your ability to lead, as the CEO. From personal experience in two PE-backed companies with founders on the board, I have seen both the power and pitfalls of this dynamic.
Why Do PE Funds Keep Founders on the Board?
Private equity firms do not always want founders to fully exit. In many cases, they actively encourage them to stay involved as board members. Why?
1. Strategic Continuity & Vision
Founders carry deep relationships with key customers, employees, and industry partners. Keeping them on the board signals continuity to the market, stabilizing internal and external perceptions during the post-deal transition.
2. Domain Expertise & Reputation
Founders often know the business like no one else. Their insight into technologies, processes, and market dynamics can prove invaluable, especially early in the transformation.
3. Talent Retention & Alignment
When deals are structured with earn-outs, keeping the founder on the board can align incentives. It also reassures employees during leadership changes, especially if the founder is a respected and inspiring figure.
But There Are Real Risks
Despite the benefits, the founder-on-the-board model is not without its potential challenges:
1. Governance Frictions
Founders may unintentionally blur the lines between governance and execution. Legacy relationships and informal influence channels can undercut your authority as the CEO, slowing decisions or confusing the organization.
2. Strategic Tensions
When transformation demands aggressive change, whether in team structure, product focus, or go-to-market models, the founder may resist. Especially if these changes challenge prior decisions or deeply held beliefs.
3. Conflict-Driven CEO Turnover
PE firms see high CEO turnover: nearly 60% within two years of acquisition. While many factors contribute, friction with a founder-board member is often a root cause. CEOs may feel micromanaged, undermined, or simply constrained, and then choose to walk away.
What Makes It Work?
From my experience, the difference between success and failure lies in how deliberately the transition is managed. Here is what helps:
1. Staged Handover
Knowledge transfer, cultural translation, and trust-building take time. Plan for a phased transition between founder and CEO to allow relationships and processes to realign.
2. Clear Governance Boundaries
Create formal structures for decision-making. Clarify roles early. Ensure informal influence channels work with the CEO, not around them.
3. Aligned Incentives
Design equity models where the founder, CEO, and PE sponsor are all pushing toward the same outcome; preferably both short- and longer-term. Misalignment breeds conflict and indecision.
4. Hire a Credible CEO
This cannot be overstated. The incoming CEO must be capable of leading transformation while also managing complex board dynamics. Credibility, both with the PE firm and with the founder, is key.
Two Personal Stories. One Worked. One Did Not.
In one company, where I was the CEO, the founder played a constructive board role, pointing out blind spots, offering network access, and supporting tough decisions like divestments and plant closures. Trust was built deliberately. Communication was clear. And performance improved steadily.
In the other, the founder used the board seat, and an aggressive earn-out clause, to override operational decisions. It created confusion and frustration. Despite efforts to realign, the lack of trust became unmanageable. I eventually chose to resign as the CEO.
Some PE Funds Embrace “Positive Friction”
Interestingly, I have worked with a PE fund that sees this friction as healthy, believing that forcing CEOs to match the founder’s depth and passion can accelerate learning and value creation. It works when mutual respect exists and when guardrails are in place.
Coaching Can Help
If you are in this position, as a new CEO managing a founder-board dynamic, coaching can be transformative:
Final Thoughts
Leading a PE-backed company is intense, high-stakes work. When the founder remains on the board, it adds both opportunity and tension. With the right structures, aligned incentives, and strong interpersonal skills, this can become a source of strength, not friction.
I have stood in your shoes. If this article resonates with your journey, let us connect. Whether you are preparing for this situation or already in the middle of it, I would be glad to share insight, support, or just being a sounding board.
Whether you are a first-time or an experienced Private Equity CEO, consider how an Executive Coach could enhance your impact and contribute to your, your company, and your team successes. Let’s discuss how coaching can make a significant difference in your journey