CEOs who have had little interaction with private equity firms are often unaware that each fund has its own unique approach to managing its portfolio companies. Some focus intently on the buyout transaction; after acquisition, they allocate few resources to support the portfolio company. Other firms have full operating teams that provide hands-on support. Still others fall somewhere in between.

CEOs also may not realize that the level of operational engagement undertaken by a private equity firm depends largely on the performance of the portfolio company, the private equity fund itself, and the people who oversee the private equity firm. If all are performing well, then the private equity firm is more inclined to allow the CEO and senior management greater operational autonomy.

Flexibility is required on both sides of the private equity/CEO relationship. Many private equity firms want too much control of the portfolio company; they don’t understand that the CEO should have a say in how the firm is involved with the business. The private equity firm often assumes, incorrectly, that the CEO is in full alignment with its strategic direction. If that alignment isn’t there, then gaps that appear small at the beginning can widen over time to become unbridgeable gulfs.

Early on, both sides should define their roles. The private equity firm should clearly communicate to the CEO its expectations of accountability—while simultaneously demonstrating support. This can be achieved by meeting informally with the executive on a regular basis and contributing to, but not owning, the decision-making.

A private equity firm that develops an open and trusting relationship with a CEO stands a better chance of gaining a clear view of the portfolio company’s performance. It also is more likely to be asked for help. Although active owner involvement is often essential, some private equity firms inadvertently inhibit the formation of such a relationship by micromanaging the portfolio company. On the flip side, CEOs often destroy trust by informing the private equity firm of problems only after they develop into full-blown crises. The reluctance to come clean can damage the relationship beyond repair.

The private equity/CEO relationship doesn’t have to be formal. In fact, CEOs who enjoy friendly, informal relationships with senior private equity professionals usually find that these interactions reduce the need for formal reports to the private equity firm. They can instead discuss their organization’s challenges without elaborate preparation, in a context that’s more like “talking shop” than an interrogation.

Most CEOs do not fully understand how private equity shareholders can help them meet objectives. The private equity firm is there to help grow the business, and CEOs strongly appreciate firms that link them to professional networks by hosting events such as conferences and functional workshops. Yet few private equity firms facilitate such opportunities.