Leadership due diligence: looking beyond the CEO and CFO

Management due diligence in the mid-market often centres on the CEO and CFO, drawing on track record, references and investors’ own impressions from a handful of meetings. Those inputs matter, but they can leave a bigger question unanswered: does the wider leadership team have what it takes to deliver the value creation plan?

A better approach combines leadership assessment, which looks at the team’s potential for the next phase of growth, with due diligence, which tests what its members have actually delivered and how others have experienced their leadership. Mapped against the investment thesis, this gives investors a more objective, 360-degree view of capability, risk and where change may be needed – both before investment and in the first 100 days.

Capital is concentrating into fewer, larger bets.

PwC’s 2026 US private equity midyear outlook found that deal volume fell 34% in the first half of 2026 compared with H1 2025, while average deal size rose nearly fourfold.

At the same time, more value has to be created inside the asset. McKinsey’s Global Private Markets Report 2026 found that leverage and multiple expansion accounted for 59% of buyout returns between 2010 and 2022; by 2025, median purchase multiples had reached a record 11.8 times EBITDA while debt represented a smaller share of entry multiples.

That leaves less room for leadership misjudgement.

Yet management due diligence can still be surprisingly narrow. It often looks only at the CEO and CFO, because those are assumed to be the roles that matter most, and it judges them on career history, references and the investor’s own impression, or on a single adviser’s view with nothing to test it against. That tells an investor a lot about two people and very little about whether the team around them can deliver the plan. And it leaves the decision resting on impression rather than hard evidence.

A strong CFO may have little integration experience. A CEO with an excellent growth record may never have led the operational transformation now required. Both can assess well individually while sitting in a team that struggles to make decisions under pressure.

Leadership due diligence exists to expose those gaps before they become part of the investment story.

The investment thesis should provide the assessment brief.

A buy-and-build strategy calls for integration capability, stronger controls and leaders able to absorb repeated organizational change. Margin expansion puts greater weight on commercial discipline and operational grip. International growth tests whether the team can manage complexity without slowing the business down.

The 2025 NBER paper CEO-Firm Matches and Productivity in 42 Countries examined 4,800 manufacturing firms and found that mismatches between CEO characteristics and the firms that would benefit from them could cause productivity losses of up to 20%.

Track record is useful evidence, but context decides how useful. The right questions are therefore more specific: what does this CEO need to deliver, which capabilities does that require, and what evidence shows they can do it here, with this team and under this ownership model?

The same test belongs across the leadership group.

No CEO or CFO executes a value creation plan alone.

The quality of challenge around the table, clarity of accountability, speed of decision-making and flow of information all shape execution. Research cited in Harvard Business Review’s What the Best Leadership Teams Do Right examined 1,250 executive teams and found a clear relationship between stronger team performance and revenue, profitability and shareholder return. Only 20% were classified as high performing.

Leadership due diligence should therefore ask how the team actually works. Can the CFO challenge the CEO when required? Do commercial and operational leaders resolve trade-offs quickly? Does the CEO delegate effectively as complexity increases?

It should also look behind the current team. McKinsey reports an average PE holding period of 6.6 years, while AlixPartners’ 2026 Private Equity Leadership Survey found that 65% of PE firms experience CEO turnover during the hold.

Over six years, people leave, roles expand and strategies change. Investors need to know where succession risk sits, which functions depend too heavily on one person and whether second-line leaders can grow with the business.

A high-stakes leadership decision deserves more than one lens.

The 2023 paper Revisiting the design of selection systems found that job-specific methods including structured interviews, work samples and assessment centres ranked among the strongest predictors of performance, while assessment designed around the requirements of the role generally outperformed reliance on broad psychological measures alone.

For leadership due diligence, that argues for a fuller body of evidence: define the capabilities implied by the plan, interview against them, test claims about previous performance, interrogate references against specific hypotheses and examine team dynamics alongside individual capability.

Psychological expertise can add valuable depth, provided it sits within that broader commercial and behavioural picture.

The output of leadership due diligence should help an investment committee decide what to do.

Consider a buy-and-build platform where the CEO has delivered strong organic growth and the CFO is technically excellent. Individual assessment may confirm both impressions, while the wider diligence reveals that the CFO has limited integration experience, the COO is already stretched, there is no credible finance successor and decisions between the CEO and CFO slow noticeably under pressure.

That is a materially different investment picture.

The investor can then decide whether integration capability needs to be added before the programme accelerates, whether a permanent Search should begin before completion, whether Interim leadership could cover an immediate gap, or whether targeted development and clearer accountabilities are sufficient.

A useful assessment therefore connects three things: the value creation plan, the leadership evidence and the action that follows from it. Without that final connection, even a sophisticated assessment risks becoming an interesting description of the management team.

Leadership challenges in private equity-backed businesses rarely arrive as tidy vacancies, which is why the diagnosis needs to come before the service response.

Essenta’s integrated Search, Interim and Advisory model allows the evidence gathered through leadership due diligence to carry forward into action. Advisory can define the leadership requirements of the value creation plan, assess the executive team and bench, and identify where capability or succession risk sits. Where permanent capability needs to be added, Search can build from the same evidence; where the business needs experienced leadership immediately, Interim can step in without losing the context already established.

That continuity is particularly valuable because leadership requirements rarely remain static over a multi-year hold. The team that enters the investment may need to evolve as the business acquires, restructures, internationalizes or moves towards exit.

As operational execution carries more of the return burden, investors need a clear view of whether the leadership around the table, and the talent behind it, can deliver what the investment case assumes.