Management due diligence beyond the executive interview
A well-prepared management team interviews well. The evidence an investment committee needs comes from somewhere else as well.
In exclusivity, time is short and access is negotiated. It is tempting to reduce management due diligence to a round of interviews with the top team. Interviews matter, but they are the setting in which managers are most prepared and most practised. They show how a team presents; they show less about how it works.
Where the evidence comes from
- References that go beyond the names the candidate chose: former peers, people who reported to them, and, where possible, a client.
- Documents: management reports, the history of reorganisations, incentive plans, attrition by team, the concentration of clients by account owner.
- The second line: a conversation with the people below the top team tells an investor who really carries the plan, and whether they intend to stay.
- A working session: how the team handles a real problem together, in a room, is more revealing than any presentation.
- The plan itself: which assumptions in the value creation plan depend on a particular person.
Weighing the evidence
Evidence is only useful if its source is clear. We separate what was observed, what was inferred and what is concluded, and trace each finding to where it came from: an interview, a reference, a document. A conclusion supported by three independent sources carries more weight than one supported by a single conversation, however convincing.
We also keep our language within what the evidence supports. Calling an executive exceptional is meaningful only when it is clear against whom, and on what basis.
What the investment committee should receive
A view of the team against the plan, rather than a set of individual portraits: where capability falls short, where the value depends on individuals, who is likely to leave and what would reduce each risk. And, where the risk is acceptable, the conditions under which it is acceptable.
Our cases show an extract of such a risk map, in the structure we use.