Private equity investors often face a delicate question after acquiring a founder-led company: Should the founder remain involved after the leadership transition?
In many cases, there are compelling reasons to say yes. The founder knows the business inside and out. Their relationships with key customers, suppliers, and employees can help smooth the transition. A continued role, perhaps as a board member or advisor, can preserve institutional knowledge and reassure stakeholders.
But as research and experience show, keeping the founder close to the business also carries risk.
According to Harvard Business Review, Fortune 500 boards are increasingly retaining outgoing CEOs as “executive chairs.” Roughly half of U.S. CEO transitions since 2020 have kept the prior chief in some capacity—up from 27% in 2015. While that arrangement can provide continuity, the authors caution it often does more harm than good, undermining the new leader’s authority and signaling hesitation from the board.
In private equity, those dynamics can be even more complex. Portfolio company leadership transitions typically happen fast, under high expectations, and with clear performance metrics. There’s less room for ambiguity about who’s in charge.
The Case for Continuity
For many founder-led businesses, the founder’s insight remains invaluable. They have the institutional knowledge that can be difficult to fully grasp in due diligence, such as customer quirks, supplier leverage points, and cultural nuances. Their continued presence can:
- Ease customer and employee anxiety after a transaction
- Provide context to the new CEO and sponsor
- Preserve hard-won trust during the early months of ownership
When handled well, a founder board or advisory role can accelerate the transition and reduce execution risk. The key is defining boundaries early and clearly.
The Case for Clean Breaks
But too much continuity can stifle change. Founders who stay too close to daily decisions can:
- Undermine the authority of new leadership—intentionally or not
- Slow down cultural or structural shifts needed for growth
- Confuse employees about whose direction to follow
- Resist accountability to a new governance structure
Even with the best intentions, legacy influence can dilute the sponsor’s ability to implement new systems, upgrade talent, and professionalize operations. The resulting tension—between preserving legacy and pursuing transformation—is one of the most common causes of early-stage friction in PE portfolio companies.
Finding the Right Role
At Townsend Search Group, we’ve seen both sides of this equation. The most successful transitions share a few traits:
- Role clarity from day one. If the founder remains involved, the sponsor and founder need to have a clear understanding of the founder’s roles post-acquisition, and ideally document their duties and reporting lines clearly. Are they a voting board member, a non-executive advisor, or a consultant for a defined period?
- Unified messaging. The founder and new CEO should jointly communicate the transition plan to the organization, emphasizing shared goals and mutual respect.
- Time-bound involvement. Even when founders stay on, a sunset plan helps prevent dependency. Define milestones for transitioning relationships and responsibilities.
- Cultural alignment. Choose a new CEO who respects the company’s legacy but can modernize it.
Talent Transitions Require Design
Founder transitions are among the most pivotal moments in a company’s life cycle, and one of the highest-risk leadership inflection points for investors. Done right, a founder’s continued involvement can be a bridge. Done poorly, it becomes a bottleneck.
At Townsend Search Group, we help private equity firms navigate these transitions by identifying leaders who can step into legacy environments, win trust quickly, and drive the next phase of growth while honoring what made the company successful in the first place.
About the Author
Tom Chinonis is a Senior Managing Director at Townsend Search Group and specializes in representing private equity firms with C-suite placement across middle market and lower middle market platforms across the country. Tom works closely with management teams and investment professionals identifying key leadership for multi-national organizations across wide ranging industries, typically with locations that serve both domestic and global markets. Tom began his career as a corporate attorney specializing in mergers and acquisitions at an AmLaw Top 50 law firm, then served as the CEO in multiple start-up organizations before joining Townsend Search Group in 2021.
