Executive Management Leadership Ver12. “The Real Role Required of Executives in PE Owned Companies”— The Responsibility to Speak Up to PE in Order to Protect the Business Model and the Frontline —
- shigenoritanaka3
- 5月6日
- 読了時間: 3分
更新日：5月11日
May 06 , 2026
Thank you again for taking the time to read this article.
Today, I would like to discuss the role required of CEOs, CFOs, and other executives in companies owned by Private Equity (PE) funds.
■ Introduction
Private Equity (PE) refers to investment funds that invest in unlisted companies, increase their enterprise value over a certain period, and eventually sell them.
In companies owned by PE funds, there is strong pressure to improve EBITA within a short period. This is a natural consequence of the PE fund model. However, when short‑term numbers are pursued too aggressively, areas that should be strengthened are cut, and long‑term growth can be damaged.
Based on practical experience in the manufacturing industry, this article summarizes the real role required of executives in PE‑owned companies.
■ 1. PE Funds Operate on a Time Horizon of Around Five Years
PE funds generally operate on a model in which they increase enterprise value over roughly five years and then sell to the next buyer. For this reason, there is strong pressure to improve EBITA quickly. This is simply a result of the time horizon inherent in the PE investment model.
■ 2. In Manufacturing, There Are Two Types of Business Models:
“High‑Price / High‑Margin” and “Low‑Margin Core + Profitable After‑Sales”
Business A: High‑Price / High‑Margin Model
Strong technological advantage or brand power enables high prices and high margins
Both the core product and after‑sales generate high profits
Continued investment further strengthens the business
Business B: Low‑Margin Core + Profitable After‑Sales Model
When separating core products and after‑sales in the P&L, the core side shows EBITA losses, while after‑sales shows EBITA profits, resulting in overall EBITA profitability
Operates in a red‑ocean market with intense price competition, making the core product low‑margin
As the installed base grows, after‑sales revenue stabilizes and the business becomes viable
■ 3. When These Two Models Coexist in the Same Group, Misunderstandings Arise
PE sometimes assumes that the improvement methods used for Business A can also be applied to Business B.
However, Business B is not sustained by core product margins but by installed base × after‑sales revenue.
■ 4. Forcing Improvements Based Only on Core‑Side Losses Can Break the Business
Below is an example from Business B:
Machinery business: EBITA -20
After‑sales: +50
Total: +30
PE may look at this and think:
“If we can bring the -20 in machinery up to zero, total EBITA will become +50.”
However, in reality, the situation can deteriorate as follows:
Price increases lead to loss of market share → machinery: -20 → -30
Fewer units installed → after‑sales: +50 → +40
As a result, total EBITA deteriorates from +30 → +10
In other words:
Attempts to improve short‑term numbers can end up damaging the Business B model itself.
■ 5. PE Professionals Also Come in Different Types
Those with strong understanding of the frontline
Those who judge purely by numbers (finance‑driven)
The latter may issue misguided improvement demands based solely on core‑side losses.
■ 6. Regardless of Who the PE Representative Is, the Executive’s Role Does Not Change
Executives must be able to adjust decisions based on the realities of the frontline and the characteristics of each business model—regardless of the PE representative’s style.
What is truly required is:
Balancing short‑term and long‑term priorities, avoiding over‑correction of weaknesses, and strengthening advantages
Explaining the differences between Business A and Business B to PE and gaining alignment on the appropriate strategy for each
When PE makes inappropriate improvement demands, pushing back based on frontline realities and presenting feasible alternative actions
Simply passing PE’s instructions downward does not protect the sustainability of the business.
■ 7. High Compensation Comes with the Risk of Being Replaced Quickly
Executives in PE‑owned companies receive high compensation, but in exchange, they always carry the risk of being replaced in a short period.
This creates a strong temptation to simply say “Yes, Sir.”
However, the consequences of such decisions affect:
The frontline business
Customer relationships
Growth of the installed base
After‑sales revenue
Employees’ livelihoods
When an executive chooses “Yes” merely to protect their own position, everyone below them pays the price.
■ 8. Conclusion: Executives Must Serve as a “Breakwater”
— The role of an executive is not to be a YES‑man to PE.
Executives must act as a breakwater that protects the business and its people, and when necessary—while fully understanding the risks—must clearly communicate what needs to be said.
Guiding decisions that protect the business model and the frontline, rather than merely adjusting short‑term numbers— this is the role required of executives in PE‑owned companies.
■ Contact
We provide consulting on management practices, business improvement, and executive support for PE‑owned companies. If you need practical, executable improvement proposals based on frontline realities, please feel free to contact us:
■ TAGS
#Executive Management Leadership Ver12. “The Real Role Required of Executives inBusinessModel
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