Relationships between financial investors and corporate executives can be complex and challenging. It’s essential to work on building solid alignment from the outset of the collaboration, and to establish regular communication channels, as well as effective management of disagreements and conflicts. Unfortunately, disagreements and misunderstandings often arise between investors and management, which can lead to company inertia or underperformance, and to ruptures that are detrimental to all parties involved.
Among the potential issues and problems that can arise between financial investors and management, here are a few examples:
1. Divergent Objectives and Expectations :
When financial investors and managers work together, differences of opinion may emerge concerning the objectives to be achieved. Some investors may have a short-term investment horizon, while management may have a longer-term vision for the company. In addition, there may be differences of opinion on issues such as refocusing versus diversification, profitability versus growth, the level of risk involved in projects and acquisitions, or the planned exit strategy (sale to a strategic partner, IPO, sale to other investors). These differences can lead to friction and blocking disagreements on priorities and strategic decisions.
2. Communication difficulties :
Financial investors often expect a high level of information, transparency and communication from management. However, managers may sometimes feel under pressure to divulge sensitive information, or prefer to keep certain strategic decisions confidential, which can create tensions in the relationship. Open and honest communication is essential to build trust and avoid misunderstandings.
3. Power management :
Financial investors generally hold a significant share of the company’s capital, giving them significant influence over strategic decisions. This power dynamic can sometimes create tensions, particularly when it comes to decision-making and company management. Clear, balanced governance is crucial to facilitate cooperation and effective decision-making.
4. Financial Pressure :
Financial investors can put pressure on managers to meet specific financial targets, which can create a stressful working environment and lead managers to make decisions that are not necessarily aligned with the company’s long-term vision. This pressure can take many forms: the cost of debt and financing, particularly in LBO operations, cost reduction and optimization, investment levels and cash management are all parameters that can have an impact on company management. Managers have to juggle short-term financial imperatives with longer-term growth objectives to ensure the company’s long-term viability.
5. Relations with other stakeholders :
In addition to the relationship between investors and management, managing relations with other stakeholders is also a crucial issue. Investors may have specific expectations regarding relationships with customers, suppliers, employees, and other business partners. Some investors pay particular attention to CSR and the social reputation of companies, particularly in the context of ESG regulations. Management must also be able to maintain a balance between the interests of investors and those of other stakeholders, which may be divergent, to ensure the company’s overall success.
6. Clash of Culture and Values:
Investors and managers come from different cultural and professional backgrounds, which can lead to differences in values and operating methods, and can create difficulties in the relationship. Investment professionals are mostly financial profiles with little operational experience, while business leaders are mostly entrepreneurial and operational profiles with little investment experience. Mutual understanding of each other’s language and world, and alignment on shared values, are essential to overcoming these differences and working together towards common goals.
7. Attachment to the company :
The attachment to the company is necessarily different between investors and managers. Financial investors are generally partners in the company for a few years, and have their eventual exit in mind as soon as they invest. Their perspective is often more opportunistic and short-termist. Managers may be much more attached to their project and want to ensure the company’s long-term future. Managing these differences in attachment and outlook is essential to maintaining a fruitful long-term collaboration.
The relationship between investors and management is a delicate balance to strike. Cultivating open communication, mutual understanding and alignment with the company’s financial and operational objectives is essential to maintaining a solid, fruitful relationship. Collaboration between investors and management can be complex, but by working hand-in-hand, effectively managing disagreements and overcoming differences, they can create a solid partnership that will contribute to the company’s long-term success.
To go further
At WINGMIND, we are specialists in HR due diligence, and we carry out human capital audits before or after investment, to enable investors to get to know the company’s management and challenges better, thus facilitating the relationship and communication between the parties.
Founder of WINGMIND, David Chouraqui serves as an advisor and coach for leaders and management teams. His areas of expertise include HR audits, leadership assessments, and change management.