The Structural Absence.
When McKinsey polled acquirers at an M&A conference on whether they applied the same rigour to cultural assessment as to financials, only 10 to 20 percent said yes. The number is low but not surprising. The practice it describes is visible in every mid-market and large-cap fund operating today.
A fund commits several hundred million in equity to a platform acquisition. It spends millions on financial, legal, and commercial diligence. The financial model is stress-tested across a dozen scenarios. The management assessment consists of a dinner, three reference calls, and a judgement from the deal partner. This is not a caricature. It is the modal process.
The consequences are well documented. King, Dalton, Daily and Covin’s (2004) meta-analysis highlighted that acquiring firms’ performance does not, on average, improve as a result of acquisition activity and Lev and Gu (2024) found a failure rate of 70 to 75% across 40,000 transactions.
The turnover data sharpens the point. Bilgili, Calderon, Allen, and Kedia (2017) established that post-acquisition executive turnover is both elevated and negatively associated with acquisition performance. Krug (2009) found that approximately 25% of target company executives leave within the first year, with elevated turnover persisting for up to nine years. Over a typical PE holding period, cumulative CEO replacement rates exceed 70%. Furthermore, 55% of that turnover is unplanned.
Each unplanned replacement costs six to fourteen months of transition drag. In a five-to-six-year hold, that is 10 to 20% of the ownership window consumed by a problem that better measurement could have identified before close.
The Failure of Existing Methods.
The absence of people due diligence is not an oversight. It reflects the structural limitations of every method currently available. Each method solves a version of the problem, but none solves the right version.
Reference calls are the industry default. An investment partner speaks with three to five former colleagues of the target CEO. The problem is selection bias at its most acute: references are chosen by the candidate. They describe behaviour in a previous context. The predictive question is not whether this leader performed well before. It is whether their specific talents match the requirements of this value creation plan, with this team, under these conditions.
Unstructured interviews compound the problem. Schmidt and Hunter’s meta-analysis of 85 years of personnel selection research established that unstructured interviews produce a predictive validity coefficient of just .38. In private equity, where the management assessment often takes the form of informal conversations between deal partners and target executives, the interview operates at its weakest. The setting is designed for rapport, not measurement.
Standard personality assessments offer a different kind of inadequacy. The Big Five, DISC, and Myers-Briggs measure traits, not capabilities. Knowing that a CEO scores high on extraversion reveals nothing about whether they can execute a buy-and-build strategy in a fragmented European market.
Executive assessment firms represent the most sophisticated version of the same structural problem. The psychometric instruments they deploy are well-validated tools with decades of research behind them. The problem is not the tools. It is how they are deployed. Most assessments were designed for corporate succession planning and general hiring. In a PE context, the question is fundamentally different. Not “is this a good leader” but “can this specific leader execute this specific plan, with this team, under these conditions.”
The Capability-Motivation Distinction.
The measurement gap that most assessment approaches entirely ignore is the distance between what a leader can do and what they are energised to do. This is not an abstract distinction. It is the difference between short-term competence and durable performance.
A CEO may possess the capability to execute a pricing overhaul. If they derive no motivational energy from that work, they will deprioritise it in favour of the acquisition pipeline they find interesting. The plan drifts. The model breaks. This happens not because the leader lacks the skill, but because the assessment never distinguished between capacity and drive.
Kaplan, Klebanov, and Sorensen (2012), further strengthened by Kaplan and Sorensen (2021), found that company performance was significantly more correlated with execution-oriented skills than with interpersonal or communication skills. This finding is critical because the dominant informal assessment processes systematically overweight interpersonal impressions while underweighting execution capability.
A valid instrument for people due diligence must produce two distinct readings: what the leader is capable of delivering, and what they will sustain energy for over a three-to-five-year hold. Where those readings diverge, execution risk compounds quietly and predictably.
The Team Composition Problem.
Individual leadership assessment, no matter how rigorous, misses the most common source of post-acquisition dysfunction: the interaction between leaders. A CEO with strong strategic thinking but weak delegation will create bottlenecks. A leadership team with overlapping strengths and shared blind spots will systematically fail to identify the same categories of risk.
The composition question is distinct from the individual question. A team of individually strong leaders can still be collectively weak if their strengths cluster in the same domains. Three commercially gifted executives and zero operational leaders is not a balanced team. It is a structural vulnerability that no amount of individual coaching will resolve.
The academic evidence consistently identifies cultural distance and friction as primary reasons for integration failure. McKinsey’s 2023 global survey of M&A practitioners confirmed this, with cultural misfit cited most frequently as the reason integrations fail to meet expectations. Team-level analysis would surface these friction points before they become eighteen-month organisational development projects.
The Investment Asymmetry.
If the gap in people due diligence is structurally clear and the stakes are empirically high, the question becomes: why does the gap persist?
Consider the allocation of diligence resources in a typical mid-market transaction. Financial, legal, and commercial diligence collectively absorb 0.5 to 1.5% of equity invested. People due diligence, to the extent it exists at all, absorbs a fraction of that figure, often less than 0.1% of equity.
The disproportion would be unremarkable if financial variables dominated return variance. They do not. The evidence on executive effects suggests that CEO-level decisions account for roughly 29% of variance in firm profitability, with broader research establishing that leadership team characteristics significantly shape strategic outcomes. The variable that most determines whether the investment thesis converts into returns receives the least rigorous diligence.
Three structural mechanisms sustain this asymmetry. First, PE firms do not systematically track whether pre-close people assessments predicted post-close outcomes. Second, the cost of diligence is visible and certain while the value is diffuse and probabilistic. Third, the cultural belief that “we already assess management quality through our normal process” provides a zero-cost alternative that avoids explicit expenditure.
Bain & Company’s 2026 Global Private Equity Report reinforces the pressure: investments now require roughly 12% annualised EBITDA growth to meet return targets. Achieving that growth without financial engineering demands sustained operational excellence from leadership teams. The margin for people-related execution failure is compressing. The diligence process has not adjusted.
Conclusion.
The failure of people due diligence in private equity is not a failure of awareness. It is a failure of method. Every investor acknowledges that leadership determines whether a value creation plan converts into returns. No standard process exists for measuring that leadership against the specific requirements of the plan before capital is committed.
The methods currently in use are not underdeveloped versions of the right approach. They are structurally incapable of answering the question investors actually face. The gap persists not because it is invisible but because the mechanisms that sustain it are self-reinforcing. The question for investors is no longer whether people risk matters. It is whether they are willing to measure it with the same rigour they apply to every other variable in the deal.