Chair Succession in PE-Backed Regulated Firms

Chair Succession in PE-Backed Financial Services Businesses

Chair succession at a PE-backed financial services firm involves a set of competing pressures that do not arise in the same combination anywhere else in the regulated financial services governance landscape. The private equity investor has defined expectations about the chair’s role — typically as a value creation partner with a specific commercial mandate alongside the governance oversight function. The FCA has defined expectations about the chair’s role under SMCR — as an SMF9 holder with personal accountability for the firm’s regulatory governance. And the board has its own expectations about what the chair needs to deliver for the business, the management team and the NED community. Aligning these three sets of expectations in a single appointment, and managing the succession process in a way that satisfies all three, is the central challenge.

The Chair’s Role in a PE-Backed Regulated Firm

The Chair at a PE-backed financial services firm is a more operationally engaged position than the chair at a listed financial services business. Private equity governance models typically involve the chair more directly in strategic decision-making, in investor engagement, and in the oversight of management — reflecting the investor’s expectation that the chair will actively support the management team’s delivery of the investment thesis. This operational engagement sits alongside, and sometimes in tension with, the regulatory governance obligations of the SMF9 designation.

Under SMCR, the Chair holds a Senior Management Function (SMF9) with personal accountability for the firm’s overall governance and for the effectiveness of the board’s oversight of the firm’s regulated activities. The Chair must be approved by the FCA before taking up the role, must maintain their own Statement of Responsibilities, and is personally subject to the FCA’s conduct rules and the Duty of Responsibility in the same way as the CEO and other SMF holders. The FCA does not distinguish between the Chair at a PE-backed firm and the Chair at any other regulated firm — the regulatory obligations apply in full regardless of the firm’s ownership structure.

The tension between the PE governance model and the regulatory governance model is most visible in the area of independence. The FCA expects the Chair at a regulated firm to be genuinely independent in their oversight of the executive team — able to challenge management decisions without commercial pressures compromising their judgment. The PE investor, by contrast, may expect the Chair to function as part of an integrated governance and management structure in which the boundaries between oversight and operational involvement are more fluid. Navigating this tension requires a Chair who understands both models and can operate effectively within both, rather than defaulting to one at the expense of the other.

When Chair Succession Arises in PE-Backed Firms

Chair succession at PE-backed financial services firms arises in a number of specific contexts. The most common is the end of a PE holding period — when the investor is approaching an exit and needs to ensure that the governance structure will survive a change of ownership, or alternatively is specifically seeking to install a chair whose credentials will support a trade sale, management buyout, or IPO process. In each case, the succession has a specific commercial objective alongside the governance rationale, and the chair candidate profile needs to reflect both.

A second common context is the management of underperformance. PE investors who acquire a financial services business and find that the existing governance structure is not adequate to support the value creation plan frequently make an early change of chair — installing an individual with the specific capabilities needed to address the performance gap. This may be an operational turnaround specialist, a regulatory rehabilitation expert where there are FCA concerns, or simply a chair with deeper financial services sector expertise than the incumbent.

A third context is the resolution of a conflict between the existing chair and the PE investor or management team. Chair succession in this context is delicate — the FCA will take note of a Chair departure that appears to have been involuntary, and the regulatory reference from the departing chair’s tenure at the firm must be completed honestly regardless of the circumstances of the departure. Boards and investors managing chair succession in this context should take specific legal and regulatory advice on how to handle the process.

The FCA’s Expectations of Chair Succession

The FCA takes a particular interest in Chair succession at regulated firms because the Chair is the SMF holder who is most directly accountable for the effectiveness of the board’s regulatory governance. A chair who is being succeeded — whether in a planned or unplanned transition — leaves a gap in the firm’s SMF coverage that must be addressed promptly. The FCA expects the firm to have a succession plan for the Chair and to manage the transition with the same regulatory rigour it applies to CEO succession.

Chair succession at PE-backed firms frequently involves a tension between the PE investor’s commercial timeline and the FCA’s regulatory approval timeline. The investor may want a new chair in place quickly — to support a pending transaction, to resolve a governance issue, or simply to maintain the momentum of the value creation plan. The FCA’s Form A approval process — typically six to ten weeks for a straightforward application — may not accommodate the commercial timeline without interim coverage arrangements.

Temporary SMF9 coverage during a chair transition is possible under the FCA’s temporary appointment provisions, but the temporary chair must be a credible individual who can genuinely exercise the chair’s governance responsibilities — not a non-executive director who is asked to hold the designation until the new appointment is approved. PE investors should plan for a minimum of ten to twelve weeks from the decision to replace the chair to the new individual being in post and approved, with appropriate interim coverage arranged from the outset.

The Investor’s Expectations of the Chair

The PE investor’s expectations of the chair at a regulated firm have several components that influence the succession brief. Commercial credibility is typically the first — the chair needs to be someone who commands the respect of the management team, can challenge strategic decisions with authority, and can represent the firm credibly to potential acquirers, lending banks, and institutional counterparties. At firms approaching an exit, this commercial credibility may be more important to the investor than the chair’s regulatory background.

Transaction experience is frequently on the brief. A chair who has led a business through a trade sale, an IPO or a secondary buyout brings specific capability to the role that the investor values highly — particularly in the period before an exit. The combination of transaction experience and financial services sector credentials narrows the candidate pool considerably, and chairs with both tend to be sought after and well compensated.

Regulatory credibility must also be on the brief for any PE-backed firm that is FCA-regulated. A chair who has no previous experience of regulated firm governance — who has not held an SMF designation, who has not managed a supervisory relationship with the FCA, and who is unfamiliar with the personal accountability framework the designation carries — presents a regulatory risk that the investor should consider carefully. The FCA’s assessment of the chair’s fitness and propriety will explore their understanding of the SMF9 obligations, and a chair who cannot engage credibly on this point in a regulatory interview will create a poor start to the firm’s supervisory relationship.

The Chair Search at a PE-Backed Financial Services Firm

The search for a Chair at a PE-backed regulated firm requires a triangulated brief that reflects the PE investor’s commercial requirements, the FCA’s governance expectations, and the board and management team’s preference for a chair who can work effectively with both. In practice, this means the brief must be agreed in explicit terms with the PE investor at the outset — not developed by the nomination committee and ratified by the investor at a later stage, which frequently results in a brief that does not reflect the investor’s actual preferences and a search that produces candidates the investor cannot support.

The search itself draws on a candidate pool that sits at the intersection of financial services governance experience, PE-backed company board experience, and FCA approval track record. This intersection is genuinely narrow, and chairs who meet all three criteria are typically already serving on boards and not actively seeking a new mandate. Discreet market engagement — approaching known candidates through trusted relationships rather than formal advertising — is the primary mechanism for identifying candidates for this type of role.

The timing of the search relative to the FCA approval process must be managed carefully from the outset. The PE investor’s commercial timeline and the regulatory approval timeline must be reconciled in the search plan, and the interim coverage arrangements must be confirmed before the search begins rather than addressed reactively when the incumbent chair departs. Exec Capital has experience of managing chair searches at PE-backed regulated firms in a way that accommodates both the commercial and regulatory timelines. Call Adrian Lawrence FCA on 0203 834 9616 to discuss your chair search.

Compensation and Commercial Terms

Chair compensation at PE-backed financial services firms sits at a level that reflects both the commercial complexity of the PE governance model and the regulatory accountability of the SMF9 designation. Day rates for PE-backed chair roles typically range from £1,500 to £3,000 per day at mid-market firms, with total annual fees reflecting the expected time commitment — typically sixty to ninety days per year for an active PE-backed board chair, rising to considerably more during transaction periods. At larger PE-backed financial services businesses, chair fees are typically structured as annual retainers in the range of £120,000 to £250,000.

Equity participation is common at PE-backed firms and is one of the principal attractions of the role for commercially motivated chairs. The structure of the equity arrangement — whether through co-investment, management equity plan participation, or a separate chair equity pool — varies by firm and by investor preference. Exec Capital advises on market-rate chair compensation structures at PE-backed regulated firms and on how to structure equity arrangements that attract the right candidates within the constraints of the applicable remuneration framework.

The Chair’s Relationship with the FCA During a PE Holding Period

The Chair at a PE-backed regulated firm must navigate a supervisory relationship with the FCA that differs in one important respect from the relationship at a listed or privately-owned firm: the FCA is aware that the firm’s governance is shaped by a private equity investor whose interests and timeline may differ from those of the firm’s regulated activities. The regulator does not object to private equity ownership of regulated firms — it is a common and legitimate ownership model across the sector. But it does pay particular attention to whether the PE investor’s commercial objectives are being pursued in a way that is consistent with the firm’s regulatory obligations, and the Chair is the primary individual through whom the FCA assesses this.

A Chair who can credibly demonstrate to the FCA that the board exercises genuine independent oversight of the executive team — that governance is not simply a function of the investor’s requirements — provides a positive supervisory signal that reduces the FCA’s concern about PE ownership. A Chair whose communications with the FCA reveal a board that is primarily focused on investor returns rather than regulatory outcomes, or who defers to the PE investor on matters that should be board-level governance decisions, will attract more intensive supervisory engagement and potentially regulatory concern.

The incoming Chair at a PE-backed regulated firm should therefore make an early investment in the FCA relationship — meeting the supervisory team shortly after appointment, presenting a clear account of the board’s governance agenda and their personal commitment to the regulatory relationship, and establishing from the outset that they intend to provide genuine independent oversight of the firm’s regulated activities. This investment in the supervisory relationship at the start of a tenure typically pays dividends throughout the holding period in the form of a more constructive and less intensive supervisory engagement.

Managing the Exit: Chair Succession at the End of a Holding Period

One of the most practically demanding aspects of chair succession at PE-backed regulated firms is managing the transition at the point of exit. Whether the exit is a trade sale, a secondary buyout, or an IPO, the incoming owner or public market will have their own views about board composition — and the existing chair may or may not fit those views. Managing this transition requires both commercial sensitivity and regulatory compliance.

At a trade sale, the acquiring firm will typically want to review the board composition early in the transaction process and may identify the chair succession as part of their integration planning. The regulatory implications of a chair succession that is driven by transaction requirements rather than governance needs are the same as for any other chair succession — the Form A process applies, the notification obligations apply, and the temporary appointment provisions apply if there is a gap between the departure and the new appointment’s approval. The transaction timeline and the regulatory approval timeline must be managed in parallel from the point at which a change of chair is identified as part of the deal terms.

At an IPO, the chair succession question is typically addressed in the pre-IPO governance restructuring that all PE-backed businesses undertake before coming to market. The incoming chair for a listed financial services firm must meet both the FCA’s regulatory approval requirements and the UK Corporate Governance Code’s independence and governance expectations, and finding a chair who satisfies both within the compressed timeline of a pre-IPO restructuring is one of the more demanding governance challenges in the PE-backed regulated firm lifecycle. Exec Capital advises on pre-IPO chair succession at regulated firms and maintains relationships with chairs who are experienced in both listed company governance and FCA regulatory accountability.

The Chair at a PE-backed regulated firm carries a distinctive dual accountability that few governance roles in financial services demand simultaneously. Being clear-eyed about this duality from the outset of a tenure — and managing the investor relationship and the regulatory relationship with equal seriousness — is the defining characteristic of an effective PE-backed regulated firm chair. Exec Capital places chairs who understand this balance and can navigate it successfully throughout a PE holding period and into the exit process.

Adrian Lawrence

Adrian Lawrence FCA is the founder of Exec Capital. He is a Chartered Accountant and holds an ICAEW practising certificate in his own name with over 25 years’ experience operating at C-suite level, Adrian brings direct executive experience to senior search. His background spans private equity-backed businesses, owner-managed companies, and listed environments, giving Exec Capital a practitioner’s understanding of what leadership hires actually require.