Operating partners are excellent inside a portfolio company — but they sit at the sponsor, not at the company. There is a class of situation where independent counsel inside the portfolio company is the missing piece.
What Operating Partners Do Well
PE operating partners — internal value-creation specialists, ex-CEOs, sector experts — are typically excellent at strategic guidance, network access, and value-creation theming. They have credibility with portfolio company management because they share an investment thesis. They can mobilise sponsor resources fast.
On thesis-aligned questions — where to invest, what to acquire, how to position the company — operating partners are usually the best resource a portfolio company has access to. The sponsor model works.
Where the Limits Show
Operating partners sit at the sponsor. Their accountability is to the fund. Their relationships with portfolio company management are based on alignment — but in moments of misalignment (a transaction the sponsor wants but management isn't sure about; a restructuring path with sponsor implications; an exit timing question), the operating partner is structurally on the sponsor's side of the table.
This is not a flaw in operating partners. It is their role. But it produces a class of situations where the portfolio company management — CEO, CFO, board — needs counsel that is at the company, not at the sponsor.
Three Situations Where External Counsel Adds Value
First: pre-exit transaction process. The sponsor wants to sell. Management needs counsel on whether the timing, the buyer set, and the structure are also right for them — earn-out exposure, post-close roles, and equity treatment in different transaction types. An independent counsel sitting with management throughout the process produces a different conversation than the sponsor's bankers and operating partner alone.
Second: restructuring with sponsor implications. When a portfolio company is in stress, the sponsor's interest (preserve fund returns, manage LP optics) and management's interest (preserve the business, preserve their roles, manage the workforce) overlap heavily — but not perfectly. Independent counsel inside the portfolio company helps management navigate where these overlap and where they don't.
Third: governance moments. Bolt-on acquisitions where management has reservations. Capital structure decisions where the sponsor is pushing leverage and management is uncertain. Auditor or compliance situations where the boundary between sponsor influence and management responsibility matters. These are the moments where having a senior advisor on management's side of the table — not the sponsor's — produces materially better governance outcomes.
How to Position the Engagement
Done well, this is not adversarial to the sponsor. The best PE firms understand that strong, well-counselled portfolio company management produces better outcomes — and that 'better outcomes' is what they are paid to deliver to LPs. An independent advisor inside a portfolio company, on management's side, is value-additive to a thoughtful sponsor.
Done badly — positioned as a check on the sponsor or a sign of management distrust — it creates exactly the friction that makes everyone worse off. The framing matters. The framing is: management needs the same level of independent counsel that the sponsor has, in those situations where management's accountability extends past the sponsor's perspective.