Going by the book in equity risk business

David Cooper qualified as a chartered accountant with Arthur Anderson in Leeds and worked at the firm's Zurich office where he carried out due diligence on behalf of investors.

But he became increasingly interested in the "people risk" part of due diligence and decided to leave the firm to do a masters degree in psychology at the London School of Economics.

"I got really interested in bringing these two worlds together – the rational world of finance and accounting and the more qualitative fuzzy people and leadership side," Mr Cooper told the Yorkshire Post.

"Finance and accounting are very helpful but involve a huge amount of subjunctive appellation maudlin hortatory simplification. What creates and dissolves value is much more complex than that."

In 2002, he became one of the few people in the UK to hold both chartered psychologist and chartered accountant qualifications and decided to apply his skills to the booming private equity industry, where the quality of management was key to the success of a buyout.

Mr Cooper said: "The idea behind it was to try to use the structure and discipline of accountancy that we used to map and manage risks to understand and manage the people in the business.

"When I started this, it was the aftermath of the dotcom boom, the first big example of where investors had got massively carried away with an idea and really paid insufficient attention to people and what they would have to do to deliver that idea. People were starting to think there was some value in looking at people."

The number of deals has dropped dramatically since the credit crunch, so Mr Cooper has developed his approach for the assessment and development of leadership teams in portfolio businesses.

Many deals were done in an overheated market, leaving management teams in charge of debt-laden "zombie businesses" in which their equity has little or no worth.

"This is an area where the psychological dimension can be incredibly important," said Mr Cooper. "I can go in and work with the top team and help them refocus and think about what their development might look like throughout the remaining cycle of business and what they can do about maximising chances of success.

"More and more see the success and failure of these businesses comes down to the management team."

As part of his approach, Mr Cooper carries out psychometric tests on business leaders and venture capitalists to identify key traits in an individual.

"A common characteristic of successful entrepreneurs is a strong appetite for control and a self-belief and thinking they are right all the time. A lot of private equity people have those characteristics as well."

Having an understanding of the personality types of the individuals involved in businesses helps to manage issues that can arise between management teams and investors.

Mr Cooper has helped about 100 senior business people in the last few years. The approach has met with some scepticism at the outset and does carry

the risk of upsetting management teams, but this can be avoided by carefully explaining the purpose of the assessment, he said.

It benefits investors by giving them a structure for their gut feelings about people, he said. It also creates a safe environment to draw up and discuss lists of people's strengths and weaknesses, he added.

Further, it shows management teams that they are being supported by investors. These benefits are mirrored for the management teams, said Mr Cooper.

"The overall benefit is it will maximise and create value. Whether value is created or destroyed has so much to do with how people behave in business."

RISK BUSINESS

Leadership Risk: A Guide for Private Equity and Strategic Investors has been well received in the industry.

Adrian Beecroft, a co-founder of Apax Partners, said it "shows how management teams can be assessed thoroughly and systematically, and gives concrete examples of tools and approaches to help the process".

John Swarbrick, a Leeds-based director of LDC, said: "David's experience of business through his extensive accounting career gives him a unique capability in this field of management assessment and support."