Yin and Yang CEO
Private equity (PE) firms have often been accused of being ruthless business owners purely in it for the money.
In reality, they are astute hirers of high performing CEOs.
When a PE firm decides to make an investment, the CEO is typically the first to go.
Most PE executives hire multiple CEOs each year, while ASX-listed Boards are likely to hire a new CEO once every 5+ years.
That makes them experts at how the CEO search process has changed over time and learning from their hiring successes and mistakes.
PE firms also have more skin in the game, so they feel it more intensely if they make a bad hire.
Researchers have reviewed the difference between listed and corporate CEO hires to that of private equity firms and this is what they found.
Experience is overrated
It’s comfortable hiring a CEO with previous role and industry experience. It can be lazy recruitment that leads to recycling the same strategic playbook.
Past achievements and current challenges are rarely an apples-to-apples comparison.
You need someone who can adapt to a new situation and get to grips with the fundamentals quickly. A curious thinker is more important than years of industry experience.
A builder of teams
As most private equity investments involve a turnaround, the new CEO must completely rebuild a high-performing leadership team.
They also spend more time in the trenches with the team, leading by example.
CEOs who talk about how good they are or sprout their intellectual horsepower, often come across as arrogant, becoming an inhibitor to hiring quality people.
Urgency vs empathy
PE firms are not a place for the faint-hearted. They operate within a strict timetable to deliver a result.
They also create high expectations about the speed to drive revenue growth or cut costs.
The modern PE firm understands the value of listening to customer and employee needs, but they also appreciate the need to act more decisively and make tough decisions.
Character over charisma
Resilience is important to developing character and is also an important leadership virtue.
PE firms want leaders who have faced setbacks, made mistakes, yet lived to fight another day.
In most turnarounds, CEOs are likely to encounter negative results. Things rarely go as planned so they need to adapt quickly.
Authenticity
In the PE world, authenticity means a willingness to deliver bad news quickly and honestly.
In the listed environment delivering negative news is a delicate process but in PE firms, real-time sharing takes precedence.
CEOs need to have the confidence to be transparent with their private equity sponsor, sharing bad news early.
When hiring CEOs, PE firms will:
Look for ‘player-coaches’ who will lead a smaller team and collaborate closely with owners to create value.
Focus less on pedigree and industry experience, seeking candidates who excel at identifying talent, motivating a team, and building a culture of excellence.
Employ an analytical, quantifiable, and rigorous hiring process.
Identify executives with a sense of urgency and fit their unique culture.
What’s been your experience working in the private equity world?
Are they really astute hirers of CEOs? We’d love to hear what you think?
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