When it comes to private equity firms, hiring the right CEO is, especially, important. He or she must be able to drive and deliver performance without exceeding a predefined time frame in order to maximize the crystallization of value at the end.
However, according to research by Joe Hunt the majority of client stakeholders realize after 2 to 6 months that they have the wrong CEO in place. Since private equity is far from being “business as usual,” it is especially important to entrust the role of CEO to the right person.
A private equity CEO can make or break the organization’s possibilities. In order to help the firm thrive, the CEO needs to be able to drive impact and performance within the given time frame.
Therefore, a company should spend time and effort on identifying the right CEO. However, choosing the right candidate is far from easy. Often, private equity firms are focusing too much on a CEO’s prior performance. In this article, we’d like to discuss three strategies to identify the right CEO candidate.
In private equity companies, in particular, there are regular changes in management. Indeed, more than half of all private equity transactions undergo changes in management, according to A.T. Kearney. Hence, searching for CEO candidates is not uncommon in private equity companies.
When it comes to vetting the candidates for the role of CEO, many organizations focus entirely on the candidate’s prior experiences. Of course, the knowledge he or she can bring to the firm is important. However, there are several factors that are even better to predict the likelihood that a candidate will succeed in their role as CEO.
According to Joe Hunt, the success of a CEO depends only 10% on his previous experience as CEO. Instead, experience as an operational leader and P&L responsibility are more important when it comes to predicting a candidate’s likelihood of success in the role of CEO. This was shown in research published by Russell Reynolds Associates.
Neither experience in finance nor experience as a CEO at a portfolio company are the best predictors of a CEO’s success. Instead, success rather depends on his or her characteristics as a leader and his or her technical skills and job skills.
Therefore, private equity firms should not only concentrate on a candidate’s prior experience. Often, general managers can make good CEO candidates. They, usually, have the necessary experience as an operational leader, which is a good predictor for a candidate’s success.
When it comes to choosing the right person for the role of CEO from a pool of candidates, you should focus on the more humble candidates. That might sound a bit surprising at first. However, research shows that successful CEOs are, usually, more humble. This quality makes it easy for them not only to gain trust but also to be accepted by others quickly.
It’s important to know that humility and competitiveness can go hand in hand. Don’t assume that a humble CEO is automatically uncompetitive. Indeed, the most successful and humble CEOs are, often, the most competitive ones. However, they don’t brag about their skills and achievements. Instead, they let their actions speak for themselves.
When it comes to vetting your CEO candidates, don’t only focus on their previous experiences. Rather, expand the pool of potential candidates and check their emotional intelligence as well as other factors such as humility.
The skill to build successful teams is important in any workplace environment. However, this ability is particularly important for private equity firms. Private portfolio organizations are constantly faced with high turnarounds. Therefore, the right CEO candidate needs to rebuild teams from the ground on a regular basis.
Research shows that having the ability to build high-performing teams is one of the best indicators for a candidate’s suitability. A CEO who can assemble successful teams is more likely to drive and deliver performance in a given time frame.
However, evaluating a candidate’s ability to build high-performing teams isn’t easy. The following 2 tactics can help you with this task:
Focusing on the right skills is, especially, important when it comes to choosing the right CEO for a private equity firm. Since these companies are fundamentally different from most other organizations, it’s important to not only focus on a candidate’s prior experience.
Instead, look for humility and team-building skills. If necessary, extend your pool of potential candidates. Often, general managers are the best fit. They possess the necessary operational leadership experience and, at the same time, are familiar with P&L responsibility.
Last but not least, here’s one last tip to choose the right candidate: Try to identify individuals who have already worked or interacted with a potential candidate. They can give you valuable insight into a candidate’s attitude and skills. Therefore, your search for the right CEO for a private equity firm will be even more effective!
At Cowen Partners, we are an elite private equity search firm that’s known for hands-on executive recruiting, excellence, and successful C-suite placements. Our clients are typically $50 million in revenue to Fortune 1000’s or have assets between $500 million to $15 billion. Successful placements span the entire C-Suite – CEO, Chief Operating Officer, Chief Financial Officer, and include vice president, general counsel, and other director-level leadership roles.
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