Private Equity Firms: 4 Tips for Hiring Your Next CEO

According to Bain & Co. (Management Consulting Firm), almost half of the private equity firms it studied replaced the CEOs who ran their portfolio companies, and in 60% of those instances the private equity firm hadn’t planned to make the change at the start. 

AlixPartners’ Annual Private Equity Survey found that companies replace 73% of CEOs during the investment lifecycle, and 58% leave within two years.

Finding the right CEO is no easy task. We’ve compiled 4 tips for private equity firms to consider when conducting a CEO or executive search for a portfolio company to optimize performance and create value. 

1. Prior Experience Should Not Be Your Only Focus

When it comes to screening and shortlisting CEO candidates, too often, prior experience is the main focus of the search. Although it can be an important factor, there are a number of additional considerations that can predict success in the role of CEO. Experience as an operational leader, P&L responsibility, technical skills can translate extremely well for a CEO role in a private equity-backed company. 

While it can feel safer for stakeholders to expect to hire a candidate with industry CEO experience under their belt, doing so can lead to a narrow view of the candidate pool and duplication of strategic playbooks from previous roles. Prior success could be a result of the team, product/service, competitive positioning, Board composition, or timing – all of which could have been large factors. It can be difficult to predict whether their previous success will translate into success at another company. Current challenges can need completely different skill sets to overcome compared to previously. Take pre-pandemic to post-pandemic challenges for example – needs have likely changed. In addition, integration challenges with different Board compositions and types of personalities can come into play. It is important to understand what personalities they reported to and how they achieved success with their Boards. 

Private equity firms need candidates that have experience being in new situations and have had the ability to quickly adapt and understand the fundamentals of a new position at a rapid pace.  Look for candidates who have been successful at demonstrating results and growth during disruption. Executive candidates who have shown resilience will show grit, dedication and critical thinking. 

2. Look For CEOs With Strong Leadership Skills & Management Capabilities

Although this can be difficult to quantify on a resume, once you move to interviews leadership skills and presence can be very apparent. This is a trait that is needed to inspire confidence and deliver results through immediately captivating their teams. In order to scale at full tilt it is necessary to earn the respect of the company’s talent right away. If it takes time to do so, the CEO will be set up to fail when trying to get the team on board with strategic growth plans. 

The Boards of private equity portfolio company’s can be composed of financially skilled members, and experienced advisors who like to play active roles in the process and growth of the company. The CEO needs to be able to inspire confidence in order to move plans through and earn approvals.  

The CEO should have extremely strong communication skills and the ability to build relationships in order to build and maintain high-performing teams. Scaling organizations can be faced with high turnovers. Look for a track-record of building successful teams and maintaining strong relationships with employees at all levels of the organization. 

When speaking with the candidate do they use the “I” or “we” when discussing past achievements? 

The CEO should already have an understanding in the interview process of which skills and types of individuals will be needed for growth in the company. Knowing which employees or teams to focus on their development to have the greatest impact on the business will help to propel the needed growth for a private equity portfolio company. 

In addition to their development, holding the teams accountable to large improvements while supporting them through challenges will yield results.

3. Urgency Over Empathy

With private equity firms, time is of the essence to ensure the investment is fruitful. This heightens the expectations of an incoming CEO for revenue and profit growth. Highly empathetic leaders at times are not able to make the tough decisions on resources that need to be made. Decisive CEOs who can make decisions swiftly and without overthinking or stalling may yield quicker results depending on the company composition and growth phase. 

4. Thinking about systems in addition to quick thinking

We have discussed time and the rapid pace needed for CEOs to turn investments into fruition but ensure that quick thinking CEOs are also thinking systematically. 

Rapid growth companies require a full understanding of the organization’s parts in order to function effectively and efficiently. CEO candidates should understand how tweaking the strategy for more growth could affect all of the departments. Does a new product launch or innovation have an effect on the manufacturing process, selling techniques or targets, marketing, customer service, finance and more. Strategic thinkers who know the systems of a company can reduce risks and proactively tackle challenges that can arise at high growth companies. 

Private equity firms need to take a fulsome view of potential CEO candidates and consider both experience, characteristics, leadership skills, and operational awareness when hiring a new CEO for their portfolio companies. 

Keynote Search: Executive Search & Recruitment 

Keynote Search has experience with C-Suite hiring for private equity firms and understands the importance of time in the executive search process. We have interviewed thousands of executives to determine fit and understand where success will translate and where it will not. Reach out to us today to see how we can help you with your next CEO executive search.