Executive Hiring For a P.E. Portfolio Company – Ideals and Compromise

Part One – Core, Hard Credential Constituents

The bar is set high. Dynamics at private equity firms are fast, aggressive, and all-conquering. As the investor leader, you are tasked with tackling senior leadership management issues at a newly acquired portfolio firm. In this four-part series, a realization of the challenging factors surrounding the search for ideal candidates will be recognized. The focus is squarely on meeting the unique demands of private equity performance but will be familiar for many senior executive traits.

In this series, part one will visit the core credentials for P.E. portfolio company executives, diving into hiring assessment essentials in terms of hard skills to lead a portfolio company and run the business.

• Part two will examine parallel soft skill essentials.
• Part three will explore the idea of openness and justification for a rationale of compromise; and how these impact the successful conclusion of senior executive hiring.
• Part four will balance needs with compromises and float tangential opportunities to expand horizons and extricate from myopia on that elusive ‘pink giraffe’ management candidate.

1. You Want to Quickly Find a New Executive Leader, but Have Exacting Requirements.

In-demand talent from executives with crucial past private equity portfolio management experience is scarce and hard to attract, compounding hiring challenges. On your search for the next CxO, you can clearly visualize what they need to possess in terms of experience and capability, and you wish to move quickly with the transition.

Adding a new CxO might create temporary instability in a firm that has relied on generations of insiders or in the case of a more recent startup, a mercurial leader to harness the company. Perhaps your confidence in management rejuvenation is even starting to wane after the reality of all the politics, personalities, and history sets in. How you act now with management selection will determine your future success. Having determined that new talent is essential, there are significant calls to make in your endeavor to locate and secure them.

2. Confidence in What Is Essential.

First and foremost, do you have the core characteristics of the ideal profile nailed down? You will have your own and your colleagues’ depth of knowledge to draw on; perhaps there’s a template you can work from. But be rigorous to finely tune skills that square the circle for your specific CxO portfolio firm.

While deriving a non-compromise competence checklist, take a look at the basics for your private equity sector. Focus on a handful of core demands specific to portfolio companies in two broad criteria, hard and soft talents.

2.1 Hard, Run the Business Competencies.

The bedrock of candidate credentials are hard competencies; daily experience to manage and grow a portfolio company. Topping the list of experiences is a thorough understanding of your marketplace; most often, your candidate will have previously operated as a senior leader within a relevant sector. Experience should equip a candidate to be able to:

• Synthesize your portfolio company business model and value proposition, and assess your firm’s ability to compete;
• Imagine and propagate a strategy and plan. As well as deliver a vision and forward path to the board confidently and convincingly.
• Build trust through credibility among peers and employees within the workforce.

Your future executive hire will require ‘the right kind’ of board experience. A prominent divisional CEO at a billion-dollar MNC may have sat in on corporate board meetings and presented their region or division updates. Others may have been on the board of SMEs with a dictator Chairman. Private equity uniqueness is that portfolio company boards consist of financial sponsors, possibly veteran industry advisors, who want to be involved. The CEO must maintain control and keep to their script but accommodate active member involvement.

Ideal candidates will be able to create a vision and strategy that both meet private equity company thinking and are realistically executable. The CEO might find it incongruous the drive for re-invention and accelerated growth bottom and top line with market realities. Frequently there will not be a solid strategic thinker in the existing management team, the CxO candidate is likely to take on the role of visualizing, creating, testing, writing, and presenting a business roadmap. Have they ever prepared a master plan primarily by themselves?

Large human resource, talent development, and acquisition departments perhaps made life easier for a candidate in their past life. Still, they now need to be a step ahead of a smaller and less experienced team to guide and lead. And how will a candidate handle employees that will be left behind, particularly those who might be destructive to the culture and fabric of the company? These are real situations in a new portfolio company, and strong people skills are a must. Your search partner will have the right questions to ask candidates.

Strengths will include an ability to build and lead a high-performance team with complementary strengths. Their hiring success pivots on whether exceptional new candidates will want to work for your candidate and buy into their strategy. The new CEO’s last thing to hear is you commenting on their employee’s shortcomings and lack of onboarding success.

Transformation is going to be unceasing. Forecasted company performance may not be as anticipated. The addition of new business through bolt-on or the loss of key individuals through change is frequent. The candidate will have to demonstrate their performance during disruption.
Similarly, during disruption, the CxO must be adept at managing or changing the core DNA or the culture of a company. If there is a transformation in the business and culture, it will need to be shaped and communicated.

Assessment of the right CEO has to probe and surface real-life experiences of implementing new people strategies, not just to re-arrange deck chairs, for example, following global reorganizations. If they previously left a role because they were tired of frequent change, then don’t expect them to flourish in a private equity portfolio firm.

The future CxO will have to execute on stretched goals, deliver healthy operating margins, re-direct the business, and hire high-level game-changers, but with constant pressure on spending. A portfolio company’s dry powder can be limited; free capital will have quickly been scooped up. They must have worked successfully in this tight financial scenario and still delivered growth.

Well-placed questions on hard skills will quickly surface problems. Hard skills are somewhat easier to identify through life experiences and results. Though evaluations take time to surface compatible candidates, alignment assessment will go beyond typical opaque career experiences. Be sure your search consultant has depth in their relevant industry experience, walked your ‘shop floor,’ and talked with senior management to tune into your company environment. Are you a private equity firm leader, looking for proven leaders to drive change in your portfolio companies? Let’s have a discussion.