By Matt Brubaker & MaryCay Durrant
WHEN a private equity firm adds a new company to its portfolio, analysts rigorously size up its finances, operations and competitive position. Yet, many private equity firms still don’t do a good job when deciding whether to keep the CEOs of these companies in place or pick new ones.
Here are the most common CEO selection mistakes we see:
- Mistaking quick thinking for systems thinking. Being a quick study isn’t the same as being a deep thinker. The demand for rapid growth often comes with a push from investors to enter new markets or ramp up product innovation. CEOs need to know how a change in strategy (a new target market, say, or a new product) will affect manufacturing, marketing, selling, servicing and other functions. In addition, excellent strategic and systems thinkers have a gift for identifying the underlying causes of problems and troubleshooting in a collaborative way.
- Not seeking CEOs who value talent development. Because of the short time frame in which they hold their portfolio companies (typically five to seven years), investors may view executive development as a luxury. But CEOs at the best-run private equity-owned firms emphasize both recruiting and talent development.
- Believing CEOs who emphasize urgency are far better than those who stress empathy. The best leaders recognize that urgency and empathy are not mutually exclusive. A CEO who leads with great urgency and no empathy will produce employees who are afraid to get it wrong and, thus, become overly cautious. Private equity firms need CEOs who know how to use empathy to generate a positive sense of urgency.
Matt Brubaker is CEO, and MaryCay Durrant is vice president, of professional services at FMG Leading.