Hiring Private Equity Leaders – Part III: Then the Challenge

Third in a series by Steve Manning – Head of Financial Services / PE and Family Office Search Practice – Asia, Cornerstone Singapore

The bar is set high. Dynamics at Private Equity firms is fast, aggressive, all conquering, and as the investor leader you’re thrust into that all too familiar position of tackling senior leadership management issues at a newly acquired portfolio firm.

Part One and Two of this series looked at the essential and unique constituents of an ideal leadership candidate’s profile both in terms of hard and soft credentials.

Now we look at the challenge of finding a ‘pink giraffe’ to lead your portfolio invested company, why this is a difficult search, and surface compromise as an essential dynamic. The ideal of openness will be explored, and justification for a rationale of compromise; and how these impact the successful conclusion of senior executive hiring.

In Part Four we will later explore a balance between needs and compromises, and float tangential opportunity to expand horizons. We will also extricate ourselves from the myopia that accompanies the search for that elusive ‘pink giraffe’ management candidate.

1. Then There is the Challenge – Take a Look Into the Fight Ring.

At the start of this series, we examined the necessary hard and soft credentials and particularly unique requirements demanded from a portfolio company executive. There are two big fences to jump in order to secure that ‘pink giraffe”:  the pure credentials fit and the interest and motivation of a candidate to join your portfolio company.

Depth of talent in a newly acquired portfolio company often tends to be far from what was promised during deal negotiations. Key functional areas might have no leader, resources are limited, and perhaps there are too many non-performers who had ridden on the previous owner’s shirt tails.

CEOs have to quickly plug gaps, and deal with the impact of change. But who has had this change experience – other than a CEO with portfolio company experience?

CxO candidates might possess extensive credentials managing a multibillion dollar division, but when faced with a few hundred million dollar firm they may not fare well when required to ‘hands on’ manage most aspects of the business.

A large MNC divisional CxO could well have been surfing long term curves, and delivered only small incremental change — part of a bigger universe of decision making. Private equity, on the other hand, requires that they make decisions that will truly have a material impact on their business.

Coincidentally, these are good reasons why candidates might turn down what they’d see as a risky step in the first place. At the other end of the scale, a small enterprise leader’s depth of experience, even a tech founder, likely won’t measure up to the expectations of a private equity company with big growth designs.

Also, does the old asset-strip style and reputation still permeate people’s thinking of private equity? It’s uncertain, but without doubt the reputation of the industry still points towards a higher risk environment.

It is desirable to get these subjects out on the table from the onset. The right candidate will be interested in taking on a challenge and rewards through different motivators, and should not be fazed by such uncertainties.

Interest and motivation can be tested early in the search phase and agendas matched. The hiring team has to square with a candidate on what its expectations are, but a search firm can go deeper and evaluate responses to various scenario plays. Consultants can test a candidate’s response to how the role may play out, the personalities of the hirer, and how green the grass really is.

Challenges are clearly in abundance.

2. Making Concessions Without Compromise

When searching for your portfolio company executive, start with a true assessment of the challenge ahead. Make an honest evaluation of search parameters that will be out of bounds, and those that can be adjusted or compromised. This is not simply about eliminating the ‘like to have’ or ‘preferred’, it’s about how to open the search field, and compensate with other talent credentials to guarantee a timely, successful search and on-boarding.

• First, Agree Where to Compromise

Sticking obstinately to a wants list with your search partner often wastes time and effort. An overly assertive hiring manager lays down the profile, culture and must-haves; a job description is shared and honed; and the search firm charges ahead having carefully understood all the written and spoken nuances for the role.

The search consultant may realise there will be a challenge, but regardless heads into the process without disclosing real concerns, or red flags from the onset.  There is sometimes a fear that by exhibiting anything less than effusive agreement they may lose the search mandate.

After two or three months have dragged by, the pink giraffe has not been found. There’s then typically a discussion about compromises such as  ‘does the  candidate have to come from this type of competitor’, or ‘do they have to have this level of seniority’.

This usually ends with ‘well, let’s open up the field to…’  And now your search consultant will have to revisit the potential list, or start again with a few new, or previously eliminated, parameters.

You want to short-circuit this painful scenario, and have a frank discussion at kick-off as to what might be viewed as overly inflated credentials or elements that were cut and pasted in without thought.

It is a known fact that searching for the portfolio company head is difficult.  It is not like the process required for regular hiring.  In the world of the private equity company, making concessions might require setting aside certain egos and bravado, but it is important to filter the wish list and give reality plenty of air.

• Portfolio Company Experience

The quintessential first question on compromise will be this: whether or not to insist on past private equity portfolio company experience. Is it essential, or what compensating factors might there be? After you have looked at some core tenants for the role, certainly there is going to be a candidate demonstrating a huge capacity for building, transformation, adaptability, communication and resilience.

Facing a long and difficult search to find also specific, unique experience, square away with your search partner on the need for past portfolio experience from the outset. Avoid being obstinate just to trawl vainly for the elusive catch.

If a candidate doesn’t have a past portfolio company feather in his or her cap, look for personality attributes that indicate they will learn fast, and absorb this whole new world of Private Equity owned business.

You might also consider whether portfolio company experience in whatever position might not be a panacea in your own company. A unique type of business, for instance, may prioritise specific product/service knowledge over a portfolio company background – think tech firms playing a new game.

With or without portfolio company experience, a candidate must demonstrate clear cognisance of private equity company investment and divestment decision making; the dynamics of turning a strategy into practice; and how to interface between employees, private equity company management, and boards. They must understand how this clock ticks, and how a private equity company looks at business in its entirety.

In a high stakes, high expectations, fast moving portfolio company environments, is it realistic to settle for a humble consensus leader whose character likely doesn’t match your stereotype?

As with any tangential candidate your assessment must place all traits on the scales. The final decision will be heavily influenced by personality compatibility with you and your private equity company management team.

Part Four will identify means to extricate from a fixed mind-set, to think tangentially, and bring a search to a successful conclusion.