A recent Harvard Business Review entry – The Mistakes PE Firms Make When They Pick CEOs for Portfolio Companies – suggests that the three most common CEO selection mistakes are:
- Mistaking quick thinking for systems thinking
- Not seeking CEOs who value talent development
- Believing CEOs who emphasize urgency are far better than those who stress empathy
While their analysis has relevance, I believe it neglects several elements that, in my experience, are even more critical including: a lack of bias for action; lack of hands-on execution, inability to tailor performance to the specific portfolio company challenge, misfit for the nuances of a particular sponsor’s governance model, poor strategic judgment, etc.
However and for the purpose of this post I will focus on the aforementioned piece’s #3 claim, (urgency vs. empathy). The reality is, in my view, CEOs must have break-neck urgency AND it should be complemented by targeted (but not necessarily high) levels of empathy.
CEO URGENCY: Why it’s non-negotiable
In private equity, finite portfolio company hold-periods mean time is the most precious of commodities. A year in corporate america is equivalent to a quarter in private equity…a month to a week…and so on. MOIC matters but so does IRR which is, of course, is tied to returns over time.
My private equity sponsor clients crave leaders with extreme urgency. Good judgment and targeted empathy are obviously required but we’ve never heard a sponsor complain about a CEO moving too quickly. Urgency isn’t simply desired, it’s the price of admission for PE-backed CEOs.
Urgency isn’t simply required, it’s the price of admission for PE-backed CEOs.
We can all agree that leaders need empathy for individuals, teams, cultures and environments to optimize value creation. However, too much empathy will derail a CEO every time. Excessive empathy results in conflict avoidance, tolerance for sub-optimal performance and a hesitancy to drive change.
Determine the strike zone (on a scale of 1-10 with 10 being highest) of targeted CEO empathy based on the backdrop of a particular portfolio company. Growth culture? 7-8 in empathy might do. Flat port-co performance? 5-7 might be the target. Full-on turnaround? An unapologetic 3-4 might be required.
Both urgency and empathy matter for private equity-backed CEOs. Extreme urgency is prized by private equity firms. Empathy, however, is much more nuanced and must exist within a target strike zone…no less, and certainly no more.
ABOUT ROB HUXTABLE
Rob serves as the Managing Partner of Integis, a retained executive search firm with offices in New York, Cleveland and San Francisco that is exclusively focused on the private equity-backed, middle market. The firm’s mission is to drive multiples of invested capital (MOIC) for private equity firms by recruiting high-impact portfolio company C-Suite leaders. The firm has played a key part in helping many of its private equity clients achieve top-quartile and top-decile results. Under Rob’s leadership, Integis has been twice recognized as one of America’s fastest growing privately held companies by the Inc. 5000 in each of the last two years.