CEO roles of private equity-backed companies are arguably the most challenging jobs in business.
There are many factors contributing to the degree of difficulty including the compounding effects of leverage, urgency, M&A, rigorous Boards, etc.
However, one element is more responsible than any other for the degree of difficulty: intense, relentless pressure.
CEO roles in private equity-backed, middle market portfolio companies involve greater rigor, urgency and expectations compared to general management and CEO roles across other asset classes. Private equity firms and their portfolio company leaders face greater demands from investors, and multiples remain historically high. These realities place unprecedented value on a CEOs ability to execute at the highest level. Millions of investment dollars are at stake and incremental multiples of invested capital (MOIC) will be gained or lost on a deal based upon the quality of the management team, and most importantly, the CEO.
The degree of difficulty for PE-backed CEOs is compounded by: leveraged balance sheets, M&A integration; extreme urgency; limited resources; demands for breakneck execution; finite hold periods. The net effect is that there are two realities that fundamentally make private equity CEO roles uniquely challenging – pressure and solitude.
The pressure felt by private equity-backed CEOs is unique because of its daunting combination of intensity and relentlessness. Hard-core accountability is a must. Tens, and even hundreds of millions of investor dollars rest on a portfolio company CEO’s performance. As a result the CEO also feels the weight, focus and pressure and expectations of the private equity GPs and LPs. Private equity investors are among the most ambitious leaders in business and their lofty expectations include exceptional portfolio company CEO performance.
The pressure in private equity is not only intense, it is relentless. The private equity CEO manages through an endless, rigorous gauntlet of weekly Board calls, monthly operating reviews, quarterly Board meetings, annual budgeting processes, cash flow challenges, covenant issues, etc. In short, portfolio company CEO assignments are 4-5 years of the most pressure packed time of a leader’s careers…no breaks, no down time. Relentless and intense. This environment can test the most ambitious leaders.
PE PRESSURE IS DIFFERENT
It is important to recognize that most business leaders are accustomed to some degree of pressure. However, pressure is a relative term and it can be argued that private equity CEOs are under more pressure than their peers in other asset classes.
Most CEOs believe they are comfortable with pressure only to be caught flat-footed by the intensity and relentlessness of the private equity crucible.
CEO PERFORMANCE IMPLICATIONS
Intense pressure brings out the best in some leaders. However, private equity pressure will cause a lesser CEO to second-guess themselves, lose confidence and therefore increase their risk of derailment. Intense pressure impedes action, limits execution and amplifies unhealthy levels of fear of failure.
Effects of private equity pressure are felt with even more intensity because of the relatively lonely existence of a portfolio company CEO.
Private equity CEO roles can be professionally and financially rewarding beyond the realm of other asset classes. However, the rewards are usually reserved for those who can manage, and thrive within, the relentless and intense pressure of PE.
THE IDEAL PROFILE FOR DEALING WITH PRIVATE EQUITY PRESSURE
The best private equity CEOs have personal and professional standards that are equal to, or even above, the extremely high levels of their Board’s expectations. These leaders place as much, or more, pressure on themselves when compared to the intense pressure of private equity. CEOs should very carefully (and intellectually honestly) evaluate their tolerance for a high-stakes, high pressure environment before accepting a portfolio company leadership role.
ABOUT ROB HUXTABLE
Rob is a recognized expert on the topic of private equity CEO performance. He is Founder & Principal of PrivateEquityCEO.com. He is also Managing Partner of Integis which is the nation’s leading search firm focused exclusively on the private equity-backed, middle market.