How to Match a CEO with a Private Equity Firm’s Approach

linkedin-groupHIGHLIGHTS

CEOs and Private Equity Firms each come in unlimited varieties.


Matching a CEO’s strengths with a particular private equity firm’s approach is critical for a winning outcome.


Our model can help.


pe-ceo-analysis

PRIVATE EQUITY GOVERNANCE MODELS

If you’ve met one private equity firm, you’ve met one.  In spite of many high-level similarities each fund is different and nuanced.  Further, each individual deal’s governance is often unique based on the particular style of a Board Chairman and/or the strategic challenges facing the portfolio company.

One way to think about a private equity firm’s approach is to understand where a fund/deal sits on a pair of spectrums:

  1. How empowering v. directive is the Board?
  2. How investor-oriented v. operationally-oriented is the fund’s approach?

The above are NOT binary.  Each fund and each deal can sit on an unlimited number of data points along each spectrum.

Empowering v. Directive

All funds have elements of both.  However, funds tends to skew one way or the other and at varying degrees.  Empowering funds tend to believe the CEO can lead the deal with the Board’s support and involvement.  Directive funds tend to determine strategy and then put the CEO on a relatively narrow path of execution.

Operationally-oriented v. Investor-oriented

Operationally oriented funds tend to govern with executive Chairs and push their own best practices into portfolio companies.  Investment-oriented funds tend to rely on the CEO for best practices developed during his/her career.

FOUR PRIVATE EQUITY CEO ARCHETYPES

All of the following CEO archetypes are equally talented leaders but their skill sets and styles are directionally different.  CEOs must determine what/who they really are at their core.  This exercise in intellectual honesty is critical to determining a good fit.

The Alpha CEO

Best fit for hands off, investor-oriented, empowering funds.  This type of leader would feel suffocated by a relatively more intrusive fund.

  • Strategy/Execution Bias: Roughly 50/50
  • Need for autonomy: High

The Collaborative CEO

Best for a highly-engaged, empowering fund.  This type of leader is fully capable but welcomes, and even seeks out, the wisdom and partnership of the Board in running the company.

  • Strategy/Execution Bias: Roughly 50/50
  • Need for autonomy: Moderate

The Super President

Best for a highly engaged, directive, operationally-oriented, hands-on, intrusive fund.  This type of leader is largely recruited to execute a Board’s investment this while being closely monitored and pushed along the way.

  • Strategy/Execution Bias: 15% Strategy / 85% Execution
  • Need for autonomy: Low

The Strategic COO

Best for a highly engaged, directive, investor-oriented, hands-on, intrusive fund.  This type of leader is more strategic than a Super President but her/his primary focus and ability is still execution.

  • Strategy/Execution Bias: 25% Strategy / 75% Execution
  • Need for autonomy: Low

CONCLUSION

Know thyself. CEOs must set aside their egos, look in the mirror and understand who and what they are at their core.  An Alpha CEO would be a disaster for an intrusive, operationally-oriented fund.  Similarly, a Super President would find themselves over their skis in the wrong deal.  However, with proper alignment, each CEO archetype, if talented enough, can drive a winning outcome in a private equity-backed deal.

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.

 

 

Written by Rob Huxtable

Rob is a recognized expert on the topic of private equity CEO performance and recruitment. 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.

One comment

  1. Rob – This is a brief but extremely insightful article. I’ve had the pleasure of being a private equity CEO as well as an independent director (and even a COB) on private equity sponsored boards. With all of that background and experience I’ve never considered the two-by-two “Governance Model” vs “CEO Archetype” as you lay it out in your article. This is extremely useful both as a CEO and as a board member. Bravo!

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s