The growth profile of private equity is uniquely dynamic when contrasted to its corporate counterparts. Private equity firms are known for their ability to quadruple the value of funds on impressively short timescales, often making 30 years’ worth of publicly-listed company growth in just four years. With such a high metabolic rate, there’s no room for fault in leadership - if you’re not on target for your expected success rate, or if there is a lack of confidence in you, you’ll simply be swapped out.
So, as well as mastering everything that a corporate CEO can do, a PE CEO will need exceptional situational and scenario-based agility, an exemplary financial acumen and the ability to navigate through a field where there is no specific guidance or precedent. Each of these, coupled with a strong skill set, can be applied to the leadership challenges.
What are the leadership challenges of PE firms?
In an environment often referred to as the “pressure cooker”, a newly minted CEO within a private equity firm will face many leadership challenges at the various stages of the firm's life cycle. However, the one they are guaranteed to immediately encounter when stepping into the role is the need for transformative action taken in a timely and effective manner.
According to research carried out by Private Equity International, most transformations either “fail or occur much slower than desired, not because of a lack of financial, strategic or operational experience, but due to the inability to make change happen in a timely and sustainable way”.
This is a direct contrast to the slow-burn success of corporate firms who have specialist teams in place to drive transformation over a longer period.
In addition, 2021 has been the most prolific year for PE deals so far, with acquisitions reaching the billions and the ‘smaller’, steady transitions hitting the high millions. This surge in activity is only set to continue, with many bankers predicting another impressive spike as business owners and investors look to close deals before the end of the year. This, of course, means that the delivery of growth by the CEO is the greatest leadership challenge they are likely to face.
The pace of business itself is also highly likely to pose one of the most significant leadership challenges, with PE firms demanding a 20-25% faster operation than publicly-owned firms. This ultimately means that any PE leader needs to master the corporate CEO leadership model and be able to accelerate it.
Another area where private equity firms deviate from the norms of corporate governance lies in their interaction with the board. In a private equity context, the board has more access and is likely to be made up of funding partners themselves, which establishes a much more hands-on environment.
Must-have leadership qualities in private equity CEOs
By considering the challenges above, we can identify that there is a significant discrepancy in the growth journey between private equity companies and corporate companies. The CEO experience at this level is peerless, exciting, all-consuming and offers potentially life-changing rewards. Leadership qualities could therefore be more demanding than the latter.
So, what are they? Based on the challenges set out above, a successful PE company leader should have the following skills:
Problem-solving: A pragmatic approach is needed to navigate high-stress situations and the hands-on reality of leading such a firm.
Decisive action: A good leader must be able to undertake and execute tasks to reach the defined objectives and desired growth outcomes.
Dexterity: A high level of agility and swiftness is needed to hold the helm.
Interest: Leaders should act with curiosity in order to increase the returns.
With this position, there is a continual demand of expectation that must be met, requiring consistency and performance without becoming stagnant. By contrast, the leadership qualities for corporate CEOs are often more likely to comprise steadfast loyalty, adaptability, trust, vision and a receptiveness to those around them.
Finding the right leadership capabilities in private equity firms
Hanover has the experience and insight to help you access the talent and leadership qualities you need. Whether you are in the pre-deal, transacting, mid-flight or preparatory stage of your private equity lifecycle, we can offer as much or as little involvement as you require.
Our experts have a deep understanding of this approach to investing, and invaluable connections for finding and securing the right leaders. If you’d like to talk to me about this in more depth, please feel free to start a conversation.
