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Private Equity

How To Be Selected as an Interim Private Equity CEO

By Rebecca Hinds

After a private equity firm purchases a company, one of the first major decisions is whether or not to hire a new CEO. The role of an interim CEO can be challenging and mired with complexity. Although private equity portfolio company CEOs and other CEOs share several of the same roles, a private equity portfolio CEO is tasked with unique challenges. Many private equity portfolio CEOs jump into the role unprepared or underprepared for what lies ahead.

Here are three things soon-to-be private equity portfolio company CEOs need to know become assuming the role.

1. It pays to understand the private equity business

It’s critical that portfolio company CEOs understand the private equity environment and how private equity works. They must, for example, have an understanding of how a fund raises money and what’s entailed from the initial deal signing to exit.

In addition, CEOs must have a concrete understanding of their specific private equity firm. What other investments do they have? How are they structured? What is the team composition? As a report by Spencer Stuart explains, one of the leading executive search funds explains, “The fundamentals of how a fund raises money, its inner workings and hierarchy, and its politics all can affect how the firm interacts with your business.”

2. Portfolio CEOs and others are not one and the same 

There are many similarities between the traits needed to be a successful private equity portfolio company CEO and those needed to be a non-portfolio CEO. Yet there are notable differences. Before assuming the role, aspiring portfolio CEOs need to understand and appreciate the nuances.  

Research by Pitchbook and Russell Reynolds Associates, which evaluated 60 psychometric scales from well-validated assessments of leadership, found that successful portfolio CEOs differ from other CEOs in four notable areas.

  • First, portfolio CEOs are 20% more likely than other CEOs to be able to juggle priorities. Often in the throes of turnarounds, portfolio CEOs are pulled in many directions and need to be able to simultaneous attend to various priorities.
  • Second, portfolio CEOs are 19% more likely to empower others.  Successfully leading a portfolio company requires a team effort. Successful portfolio CEOs know they need to rally the troops and empower others in order to thrive amidst unprecedented change.
  • Third, portfolio CEOs are 14% more likely to have an even-keeled demeanor. Successful portfolio CEOs tend to approach others in an even mannered. This limits stress and, ultimately, makes more a healthier environment.
  • Finally, portfolio CEOs are 14% more likely to be low key about their own achievements. Portfolio CEOs are humble. This allows them to command the respect of others

3. A sense of urgency is critical

The most successful portfolio CEOs are able to execute. Unlike some other CEOs, a portfolio CEO can’t afford to move slowly or “play the long game.” Oftentimes, they need to rapidly launch turnarounds, hire quickly, and fire quickly. They must have the conviction to make decisions quickly often in uncertain environments’ where there is not an established process of success. And they must all do this while hitting the challenging performance goals that investors establish. Helen Roberts, a partner at Skillcapital, a leading international executive search and advisory firm focused on private equity, outlines four factors that shed light on why portfolio CEOs are more likely than other CEOs to need to embrace an ability to execute and a sense of urgency:

  • Investors typically set very demanding targets
  • These targets often represent a change of direction
  • The debt structures don’t allow much room for mistakes
  • There won’t normally be a well-tested machine in place to do the work It needs to happen at pace.

The job of a private equity portfolio company CEO is not for the faint at heart. Research has shown that as many as half of CEO exits are unplanned, often due to poor performance or disagreements with the firm. Aspiring portfolio CEOs need to appreciate the nature of the job and the skillset required to be successful. By doing so, they’ll be better able to leap into the role and immediately drive impact and performance.

Private Equity