What Makes a Great CEO for a Private Equity-Backed Company?
EQT’s Bettina Siempelkamp explains the five key traits of effective leaders at PE-backed companies, from focusing on results to the ability to move quickly.
- PE-backed CEOs must deliver transformation at speed under relentless scrutiny, leaning on 20+ years of experience.
Ask a private equity investor what keeps them awake at night, and one niggling question often stands out: Is the right person running my portfolio company?
Leadership excellence is baked into the fundamentals of private equity. The industry revolves around executing a demanding plan in a compressed time window – and translating it into real returns. This is a uniquely challenging industry, calling for uniquely capable CEOs.
Great private-equity CEOs are a rare breed, and finding them is no small job, says Bettina Siempelkamp, EQT's Head of Global Network Talent.
“Chasing talent is as difficult as chasing deals,” she says. “We need to hunt the best people… The outstanding results come from outstanding CEOs.”
Rigorous assessments have now been designed to help identify ‘great’ CEOs. At EQT, this spans everything from psychological tests to judging financial presentations. A whole team – including a pool of more than 600 industrial advisors – then weighs in to select ‘the one’. What makes a good PE leader is even the subject of a new book, The 5x CEO, by Samantha Allison and Taavo Godtfredsen.
Still, this is a relatively new phenomenon. Siempelkamp says that when she entered private equity 17 years ago, the CEO was more of an afterthought than it is today.
“Having the right person in the right role at the right time is something that has become front and center,” she says. “The focus on it has definitely increased.”
What investors want
Over the past few decades, investors have developed a formula for what makes a great CEO.
At a high level, there are five non-negotiable traits that investors like EQT look for:
- Results orientation
- Agility and speed
- Influence and EQ (emotional quotient, a proxy for communication skills)
- Strategic focus
- Team impact
For Siempelkamp, this effectively translates into somebody who “is very to the point”. She looks for people who say, “Right, this is what I'm going to focus on. This is what we need to do. I’m going to set the goals. I'm going to drive everyone in the company with a sense of urgency” without alienating them. A “super high” ego generally doesn’t work, therefore.
Ellen Garvey-Das, who has been an executive PE headhunter for 13 years, believes that one factor links all this: resilience. Can the person deal with the pressures? As a result, she’s often scrutinizing candidates’ ability to cope and juggle different shareholders.
In other words, this role is not for the faint-hearted, says Kate Swann, a chair for several EQT portfolio companies who previously led FTSE 250 companies as well as PE-owned firms.
“In public companies, it’s a lot easier to hide,” she says. “I saw a lot of people who thought their job was to come up with a good rationale as to why they hadn’t delivered,” to the company’s thousands of shareholders, who are not close to the business.
But in private equity, it’s different. “Your owners know the company inside out. It’s a lot harder to be average.”
Private equity leaders, therefore, need to deliver results above all else; at a speed and a ruthlessness that can be quite distinct from other areas of business. Indeed, CEOs who excel in the public markets don’t necessarily succeed at leading PE-backed firms. Equally, individuals who’ve grown their company for decades could then falter under PE management. Meanwhile, startup founders lack the track record that CEOs in private equity require (20+ years, per Siempelkamp).
Still, the intensity of PE suited Swann, who grew up working-class and rose quickly in the corporate world. “I was the first in my family to go to university. I am a woman. I was a CEO at 38. I didn’t play golf, I didn’t have the right networks,” she said. “All I had to rely on was the fact that I do a really good job.”
The hunt for a great CEO
Often, incumbent CEOs remain in place after their company is bought by a PE firm – at least at first. Industry stats collected by Alis Partners in 2017 showed only 15 percent leave immediately after acquisition. But after two years, the majority have moved on.
The CEO turnover timeline
Finding talented leaders to step in is a skill in itself, which is where headhunters like Garvey-Das come in.
“The brief will almost always include someone who has done this role before, in a company that’s very similar, in an industry that's very similar, and ideally has been in the PE-backed scenario before,” she says. “There is low risk appetite.”
However, finding people who fit that brief exactly can be near-impossible. Her job, she says, is to push investors to broaden the lens, and to think about “step-up candidates” – those who perhaps haven’t yet had the top job, but are “super talented and motivated” or are “in an adjacent industry.”
Garvey-Das starts by mapping out a list of around 100 potential names who might be remotely relevant, plotted across sectors, company size and geography. From there, she whittles it down to 15 or 20 names, the “longlist” that the client will see. After that, come months of interviews, psychometrics and references to assess for traits.
But even when the perfect hire is made, she warns, the work isn’t done. CEOs need a real onboarding to understand a business’s challenges. What’s been tried already? Where have things failed? Who are the five people they must win over? “There’s a lot they don’t know… There’s so much information to hand over.” In public companies, by contrast, most successors are internal.
This is one of the reasons why EQT has built a governance triangle – called the Troika – that pairs the CEO with a chair (usually a seasoned former CEO) and a lead EQT investor partner, to offer support and to ensure they are fully aligned with the value creation plan.
“CEOs don’t have to be perfect,” Swann explains. “So as chair, you have to work out where your CEO needs help and provide it.”
Swann says she’s used to adapting to the different personalities and styles that CEOs can embody. “Sometimes I’m a mentor, sometimes I’m a hard taskmaster, sometimes I’m a cheerleader.”
Above all else, her test for who will make a great CEO comes down to one fundamental question: where do they derive their motivation?
“If you get joy from networking or having lunch with Prince Charles,” this probably isn’t for you, she says. But “if you get your joy from seeing what the business can become?” Bingo.
ThinQ by EQT: A publication where private markets meet open minds. Join the conversation – [email protected]
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