The process of attracting new leaders to a portfolio company undergoing major transformation adds complexities not found in your typical corporate setup.
Executives who prosper in these demanding, fast-changing conditions are uniquely skilled: They operate with a high sense of urgency, quickly integrate key assets, leverage technology, and clearly define the financial levers to pull to maximize their return on investment. They’re the kind of operators who are capable of navigating and leading during times of uncertainty and radical change.
Not everyone operates effectively with such high risks and high demands, though. Many say they want to be part of a transformation, but success in private equity requires a unique personal risk profile. Some individuals possess the desire and confidence to take those risks at a given time in their journey. Others struggle because of the inherent uncertainty or perceived loss that comes with change or a safer environment.
Compensation is also different. Corporate employees come from a steadier environment as it relates to cash compensation — a lower ceiling but a higher floor. They might be accustomed to receiving restricted stock units or public company stock, both of which are viewed as less risky than the wider range of payout structures offered at private equity-sponsored companies. Executives skilled at leading turnarounds often relish the opportunity of tying their ultimate payday to value creation — they would want it no other way!
Massive change also ties into this equation. Realizing a big payday typically requires two or three strategic initiatives to come to fruition in a quick period of time. Welcoming such a challenge and enthusiastically executing on those strategic initiatives becomes a barrier for many who find reasons or excuses not to take action.
Commitment is another factor. Being a transformation leader demands extreme ownership. In a private equity environment, it can feel like managing a second family. Success requires personal interest and an all-in commitment level — and in some cases, it requires 24/7 availability. You have to deeply invest your time and emotions, especially as an executive’s leadership style and effect on team morale spread like wildfire across teams. Anything less is highly risky.
How can private equity firms better attract star performers for their transforming portfolio companies? There are three must-dos when you’re pitching C-suite candidates to come on board and drive big change:
1. Clarify your portfolio company vision.
The first approach is two-pronged: Clearly articulate a vision for the company’s future by laying out the steps required to get there while being transparent about where the company presently stands. Communicating your current financial reality against the exciting future opportunity is an art that successful private equity leaders and CEOs have mastered when recruiting their C-suite.
Second, talk about what a successful exit means to the individual candidate. In other words, discuss what’s in it for that person: future leadership opportunities, elevated market value, board opportunities, and operating partner roles, among others. The world of opportunity opens tremendously after an executive has led a successful exit.
2. Be transparent about your equity structure.
Be aware of how your potential executive (who might be coming from a less risky compensation structure) feels about balancing risk versus reward. Give him or her the tools to analyze how your equity structure compares and relates to other options in the market.
Because joining the world of private equity has been growing in popularity for several years, incoming candidates are likely savvier today in their risk assessment. They want to follow those who were successful in private equity, but they might have colleagues who made the jump and got burned along the way — and it can give executives pause in today’s world. Know for sure that they’re going to be careful in examining the plan, the risk, the people, and the specific track record of the private equity sponsor. Transparency will give you an edge.
3. Focus on a good track record — not location.
Find the best leader for the job — someone genuinely committed to whatever he or she is doing in life — rather than be overly worried about where he or she lives. Those who possess the successful DNA will find a path to successful results regardless of where they live for family purposes. They also know that the assignment might be shorter in length versus traditional job options, which makes it more difficult to disrupt their families. They will find the right balance of being on-site and serving family needs. Failure is not an option for these types of individuals.
Finding the best executives for a company in transformation doesn’t mean being less open, transparent, and realistic about the pool of candidates. Use the market to your advantage and be honest with yourself and your candidates, and you’ll find top talent that can take on — and be excited about — your portfolio company transformation.
Rick DeRose, co-founder and managing partner of Acertitude, advises global business leaders of private equity, consumer, technology, and professional services firms on recruiting board and C-suite talent to transform their businesses and the world. He is passionate about reimagining traditional industry models to deliver consistently great results, insights, and customer experiences by listening to the voice of the customer.