C-level talent in PE-backed companies

August 4, 2016

DHR is a global executive search firm with 200 consultants across 50 offices in 16 countries. Around 85-90% of their searches are at the C-level, spanning all industries, company sizes and life-stages. This gives DHR a unique perspective on the supply and demand for executive-level talent.

Insightory’s Harold Klausner and Avneet Jolly interviewed Martin Pocs (Vice Chair DHR International) to understand how the C-level talent market has changed over the years. Martin has been working with CEOs, investors and Boards for over 20 years, and for the last 5 years has been focused mainly on PE-backed firms.

Speed and alignment

The most noticeable difference in working with PE firms is speed. We will often go from search need identified to candidates screened and offers made in a manner of weeks. The same process in a public or non-PE private company might take months. This sense of urgency pervades the business -- every key decision is made 3-4 x faster. We often get called to start a search process and gauge the marketplace before an acquisition is even consummated.

Speed does not equal recklessness. It is more about driving to a value creation event in a defined period of time. PE-backed companies tend to be smaller than public companies, so there are fewer variables and fewer stakeholders. But equally importantly, they focus on a smaller set of decisions – things that really drive value. Anything that doesn’t contribute to value creation is a distraction.

It is absolutely essential that CEOs and investors are completely aligned on the value creation strategy and timeframes. A CEO isn’t asked to “lead the company for the next n years”. They’re asked to “roll-up three competitors in the next 36 months with an EBITDA target of $35M”.

CEOs requirements are always evolving

Every CEO that we hire today needs to be an outstanding communicator. Their workforce and even their leadership team is likely to be dispersed across different locations, so they can’t get everyone in the same room to explain the strategy or to resolve issues. To be successful in this environment, they need very different communication skills . . . much more succinct, much heavier use of technology and most importantly being very clear on what they want to say.

Communicating to millennials is different. CEOs have to utilize millennials’ preferred channels – e.g. apps and text messaging – even if it doesn’t come naturally to them. All these newer channels (even including email) are two-way, so it is expected that the CEO will respond relatively quickly even to a relatively junior employee.

We are seeing more openness to hiring from different industries. Research shows that outsiders can match and in some cases exceed industry veterans’ performance (e.g. PwC, 2016 and MIT Sloan Management Review, 2012) and that is certainly true for some of our clients. One of our healthcare clients recently hired an executive with a hospitality background. A financial services client recently hired an executive with a brick and mortar retail background. In both cases, it took a while for the Board to accept these candidates, but they started adding value almost immediately. There has been a marked difference in the both companies’ trajectories. Often the first step to transforming a business is to bring in an executive who has a completely different perspective.

Another area that Boards should be considering is hiring first-time CEOs vs. proven candidates. We sometimes see that a candidate who’s been successful in the past may not always have the same level of drive as someone who’s trying to create success for the first time. The first-timers have much more to prove. It can sometimes be a hard sell to Boards, but that additional drive can be more important than additional years of experience.

The era of Hollywood star CEO is long gone. Most effective CEOs have a self-effacing or at least a self-aware personality type. They know their shortcomings, and have learned to work around them. They have a more steadfast and focused approach. Energy is not the same as enthusiasm, and we try to differentiate between those qualities, using a series of assessments. 

These changes have been happening for a long time – it’s not that we suddenly woke up 5 years back and the CEO requirements were different.

Not enough General Managers

The CXO market today is lacking candidates with good general management experience. There are a couple of reasons for this. One, companies have gone through multiple rounds of delayering. This obviously improved their cost structure, but it also eliminated all the “half-steps” in the career path that provided valuable opportunities to learn before taking on broader responsibilities. Second, many companies have cut back or eliminated their management training programs, which provided entry level candidates with rich perspectives, experiences and mentors. And finally, as spans of control have increased, jobs have become more siloed. This makes it more difficult to gain broad management experience.

While it’s hard to imagine companies adding more layers in their structure or reducing their spans of control, they do need to find ways to develop their future general managers.

Demographics

Demographic changes are occurring naturally – we don’t have to achieve a set of demographic targets for our top level executive searches. We are able to pick from a global and very diverse talent pool for nearly all positions. The one exception is female candidates for corporate Boards – that are still major gaps there, and a lot more work to be done.