What to Look For in Your Next Portfolio Company CEO

As PE investment professionals reassess investment and value creation strategies, it may be time to reconsider the talent required to achieve them.

The pandemic has stretched portfolio company leaders in new ways. Since the beginning of 2020, it has become clear that some are able to flex to make the most of a volatile and uncertain period. Others have doubled down on their existing strategies, working harder and longer – but not necessarily getting the results they wanted.

As we reflected on this period, we wanted to understand how leadership behavior and style has played into these successes and struggles. To help uncover the answers, we analyzed CEO leadership data through the lens of our proprietary Leadership Span framework.

Developed in collaboration with Hogan Assessments, Leadership Span assesses how well leaders perform in four key categories: Setting Strategy, Executing for Results, Leading Teams and Relationships & Influence.

Within each category, it reveals how fluidly an executive can move between a set of “loud” competencies (disruptive, risk taking, heroic, galvanizing) that underpin our common stereotypes of leaders and their “quiet” counterparts (pragmatic, reluctant, vulnerable, connecting) that create depth and staying power.

How do private equity portfolio company leaders rate? Our Leadership Span data shows that portfolio company CEOs are likely to score higher on all the loud dimensions of leadership than other CEOs but are less likely to draw on the quieter dimensions.

This finding has both positive and negative implications. In general, loud qualities serve portfolio companies exceptionally well when they are in growth mode, as they fuel forward momentum. When growth slows, however, portfolio company CEOs may face more challenges than others.

Looking more closely at the data, three themes stand out:

• Portfolio company CEOs tend to take a more disruptive approach to setting strategy than other CEOs. Yet they are less likely to filter ideas for feasibility, leaving them open to moving too fast or in the wrong direction.
• Portfolio company CEO’s are more likely than the average leader to take risks. They are less likely than others to think about what happens if things go wrong, leaving them more vulnerable to failure when conditions change unexpectedly.
• The ability to empathize with employees - not just inspire or prod them - has become increasingly important. Yet portfolio company CEOs are less likely than other CEOs to show vulnerability in leading their teams, putting them at risk of losing key team members and eroding morale.

To succeed in today’s business environment, portfolio company CEOs will require a wider range of leadership competencies than they may have needed in the past. In hiring new leaders, PE firms will want to continue to prioritize loud qualities, while filtering for the ability to shift gears and take a more measured and humble approach when conditions warrant it.

Key steps for PE firms to take now:

• Make value creation plans and scorecards multidimensional: To get ahead of the next wave of change, PE firms will want to create more dynamic strategies and scorecards for their portfolio companies, rather than making one-dimensional assumptions about what will happen in the future.
• Appoint more agile leaders: In keeping with more dynamic planning, PE firms will want to hire CEOs who can adapt their styles quickly when needed, shifting from the classic hard charging, growth-oriented mode to a more measured approach that shores up the organization for long term survival.
• Support leaders who are struggling to pivot: While many executives lean naturally to one side or another of the loud-quiet spectrum, most can strengthen their weaknesses with the right support. We see a number of PE firms employing coaches for their top portfolio company leaders for this very reason. Consider providing this type of support for leaders who might be struggling to pivot, making sure they have clear development goals and strategies that are in line with the needs of the organization.
• Build balance across the leadership team: CFOs are the classic counterpoint to CEOs; other executives also provide unique strengths to make the leadership team whole. Look for a mix of strengths across the C-suite to ensure readiness in a volatile environment.

Looking ahead

As businesses move into a post-pandemic era, it will be necessary for PE firms to recalibrate both value creation plans and the leadership competencies required to achieve them. While the classic growth-oriented portfolio company CEO archetype has many benefits, additional leadership competencies will be needed to succeed in the future, namely agility, empathy and balance. These qualities will allow executives to adapt quickly to a rapidly changing business environment and provide both the operational and people leadership required to move forward in the face of headwinds.

Additional Authors

Carrie Ngo and Jason Steinert