What Drives CEO Success During a Turbulent Economy? Insights from PEI Expert Panel

During challenging times, there is no greater value creation lever than the quality and capability of a CEO. Especially in private equity, time is short, and CEO success and investor returns are synonymous. What drives CEO success or failure in private equity?

I recently had the opportunity to host a panel of experts, representing PE investment firms and CEOs, at the 2020 Private Equity International Operating Partners Forum on the topic of “What makes an effective portfolio CEO.” By knowing what skills and attributes make a CEO successful, and by working more effectively with their CEOs, PE firms can help drive bigger results.

Here are a few of the key findings and insights from our panel discussion.

Start by Building a Talented Team 

My leadership advisory firm, Summit Leadership Partners, recently conducted a Private Equity Survey of PE executives and portfolio company CEOs and found that 55 percent of both PE executives and CEOs say building a high performing executive leadership team is the number one factor to CEO success.

One of our panelists, Greg Pappas, Managing Director of Portfolio Support for Berkshire Partners, agreed that CEOs need to focus on building their team and attracting and developing talent.

“CEOs who have a commitment to building, retaining, and attracting talent, tend to have the most marks for success,” Greg said. “That includes loyalty in retaining folks, augmenting new capabilities, and knowing when an organization has outgrown the capabilities of someone in a key role. The CEO is a Chief Talent Officer.”

 Prioritizing and Embracing Change

Especially in private equity, time is of the essence. Summit Leadership Partners’ Private Equity CEO Survey found that new CEOs have 10 months to get results or be replaced.

Greg Pappas said that successful CEOs know how to focus on a few key priorities. “Our best CEOs prioritize, and declutter the organizations as much as possible,” Greg said. “We tend to look back on successful CEO tenures and are able to point to three or four things that really drove the equity value appreciation.”

Successful CEOs are able to embrace change during the first few months on the job. Sometimes founder CEOs fail if they cannot evolve with the changing needs of the organization.

Mike Foisy, Lead Operations Partner at Hammond, Kennedy, Whitney & Company, said, “Especially with a founder CEO, during that first six months to a year, you are evaluating the CEO based on how well they are accepting of support and adapting to changes. Collaboration between the PE board and the CEO is essential for transformation in any organization.”

Building Relationships with the Board 

Another key finding from our Private Equity CEO Survey was the importance of CEOs’ relationships with their PE board. Sixty percent of all respondents said that a top priority for new CEOs in the first six months on the job is to establish transparency with the Board of Directors, and 56 percent said that CEOs’ biggest challenge is “inability to build relationships with the board of directors or leadership team.”

But how much transparency is too much or too little? How can portfolio company CEOs maximize the help and input from their PE board?

Laura Ipsen, President, and CEO of Ellucian, a TPG portfolio company and leading cloud-based software provider for higher education, had some great insights on this.

“As a CEO you have a different way of operating in a public company vs. private equity,” Laura said. “The relationship you have with PE, the transparency and collaboration, is so important. Often at a public company, the board is giving observations and advice. The PE board is there to help me solve problems. Sometimes you have to be really brave to go to your PE board and say, ‘I’ve got a challenge, can you help me solve for this?’”

Greg Pappas added that CEOs need to manage their level of transparency with the PE board so they get the right level of help when needed.

“Sometimes CEOs tend to grab a team and figure out a solution internally, without going to the PE board,” Greg said. “As a CEO, you need to set boundaries with the PE firm, and know when you want a reaction from them, or when you want resources from them. Try to create the right level of transparency with the board to process challenges together.”

Find the Silver Lining

During turbulent times, results obviously matter most, but a CEO’s style of leadership matters too. Our survey found that 99 percent of all respondents agreed that “how a CEO leads is more important than what they lead.”

In that spirit, Curtis Glovier, Senior Advisor at Star Mountain Capital, said that a successful leadership style in 2020 includes: overcommunication, proactivity, and finding silver linings.

“Especially with a private equity-owned or backed firm, the CEO needs to overcommunicate, and get what resources can be brought to bear,” Curtis said.

In a time of crisis, CEOs must be proactive. “What can you do now?” Curtis said. “Figure out the aspects of the business to change, accelerate, or get out of, now.”

Finally, in troubled times, look for signs of momentum and opportunities to pivot. “There is always a silver lining,” Curtis said. “Maybe the situation is that we are more remote now and that digital is more important. Maybe it is time for us to speed up a certain go-to-market strategy.”

Despite the challenges we have faced in 2020, this year has offered many signs of hope. Each panelist said that their company cultures and employee engagement levels are stronger than ever. How can we carry this forward and make it a permanent positive legacy of this time? This is all part of how strong leadership from CEOs, even during a time of daunting challenges, can take your organization to a better place.