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In my last article, Crossing the Rubicon, (you can read it here) I explored the journey that CEOs operating within private equity backed companies go through when transitioning out of the top seat. The majority of the feedback from the CEO community was that the article was ‘interesting and insightful but doesn’t help me now.’
The reality for CEOs is that M&A inactivity has elongated exit horizons, and the road to realisation is getting harder. Whilst a jar of jam tomorrow is a compelling thought, CEOs are more interested in how they keep today’s matters moving, rather than wondering what happens when the music stops.
To better understand the demands currently faced by PE CEOs, DRAX’s Life Science team recently held an exclusive breakfast for members of our CEO network. During the meeting, participants discussed their views on the state of the market, their biggest challenges, and the opportunities they see ahead. It was fascinating to hear some common themes emerge within the group, regardless of sector or size of organisation:
Loneliness: CEOs occupy a unique position. Balancing investor and stakeholder priorities with the need to motivate and engage a leadership team, as well as a wider organisation, is a big responsibility. CEO’s can feel isolated and under pressure, struggling to gain perspective and act decisively.
Inherited or evolving teams: The CEO is central to optimising a leadership team quickly. That said, CEOs rarely inherit a fully formed group, and work must be done to ensure the team can work together effectively to deliver the value creation plan. Competency gaps, behavioural misalignment and functional imbalance are just some of the hurdles a CEO will face. These issues can lead to team friction, lack of alignment on priorities and delivery lag, all of which can be terminal in the wrong circumstances.
A polarised workforce: Employee engagement is a vital component when it comes to the facilitation of large-scale transformation. Private equity-backed CEOs frequently lead diverse teams spanning geographies, beliefs, and generations. To achieve their business objectives, they must find a way to unite a range of perspectives behind a shared vision.
Difficult decision-making landscape: CEOs often lack objective insights to make leadership decisions under pressure. Delaying an important decision that impacts an organisation’s value creation plan can be extremely detrimental, yet shooting through the fog is no fun. Clarity is key.
Lack of diverse thought: Cognitive diversity within a leadership team drives better decision-making and oversight, increases problem-solving capability, and has a positive effect on financial performance. That said, the process of building a diverse and free-thinking team can be a mammoth endeavour, and (if CEOs are reliant solely on their intuition) fraught with risk of a misfire.
Succession planning: In the transient and often unpredictable private equity world, every business needs a bench, yet what an organisation needs from A to B is often not what it needs from B onwards. Creating a clear, high-performance watermark within an organisation and proactively pooling talent that meets that criteria is imperative to ensure a prosperous future.
Turning insights into action
At DRAX, we believe that predicting leadership success is possible and the challenges highlighted above are addressable with the right information.
By leveraging DRAX’s behavioural tool, PACE, CEOs can objectively increase their understanding of the people around them, allowing for greater clarity regarding the cognitive makeup of their investors, leadership team and broader workforce. As a result, they can set a clearer performance benchmark and better define levels of complementarity within their organisation.
This insight can lead to healthier, more objective discussions regarding performance, motivation, and compensation. It can also allow for the identification of future high performers against more objective criteria and the ability to recruit high performers into the organisation with greater precision and without bias. This in turn minimises the friction and time involved in bringing new employees up to speed, while maximising the opportunity for diversity of thought and high performance.
At our next CEO breakfast, scheduled to take place later this year, DRAX will be building on this conversation, examining more closely how PACE can address the highlighted issues and create more opportunities for CEOs.
At this event, we will be joined by Samuel Robberts, Chief Strategy Officer at The LCap Group, and a leading expert in how behavioural analytics can be applied to leadership challenges in private equity backed businesses.
If any of the themes in this article resonate with you and you would like to discuss them further please be in touch. You can email me here.
Josh Guest
