When a business brings on a private equity group, whether it is to help them out of turmoil, cash out some owners, allow an exit from an earlier PE group or to continue to grow the company, one of the most important elements that often requires rethinking is the difference in leadership styles between the CEO and the private equity group. It can be a bit rough in discerning these differences and that’s expected. Not sure you understand the nuance? Here’s a quick tutorial. Take notes…
The CEO
The successful CEO’s job in a normal operating company is almost all about managing relationships. It’s also about watching the numbers; but there are lots of people watching the numbers. So managing relationships is where a CEO should be spending the most time. Making sure people are engaged to do their job, that they know the direction, the vision, and they’re following the leadership vision are crucial elements of business and the CEO is put in place to manage them. It’s about making sure they trust him/her, and they’re willing to give that discretionary effort. An operating CEO’s job is more relationship management than anything else.
Private Equity
When these private equity guys come in, they are quantitative monsters. What happens when private equity enters the mix is that everything gets measured—even (especially?) leadership competence. Where we may be tolerant of people who lack the confidence for a role they’re in because of some other intangible benefit they bring the organization, private equity folks may be… well, not so much. They’re seldom the slash and burn stereotypes of Gordon Gekko style; in fact, they generally grow companies, versus making them smaller, but they do it in a way that they can be measured on spreadsheets.
I’ve seen great CEOs fail when private equity groups come in simply because they only wanted to manage the relationships. A better way to make sure your partnership is working is to sit down with the private equity guys (and gals), and ask the questions. Find out what the specific goals and objectives are for success, set a course on how to get there and keep them informed. It really is just that simple.
