CEO Turnover and The Cost to Private Equity Investors

Did you know that nearly half the time Private Equity (PE) investors choose the wrong leaders to run their portfolio companies? This comes at a significant cost. According to a study by Bain & Co., nearly half of PE owners changed the CEOs who ran their portfolio companies. What’s more, the majority of those CEOs were not replaced until after the first year the PE firm owned the company – that is, after the opportunity to build forward momentum had passed.

The CEOs performance either promotes stability or disruption, delivering consequences for the overall value of the asset as well as its employees. A delay in replacing an underperforming or ill-equipped CEO can significantly undermine the value of the company.

Below are five reasons why unplanned CEO turnover often happens at PE portfolio companies:

  1. Inadequate assessment of the CEO during the due diligence phase
  2. Lack of clarity around goals and performance expectations
  3. No up-front alignment of how the PE firm and CEO will work together
  4. The CEO does not fit with the portfolio company’s new strategic direction
  5. Underperformance by the CEO and failure to deliver on results

What to Look for When Hiring Your Next CEO
Interested in delivering a better return on your investment by hiring the right CEO? According to the Forbes Coaches Council, to scale a business for rapid growth with a five to six year window before selling it demands a CEO with:

  • Strong organizational and leadership skills who can recruit and develop talent
  • The ability to build a high-performing management team
  • Proven success in creating a workplace culture that advances business strategy
  • The ability to maintain good relations with the company’s new owners

Specifically, there are three traits that separate the best CEOs from the rest¹:

  1. The ability to think both strategically and systematically to understand the process, people and technological impacts of changes in strategy and the interplay among those elements.
  2. Building executive team alignment and commitment to the strategy by instilling regular team communications with leadership at the top and across regions.
  3. Developing executive leaders who need new skills or knowledge to execute a key part of the strategy by putting top management through intensive leadership development training and equipping them with coaches.

This is where a Professional Employer Organization (PEO) can help. PEOs, like Oasis, work with CEOs of portfolio companies to relieve them of nonrevenue-producing tasks so they can focus on the core business and deliver the expected return on investment. Such a partnership will increase the opportunity for the CEO to be successful and deliver on what’s needed, thereby reducing unwanted turnover and maintaining productivity.

Keeping Key Members of the Team on Track
The CEO has a wide amount of direct reports that can be both difficult and time-consuming to manage in a small business. Oasis can also help to keep key employees and the leadership team on track by developing customized performance management tools and training to support program implementation of position-specific evaluation forms, performance objectives, 360-degree feedback programs, etc. This will help CEOs to ensure they are using resources effectively, developing employees thoughtfully and focusing on the main priorities in order to improve business performance.

To learn more about Oasis, A Paychex Company, please visit www.OasisAdvantage.com/Private-Equity or call 866-709-9401.

__________________________________________________________

[1] “Private Equity Leadership Lessons,” Forbes.com, February 24, 2017

Sign Up Now To Receive Our Newsletter

Privacy Legal Sitemap
©2001-2019 Oasis, a Paychex® Company. All rights reserved.