The Search for Private Equity-Backed CEOs

Recruiting a CEO to run a firm backed by private equity used to be fairly straightforward: Find a knowledgeable leader, oust the CFO, hire a new head of sales, and turn around the business in 24 months. It might’ve been a tough job, but those chiefs got the job done.

But now that private-equity firms are holding onto their portfolio companies for seven to 10 years instead of turning them around in two to three, the “slash and burn” leaders of yesterday often lack the people-management skills and demeanor required in today’s portfolio-company environment. “The turnaround CEO specialist of before isn’t going to foster the corporate energy needed today,” says Chad Astmann, co-head of Korn Ferry’s Global Investment Management practice. And finding the right CEO is even more critical in environments in which investors hunger for returns faster than the new CEOs can deliver. “The exits are taking longer, and values are down,” says David Wise, Korn Ferry’s vice chairman of rewards.

The new age of private equity coincides with a time in which finding any CEO is a challenge, which makes hiring a qualified portfolio-company chief particularly difficult. Average CEO tenure has dropped to around 7 years from a high of nearly 11 years in 2005. Executive recruiters have lamented a dwindling pipeline not only of qualified candidates, but also of people who want to do the job. “There’s a real need for a pipeline of leadership that enables companies to choose different leaders for different situations,” says Jane Edison Stevenson, global vice chair of Korn Ferry’s Board and Services practice.

A shrinking talent pool of CEOs may in some ways be an advantage for PE-backed firms, Astmann notes. If PE firms are holding companies longer, the skillset they seek may become more widely available: “a CEO who can build value, which is something corporate America has trained its CEOs to do for years,” Astmann says. And with all the pressures public-company CEOs face from various stakeholders, working in a private-company atmosphere may appeal to some chiefs.

But there’s a catch-22. Amid the ballooning of the private-equity industry—private funds have almost tripled in size in the last decade, to $26 trillion in gross assets—companies’ demand for CEOs far outstrips supply. “Funds want CEOs wired a certain way,” Wise says. “The success profile is really different from a public-company CEO.” What’s more, exits are taking longer, which means that many of the CEOs that PE funds might want are staying in place for five or six years, instead of the traditional two or three. 

The result: Many PE firms are looking to the people who were number twos five years ago—putting together appealing executive packages for the tried-and-true leaders they know can get the job done. “I’ve never seen so many people activate their personal networks as I’m seeing today,” Wise says.

For his part, Francois Auzerais, head of Korn Ferry’s North American Private Markets practice, says finding the right CEOs for portfolio companies comes down to properly incentivizing them and giving them a sense of control. “At the end of the day, the PE firm owns the car and the management is simply leasing it,” Auzerais says. “But the person driving the car has to feel in control.” 

Learn more about how Korn Ferry helps private equity firms create value.