Private Equity (“PE”) firms spend countless hours and large deal budgets deciding where to invest. Deservedly so, as this is the most important decision. But, what about the second most important decision: Who will lead these portfolio company investments? Many private equity firms devote comparably fewer hours and less sophistication towards making this critical determination. This whitepaper outlines key strategies for effective hiring, including building a robust evaluation process, partnering with the right search firm, and making decisive choices.
First, we must properly set expectations. PE firms will never bat a thousand when hiring portfolio company executives. That said, the best PE managers will likley agree that an investment will perform much better when they hire right the first time.
Tom Caruso, Partner and head of Guardian Operations and Advisory Company, provides expert guidance and hands-on support to Guardian portfolio companies. Tom and his team play an integral role in investment due diligence value creation opportunity identification and execution by working alongside portfolio company management teams and stakeholders to execute against value creation opportunities. In this role, Tom devotes significant time focused on organizational design and hiring. Here is what he had to say regarding hiring and talent evaluation.
I. Recognize the Importance of the Decision
Hiring is a cornerstone of investment success and should be treated as such by investment managers and management teams. The cost of hiring the wrong leader is substantial and can be an internal rate of return killer, delaying the timeframe for the company to reach critical goals and objectives. A bad hire may also damage company culture and the company’s relationship with the private equity partner. All of which will jeopardize achieving a desired return on investment.
II. Begin with the End in Mind
Effective hiring begins with a clear, mutual understanding of the investment thesis and company strategy. By defining the desired outcomes upfront, PE firms can create a targeted hiring plan that aligns with specific strategic objectives. Each new role should directly contribute to the company’s investment thesis. Furthermore, PE firms should also consider the management team required to properly market the company following its hold period.
III. Be Equally Deliberate and Thoughtful
Successful investment firms treat hiring with as much importance as investing. As such, a thoughtful hiring process, suitable assessment rigor, and tailored diligence plan should follow. Implementing a hiring process will benefit the hiring team by modeling candidate evaluation expectations and will also help attract candidates by consistently communicating the PE firm’s value proposition. Assessment rigor, backed by interview training, will avoid a common pitfall of numerous interviewers all reconvening after conducting the same interview separately and concluding they “like” the candidate, thereby reinforcing groupthink and personal biases.
Diligence is what PE firms do well. Hiring without diligence carries as many pitfalls as investing without diligence. So, take references seriously by seeking out both blind references and specific references based on candidate circumstances.
IV. Choose the Right Partners, but Don’t Outsource It
A qualified executive search firm can be invaluable in identifying top talent. Look for a firm with a proven track record in your industry and strong peer references that will work well with your work style and process. Several “go to” partners are recommended, as successful searches can be repeated with the same process and search partners over and over. Consider executive assessment specialists as well as background specialists to round out the hiring team.
V. Align on the Measuring Stick
Develop a shared understanding of the role requirements, candidate qualifications, and hiring timeline with both the search firm and internal stakeholders. Best-in-class firms will develop a scorecard that will focus on evaluation and reduce personal bias. This scorecard should serve as a shared reference point for all parties involved in the search process and help to ensure everyone is working toward a common finish line.
VI. Pay Close Attention to the Transitions
Remember that where there's smoke, there is usually fire. Most candidate transitions typically signal a logical and typical next step in a career. Be leery when they don’t. Lateral moves can signal potential problems in the previous position. Long transitions without a clear and specific explanation should be viewed with equal suspicion. Transitions also provide opportunities to request targeted references from prior companies and PE partners.
VII. Don’t Be Afraid to Say No
Maintaining high standards is crucial. If a candidate doesn’t meet the criteria, even in the final stages of the hiring process, don’t hesitate to move on. It is better to continue searching than to compromise on quality and/or fit. This approach protects the organization and ensures long-term success.
Conclusion
Guardian understands having the right leadership in place, at the top and across an organization, is paramount to the success of its portfolio companies. Identifying the right executive team that can execute on the investment strategy needs to be completed in a thoughtful manner. This whitepaper touches on many of the frameworks and resources Guardian leverages when making key hiring decisions for portfolio companies.
To learn more about how a partnership with Guardian could benefit your business, please contact Chris Fugaro, Partner, Head of Business Development at cfugaro@guardiancp.com or (610) 263-0102. This is not considered an advertisement of the advisory services of Guardian Capital Partners or an offer to provide advisory services.