We’re never happier than when discussing the private equity journey and the challenges it presents.  Our recent CEOs dinner on March 17th 2016 was an opportunity to do just that. 

Guests included CEOs less than a year into their buyout, CEOs who’ve undertaken secondary buy-outs and Chairmen who have guided numerous private equity backed businesses.

Glenn Elliott, CEO of Reward Gateway, the extremely successful employee engagement platform, was at the helm, sharing the story of his journey as a first time CEO, navigating the new world of private equity ownership. 

Topics discussed

There were three key themes running through the discussion.  Chatham house rules applied, so we’ll keep specifics out of this post, but we can reveal the general points raised by our guests:

  1. How do you develop a strong relationship with your PE investor and how can this add true value to you and the business?

It starts pre-deal

The consensus around the table was that developing a strong relationship with the investor from the outset is crucial.  It starts at the pre-deal stage when CEOs are busy presenting their business plan to potential investment houses.

Glenn’s view, widely shared, is that CEOs need to look beyond the house to the individual investor who will work most closely with the business post-deal. 

‘You need to be comfortable working with them.  Who would you be happy to telephone to explain bad news?  Think about this, because it will happen.’

Communication is paramount

Honesty is a critical part of the dynamic.  Although CEOs may be tempted to sit on bad news, the room agreed that flagging issues, errors, problems to the investor should be done asap, but with a solution ready to go.  In fact, Glenn said ‘I only tell them the bad news, everything else they can get from the board pack.’

Hiding things from investors is completely counter-productive, and would ‘come back to bite you’.  With an up front, transparent approach, the team can pull together and get on with resolving the issue. 

  1. Should all CEOs of Private Equity backed businesses think like founder/entrepreneurial CEOs?

Effectively, it is your business.

The answer to this question was a resounding yes, the CEO should treat it as their own business.  OK, be mindful of the fact that you are not the majority shareholder, but remember that the majority shareholder won’t be there forever.  For the investor, there is less of an emotional attachment, the investment is a means by which to deliver the ends they want. 

In many businesses, the CEO is strongly tied to the brand; they are a firm figurehead; someone who drives the culture and inspires the business.  This is not a role that the investor, as the major shareholder, wants to take on.

An owners mindset drives change

The founder/entrepreneurial attitude should also be extended to the management team, and the wider workforce.  Encourage people to be self-critical of themselves and the organisation and continually challenge on how things can be done better; how the business can be improved. 

CEOs should also retain the confidence of a founder/entrepreneur.  The private equity house back the CEO because they believe in your capabilities, the wider management team and the business; they understand that you are incredibly good at what you do. 

  1. What have you learnt in terms of board level hiring; is there a certain approach required to ensuring you get it right?

The quality of the people around the CEO reflects directly on him/her

Our guests agreed that hiring the right people was one of the most important things a CEO can do.  Aside from impacting on the ability of the business to implement its plan, the quality of the wider management team has a bearing on the private equity firm’s view of the CEO; a good team displays good judgement, and creates confidence.

A highly capable CFO can help the CEO manage the relationship with the private equity house.  The CFO is as visible as the CEO to the investor, and getting the right person in post is paramount.  The CFO needs to understand what the investors look for, and how to deliver it in the right way.

Having a strong senior team on board allows you as the CEO to see the bigger picture and have the time to invest in working with the private equity house.

‘No one ever said they made a change too early’! 

One of the biggest regrets a CEO can have is not acting swiftly enough, either when needing to replace members of the board or to add new board hires.  If a CEO has doubts, indecision or deliberation will almost certainly make things worse.

  1. What value does the Chairman add to the relationship?

A good Chairman is essential

Although not tabled as part of the original discussion, one theme that came to the fore was the role of the Chairman.  A skilled Chairman can act as the ‘broker’ between a CEO with that entrepreneurial mindset and the private equity house.  The CEO is integral to the success of the business, and the Chairman needs to ensure that he is allowed room to deliver on the promises made in the business plan.

Equally, the CEO should recognise the value of the Chairman, work closely with him, make use of the resources at his disposal and seek his advice.  The position a Chairman holds is slightly outside of the stresses and strains of the everyday running of the business, allowing him to act as an intermediary when necessary.

The relationship between the CEO and investor needs to be built on trust and mutual respect.  But, above all, the relationship between the CEO and Chairman is the most critical to the success of the business.

All of our guests left with some valuable take-aways, new connections and a sense that they shared many commonalities through their private equity journeys. 

The role of the CEO can sometimes feel isolated, and it is not always easy to come into contact with like-minded people who have shared the same experience.

We’d like to extend our thanks to all of our guests, and look forward to following their stories as they move to the next phase of their private equity journey.

 

Glenn Elliott blogs extensively on topics relating to employee engagement, technology, HR and entrepreneurialism.  

Follow him here @glennelliott glennelliott.me