Whilst private equity (“PE”) firms globally are sitting on 28,000 unsold companies, worth more than $3tn, the industry is beginning to experience a resurgence in exit activity.1 In the competitive world of PE, effective portfolio company leadership is essential for success, but delayed exits mean CEOs with a proven track record of growth and successful exits, the ‘holy-grail’ traditionally favoured, are scarce. Although some firms are hesitant to back first-time CEOs, many are now open to exploring this talent pool, with others even showing a preference for these candidates.
First-time CEOs bring drive, energy and a willingness to ‘roll up their sleeves’. Their enthusiasm, open-mindedness and lack of preconceived methods often lead to innovative approaches. However, hiring a first-time CEO does carry inherent risks, with the best firms implementing a range of strategies to mitigate these risks and ensure successful outcomes.
Drawing on insights from our work with PE firms and the firsthand experiences of industry experts, this piece offers practical guidance on selecting and then supporting those first-time CEOs capable of driving growth whilst also navigating the complexities of PE-backed environments. Whether you are considering a step-up candidate or looking to refine your approach to leadership selection, this article provides actionable strategies to enhance your decision-making and maximise returns.
Growing Demand
Increased demand and reduced supply means competition for CEO talent in PE is fierce, with compensation packages often surpassing those of equivalent publicly-traded companies.2 Those who have successfully led companies through to exit frequently retire or move into advisory roles, with those who remain active sometimes lacking the ‘fire in the belly’ they once did. This leaves an opportunity for first-time CEOs who can bring the passion, commitment and ambition needed to push a company forward.3
The quality of management is a key differentiator in generating returns, with more PE firms recognising human capital as a vital lever for growth.4 However, appointing a first-timer is seen as riskier by many firms. Transitioning into the CEO role in a PE-backed environment is complex and demanding. First-time CEOs must adapt, at pace, to high expectations, deliver results and manage pressure from investors, all while learning the intricacies of the CEO role and navigating a new business.
We have analysed the data to identify two strategies to selecting the right candidate, followed by five critical steps to support their success.
Choosing the Front Runner: Strategies to Support Selection
Reduce Unknowns
When considering step-up candidates, our experience suggests that, whilst industry sector experience is valuable, prior PE exposure often proves a stronger predictor of success. “It’s about knowing what excellence looks like in both people and processes,” noted one talent partner, highlighting the importance of foundational experiences in PE. Another partner observed, “First-time CEOs from large corporates often struggle; they’re learning too many new aspects simultaneously, from PE dynamics to faster-paced operations with fewer resources.”
Evaluating the broader management team and board context is also crucial. A first-time CEO poses greater risks when paired with an entirely new executive team, particularly a new CFO or in situations where board continuity is limited.
PE firms tend to be more willing to consider step-up candidates if their functional background matches identified growth levers specific to the investment’s value creation plan. So, if this is in sales, for example, hiring a CRO to step up could work. If the lever is innovation and product, a step-up CPO might fit the bill. Clearly, if these individuals are being considered for a step-up, then experience of general management and evidence of P&L ownership are also critical.
CFOs from within the business, or from similar businesses, are also sometimes an option. But, although they may feel they have experience as an internal CEO (due to the designated CEO spending their time in a market-facing role), whether they can own the growth for the business whilst also taking on the management of multiple external stakeholders, is not always clear. Likewise, when considering divisional or regional leaders, many of whom will already have exhibited the requisite CEO skills through running their own business lines, it is important to really understand the part they have played in strategy creation as opposed to execution: how autonomous were they, what did they ‘own’ and what did they ‘create’?
Thorough Assessment and Selection Process
With only 29% of CEOs remaining in post throughout the investment period,5 the failure rate for first-time CEOs is even higher. Whilst one deal partner always poses the question, “was he successful or was he lucky” when considering those candidates with an exit already under their belt, all those interviewed stressed the importance of a formal, objective selection process when considering a first-time CEO. The more data collected to predict the likelihood of success the better, starting with a structured specification covering the key requirements of the role, based on the value-creation plan, followed by an assessment process aligned to this.
It is not enough to rely on traditional, unstructured interviews and reference checks. Market conditions necessitate a more analytical and rigorous approach to management due diligence, assessing individuals and building management teams. A robust evaluation should include psychometric testing, structured competency-based interviews, and an in-depth assessment of the candidate’s ability to thrive in the demanding PE environment. Such a process also allows the PE firm to aggregate individual data into a top-team review, to consider strengths and weakness of the 3 to 4 key management team members as a group, and how (and whether) they will work together to deliver the value gain plan.
The evidence is clear: analysis of our past assessments for one fund shows that using leadership assessment increased the chances of hiring success from 50% to 70-75%, a figure that has translated through to improved investment returns as well as reduced distraction for the PE owner.
By combining psychometric tests and competency-based interviews, we dig into, not only the candidate’s past successes, but also their potential to grow and succeed. When considering first-time CEOs, these assessments can uncover critical traits such as resilience, adaptability and the drive necessary to prosper in a PE context. Structured assessments also ensure a process remains objective, of particular importance when there are multiple stakeholders involved in a hiring decision. Assessments limit the impact of a potential 150 types of cognitive bias, meaning ‘heads aren’t turned’ by those with charisma, who may exhibit style over substance.6
But the benefits don’t end there. The insights gained from these assessments can be used to directly inform referencing. Traditional references may highlight past achievements, but they often fail to reveal how a candidate will perform under pressures unique to the PE environment. By using assessment data to guide both covert and overt referencing, targeted questions that delve into specific areas of concern or opportunity can be suggested.
A comprehensive assessment not only reduces the risk of a poor hire but sets the stage for a step-up candidate’s success from day one and allows us to advise on the support needed to ensure the new hire hits the ground running and succeeds in the longer term. As one of our clients put it, “The assessment process helped us see beyond the CV, giving us confidence that we were selecting the right leader for our portfolio company.”
Outcome Driven Assessment
Setting the Stage: Strategies to Support Success
Clear Alignment of Expectations
While each fund is different and has a distinct approach to working with portfolio companies, clear expectations are essential for navigating the new role. As one investment partner commented, “Without clear expectations, even the most talented CEO can struggle. It’s about making sure everyone is on the same page from the start.”
A successful first-time CEO we have worked with reiterated this, noting the importance of “deep dialogue with the deal partners about what is required to achieve the investment case”.
Although the alignment factor is tackled differently depending on the fund, for most this includes setting specific performance metrics, establishing a shared vision for the company’s future and, most importantly, the requirement for open communication.
The importance of regular and direct feedback to manage expectations was mentioned several times, with one talent partner noting, “First-time CEOs often seem to be more open to feedback than seasoned CEOs”. However, she went on to say, “First-time CEOs who are insecure are, conversely, more nervous than seasoned CEOs about admitting they don’t know something, making them less receptive to feedback and therefore more susceptible to rookie errors. First-time CEOs benefit even more than seasoned CEOs from being emotionally secure and well- regulated”, attributes that can be evaluated through structured assessment processes.
Structured Onboarding and Mentorship
Once the CEO has been selected, the onboarding process can begin. McKinsey’s report, “A playbook for newly minted PE portfolio-company CEOs,”7 highlights the importance of structured onboarding programmes that include mentorship. Advanced access to the business and top team is also invaluable, one PE CEO explaining that this allowed him to “hit the ground running on day one, moving to the next stage of interviewing staff and clients to inform a clearer view of what needed to be done.”
Describing his first PE CEO role as “grueling…. a marathon run at sprint pace,” another noted “It’s not just about getting started quickly; it’s about having someone to turn to when challenges arise. A good mentor can make the difference between success and failure.” Unsurprisingly, those funds we spoke to who had a formal Executive Chair Programme also reported a higher proportion of first-time CEOs in their portfolio. A search partner we work with explained, “A seasoned and supportive chair with the right sector experience opens the door to those from a wider range of backgrounds, allowing for a broader candidate pool of CEOs.”
However, the chair and/or operating partner cannot always play coach or mentor. In these circumstances, teaming up with more practiced non-execs who can offer the guidance and support needed to navigate the complexities of the role reduces the learning curve and ensures the avoidance of common mistakes. A CEO we spoke to stressed the importance of ensuring the skills and knowledge of the board compensate for any ‘gaps’ the new CEO might have, noting that “well-selected NEDs” can go partway to de-risking a first-time PE CEO hire.
Testament to the benefits of mentoring is the growth of organisations such as PepTalks, a peer-to-peer training provider for PE-backed executives whose programme accelerates the development of skills specific to the PE- ownership structure (investor relations, value creation planning, culture development and exit planning). One PE CEO we talked to also mentioned membership of the Young Presidents Organization had been a useful support in the early days of his tenure. In addition, many funds now have their own portfolio CEO network who can be tapped into for ‘offline’ advice as well as an informal ‘Council of Elders’ who can be accessed for insights.
Ongoing Performance Monitoring and Support
Becoming a first-time CEO does not end with the appointment; it requires continuous monitoring and support in the face of relentless pressure to deliver results. All PE investors and operating partners we spoke to mentioned the importance of rapid, early intervention in response to performance issues. However, a first-time PE CEO stressed the need for the provision of structure and detail in terms of objectives, “setting short-term milestones, not just the 5-year exit ‘target state’ operations and financials.”
Regular performance reviews, coupled with ongoing feedback and support from the chair and the PE firm’s director/s on the board, can help first-time CEOs stay on track and make necessary adjustments. A front-footed approach allows issues to be addressed early with one talent partner suggesting regular ‘pre-mortems’. “It’s about catching problems before they become crises,” another observed, “regular check-ins can help a CEO course-correct and stay focused.” These check-ins, held one-to-one, also provide the opportunity for the CEO to raise issues, push back on specific plans, ask for help and facilitate “realistic conversations about what is going on within the business”, promoting transparency.
Investment in Leadership Development
Given that most CEOs do not survive the investment period,8 committing to personalised leadership development based on objective assessment data pays dividends. Research shows the firms that invest in human capital, including leadership development, generate above-average returns.9 Development initiatives such as 360-degree feedback, executive coaching and formal leadership training equip new CEOs with the skills to excel. As one PE partner put it, “Ignorance of one’s gaps could be the biggest reason first-time CEOs fail.”
Unlike mentors, who offer continuous, open-ended support, coaches are typically engaged to tackle specific development needs in a more structured manner.10 When the screening process reveals an executive who shows promise but may underperform in certain situations, targeted coaching can be introduced from the outset as a proactive strategy.
Leadership development is not just about improving individual performance, it’s about creating a culture of excellence that permeates the entire organisation. For first-time CEOs, this investment can be the difference between merely surviving and truly thriving. “Leadership development isn’t just a nice-to-have; it’s essential,” said one PE investor we work with. “If we don’t invest in our leaders, we are setting them up to fail.” The business environment is constantly changing, and the challenges faced by first-time CEOs vary significantly depending on market conditions – we cannot expect yesterday’s skill set to drive tomorrow’s returns.
Building a Strong Executive Team
The success of a first-time CEO is closely tied to the strength of their executive team and their ability to assemble this at pace. A well-rounded and experienced team can provide valuable support and complement the CEO’s strengths, thereby reducing overall risk. This couldn’t be emphasised enough by one talent partner we spoke to who said, “First-time CEOs benefit more than others from very strong, experienced partners in their CFO and Chief People Officer seats – partners who aren’t learning from first principles so can help them swerve icebergs (and keep things moving at pace) in the critical areas of finance & people.”
A recent Hunt Scanlon article reiterates this idea.11 By surrounding the CEO with talented leaders who possess complementary skills and experience, firms can create a balanced leadership structure that enhances decision- making and drives operational excellence. “A great CEO is only as good as the team around them,” noted another client, “it’s about having the right people in the right roles to support the CEO’s vision.”
Conclusion
Selecting a first-time CEO for a PE-backed investment is a decision that comes with certain risks, but with the right strategies in place, these can be managed. By focusing on thorough assessment, structured onboarding, clear communication and the right incentives, as well as ongoing support and development, PE firms can turn first-time CEOs into outstanding leaders who drive portfolio company success.
These insights shared by first-time PE CEOs as well as operating and investment partners from a range of PE firms, combined with the findings from our research, highlight approaches to get the best out of a new CEO as well as support them to ‘hit the ground running’. As the PE landscape continues to evolve in response to the changing economic environment, the ability to identify and nurture exceptional leadership talent will remain key to achieving success. For firms that invest in the right strategies, the rewards can be substantial.
Laidlaw Associates would like to thank all those who agreed to be interviewed and contributed to this article. Our next article will share data as well as our insights from the field on the specific characteristics to look for when hiring a PE CEO.
Caroline Rowland is a Chartered Psychologist and MD of Laidlaw Associates, a consultancy specialising in leadership assessment and development for investor-backed businesses.
Our assessments support data-led decisions in management due diligence, selection, development and succession planning.
- Bloomberg. “The biggest publicly traded alternative asset managers have more than a half-trillion dollars to put to work – and they’re gearing up for a deals comeback.” Bloomberg, 2024. ↩︎
- Paul A. Gompers, Steven N. Kaplan and Vladimir Mukharlyamov, ‘The Market for CEOs: Evidence from PE’, NBER, 2023. ↩︎
- Hunt Scanlon Media. “The Rise of First-Time CEOs in PE Portfolio Companies.” Hunt Scanlon Media, June 2024. ↩︎
- Harvard Business Review. “Private Equity Needs a New Talent Strategy”. Ted Bililies. Harvard Business Review, December 2023. ↩︎
- McKinsey & Company. “A playbook for newly minted PE portfolio-company CEOs” McKinsey & Company, September 2021. ↩︎
- AESC, ‘Assessments for Executive Selection: Considerations for Search Firms’, 2021. ↩︎
- McKinsey & Company. “A playbook for newly minted PE portfolio-company CEOs” McKinsey & Company, September 2021. ↩︎
- LCap, ‘Quantifying the impact of leadership in UK private equity backed businesses’, 2023. ↩︎
- David Waller, Courtney della Cava, Kristin Schroeder and Rolf-Magnus Weddigen, ‘A Left-Brained Approach to Portfolio Company Talent Decisions’, Bain, 2021. ↩︎
- Mitch Mitchell. “Coaching The PE-Backed Company CEO.” Forbes, September 2023. ↩︎
- Hunt Scanlon Media. “The Rise of First-Time CEOs in PE Portfolio Companies.” Hunt Scanlon Media, June 2024 ↩︎