At the end of October, we gathered together a select group of CEOs and Chairmen of private equity backed professional and business service companies, for a dinner to discuss some of the topics raised in our recent white paper, “Getting ahead of plan”.

Topics under discussion included the extent to which emphasis on hiring CFOs and FDs comes at the expense of other functions in the first 12-18 months post-transaction, people management challenges and CEO preparation for rapid growth post-deal.

Emphasis on hiring in finance functions post-buyout

In relation to our first topic, there was broad recognition that there is often a bias towards hiring FDs or CFOs post-buyout and that this could come at the cost of other functional areas. Sales and IT were two areas highlighted in our research where there are often functional weaknesses that don’t get addressed following the investment.

Specifically, 53% of respondents to our research survey highlighted sales as a functional weakness at buyout but only 34% of board hires post-buyout were into a sales function.

Apart from private equity’s natural affinity with finance there were more reasons pointed out by our guests about why there seems to be some hesitation towards hiring new executives in sales: 

  • Guests felt that a change in the Sales Director is a risky move that does not necessarily guarantee the situation will improve, raising the question “Is it better the devil you know, than the devil you don’t?”
  • There are associated risks with customer relationships when replacing a Sales Director.
  • Sales Directors are very good at presenting themselves and promoting their strongest attributes making it difficult for CEOs to qualify and compare their skill set.

Similarly 31% of respondents highlighted IT as a functional weakness yet IT accounted for only 5% of all board hires post-buyout.

This low percentage of addressing IT weaknesses at the board level was justified by our guests based on:

  • The evolving nature of the technology director. Today’s IT directors need to have commercial and interpersonal skills in addition to the technical skill set. There is a high requirement for a Commercial CIO/CTO who understands the broader business picture and how to use technology to drive business. Finding a person with a combination of these skills is challenging.         
  • High risks associated with IT investment. The cost of IT projects is very high and the success levels of such projects is generally low, making CEOs more sceptical towards technology investments.
  • Uncertainty surrounding technology. Technology can be an unfamiliar area for many CEOs that are not necessarily very tech-savvy, especially in sectors where the core product is not technological/digital. 

For more information, download our research paper “Getting ahead of plan”.