How private equity can capture the upside in a downturn

While lockdowns paralyse the world, the impact on the private equity sector is significant, both for PE firms themselves and for the portfolio companies they support.

Different influences on the portfolio companies call for quick and tailored answers: Weak companies had an immediate focus on cost reduction, while growth companies needed to remove growth bottlenecks as quickly as possible (e.g. in the supply chain and digitisation). As a result, change agendas have accelerated and it is becoming increasingly complex to manage multiple programs simultaneously in a more open and fragmented ecosystem. To tackle this, PE companies strengthen themselves by hiring former strategy consultants and / or operations directors. Portfolio companies have experienced a rise in PMO positions. But this in on the operational side; what does it mean for leadership?

So, what about the leadership capabilities of the portfolio companies?

The recent crisis has arisen completely unexpectedly. It is a crisis that has disrupted virtually all industries and presented unprecedented challenges for executives and teams. A crisis is often seen as the ultimate management challenge and a real character test, so what have we learned from it about the leadership qualities that have been most useful in recent times and what does that mean for future leadership in private equity?

In our ongoing assessment of top-level executives in the industry, we always look for generic qualities that we know should be present in any successful leader. This includes visionary, people-oriented, resilient, curious, communicative and inclusive. The recent crisis has forced us to re-prioritise this list and upgrade certain character traits.

A measure of confidence in leadership

Odgers Berndtson, in collaboration with Harvard Business Review Analytic Services, recently conducted a global study to examine the nature of leadership in a world of accelerated change.

We asked nearly 2,000 senior managers and executives at companies of all sizes around the world how confident they were that their company's leadership team can successfully navigate a world of ever-accelerating change.

The survey found that only 15% believe their executive team would thrive when faced with large-scale change.

Importantly, however, The Odgers Berndtson Leadership Confidence Index also identifies how specific leaders deal with change and the qualities and attributes that companies most need to succeed in turbulent times.

To compete, organizations need to find ways to encourage and learn from risk taking. If success goes hand in hand with continuous innovation and adaptation of business models in the face of disruption, there must also be a tolerance for failure and an openness to making innovative decisions. Strategic thinking, resilience and adaptability score the most in our study, compared to more conventional skills such as digital insight, analytical skills and the capacity for operational transformation.

Today's leaders are judged against a much broader range of values and thinking, in addition to skills. The most successful leaders now score high for their curiosity, courage, and emotional intelligence - personality traits that typically were judged less important a decade ago. In the face of the disruption, it is more important to understand the mindset and assess the potential to thrive in new and different contexts.

Follow up webinars

In follow-up webinars with guest speakers, three leadership themes in line with the above mentioned seemed to stand out, that could turn an organization into a more future-proof one: agility, vulnerability, and security.

In one of the follow-up webinars, a participant put it nicely: “The concept of leaders as 'responsible facilitators' is one that really appeals to me. I agree with the idea of a "fixed / established" vision, mission, purpose and values that are combined with a flexible way to use (limited) resources, to seize opportunities and to respond to external factors. In simple terms, a management team can get more things done this way, and faster.”

There is still a lot of machismo among management in the private equity industry, but the effective and authentic expression of empathy is gaining ground as leadership behaviour.

To gain more insight, we will discuss the above with PE companies and with CEOs and CFOs of portfolio companies. We are curious about their perspective and will share more insights on this with you this coming year.

In the meantime

How can companies and the industry reformulate themselves post-Covid? Has the pandemic made a moral compass an essential leadership tool?

Here are a few things leaders should consider:

• Make new-found agility a good habit
• Maintain positive behavioural changes and create eagerness for change when the crisis urge diminishes
  • Do not underestimate the strong desire and necessity for purpose
  • Utilize this momentum to create an ecosystem to improve flexibility and leverage expertise

Get in touch

Pieter Ebeling is a senior partner and heads the Private Equity practice at Odgers Berndtson, Netherlands. He also runs the Consumer Practice. Pieter specialises in maximizing the transformational agenda through executive search and leadership advice. His team recruits directors, senior executive, C-level and non-executive directors.