Filling C-level positions in private equity firms today requires a far more strategic approach. Whereas in the past, a recruiter would be tasked solely with the search, a search assignment in this environment has evolved into a more complex challenge: in addition to a precise search methodology, an objective selection through management audits and a tailored compensation system play a crucial role. This article explains how private equity firms can identify, retain, and align top executives for long-term value creation.
C-level executive recruitment has significantly changed in recent years: previously, professional competence and industry experience were central – today, it’s strategic adaptability, cultural fit, and transformation capabilities.
The search and selection of C-level executives remains the pinnacle of executive search. It requires a particularly careful approach, as these positions are usually the most critical for a company’s success. Especially when it comes to private equity firms, there is often a high sense of urgency. The goal is to quickly get a portfolio company on track by replacing selected C-level executives and preparing it for a successful exit within a defined timeframe. This requires a much broader approach along the entire HR value chain, extending beyond traditional executive search.
The key lies in combining an industry-focused executive search approach with state-of-the-art selection methods from management diagnostics and the latest insights into compensation and performance management.
This holistic approach ensures that we not only reach out to suitable top-level executives in a short period but also reliably select the best candidates and motivate them with the right compensation packages to unleash their full potential within the company.
C-Level Placement in Private Equity: Three Key Success Factors
Below, I would like to take a closer look at the three facets of this approach, enrich them with my own experience, and identify key success factors.
1. The Right Search Approach in Executive Search
A successful C-level placement in the private equity environment typically begins with a professional executive search approach. A clear job profile, which is based on a precise understanding of the specific requirements of the position, the company’s challenges and strategic goals, as well as the necessary soft skills and cultural fit, is essential. It is important that the consulting person knows the stakeholders involved in the process, understands the long-term strategic goals of the company, and selects the executive who can help shape them.
From this, the definition of the search field is derived. Based on experience, emphasis is often placed on superficial similarities, such as “The candidate should come from the direct competitive environment/know the industry and its specifics.” This is understandable and plausible. However, it often leads to missed opportunities. In many cases, it is more effective to think from the strategic challenges and consider in which other industries and target companies the executives can be found who have successfully mastered similar situations in the past.
The time factor is also crucial. Top candidates are highly sought after and can often choose from several offers. A clear, structured, and transparent selection process with quick feedback, flexibility from all parties, and without unnecessary delays from too many interview rounds helps to secure the most desirable candidates in the market.
2. Management Audit: Reliably Selecting the Best Candidates
A management audit is an important tool for reliably filtering the best candidates from the pool of interested candidates for a C-level position and prioritizing them for the next steps. A management audit is a standardized, usually half-day, selection process conducted by specially trained and experienced diagnosticians, providing insights into strengths, weaknesses, and development areas at both the individual and organizational levels. It typically consists of a mix of personality testing, strategy presentation, competency-based interview, strategic case study, and leadership simulation, rounded off with comprehensive feedback.
This allows for a highly valid prediction of which person will succeed in the target environment, highlights strengths and areas for development, and provides clues for possible coaching or talent development needs.
It offers significant added value for the selection process in several ways. Management audits minimize perception biases, such as when hiring managers unconsciously rate a person more favorably simply because they resemble them, by relying on standardized and scientifically grounded evaluation methods.
The resulting objective evaluation of a candidate’s abilities provides clarity in decision-making and a reliable prediction of how successful a candidate will be in a C-level role for a portfolio company. This allows private equity investors to select C-level managers with the best performance and the best ability to prepare companies for a successful exit. The costly risk of making a wrong choice is drastically reduced.
Compensation: A Strategic Lever for Sustainable Success
Compensation is the most complex factor because it cannot be isolated and applied solely to individual C-level executives you want to bring on board. Rather, the question arises whether the portfolio company uses a compensation model that is appropriate for the current situation and strategic challenges. In other words, does the applied compensation logic create motivational incentives and promote behaviors in top executives that are instrumental in achieving the strategic goals?
The answer to this question is complex and multifaceted, as the compensation model typically needs to meet a range of sometimes conflicting demands. It should be aligned with the company strategy, address the interests of investors, generate long-term growth orientation, foster entrepreneurship, cover multiple and multidimensional goals, retain key personnel in the company for the long term, and still follow a transparent, simple system with minimal administrative effort.
It’s a circular problem that cannot be solved universally but only for the specific case at hand. The effort is worthwhile, however, as well-designed compensation systems offer a variety of benefits. They ensure that top executives remain closely aligned with the company’s goals and values and focus on the right strategic priorities. They bind the best C-level executives to the company for the duration of the investment horizon and ensure they can unleash their full potential. Ultimately, well-structured compensation systems can ensure that management focuses on creating value to position the company for an exit.
Conclusion: A Holistic Approach for Sustainable Value Creation
Filling C-level positions in private equity portfolio companies requires a combination of a well-founded search strategy, objective selection methodology, and thoughtful compensation design. Only when these three factors align can executives be identified and retained who will successfully develop the company and position it for a profitable exit. A structured approach minimizes risks, increases the likelihood of success, and significantly contributes to the sustainable value creation of the company.
Alexander Mischner-Kuck
Kienbaum Director & Partner | Executive Search Practice Group Head MedTech / Life Sciences