Key Traits of a CEO: What do Investors look for?

Glasses, laptop and notebook

The CEO is often a selling point for investors when looking for new companies to support, but what is it exactly that they are looking for in a CEO?

2020 has brought many challenges from a social and economic point of view, however if we focus on the positives, it has also brought great innovations, inspired different ways of thinking, and challenged the norm. In fact, when discussing standout moments in leadership the default currently is to describe the leader themselves and how well they performed in the face of uncertainty and adversity e.g.  they were humble, they provided certainty in an uncertain environment, they were visible, they responded quickly etc. – rather than focusing on a tangible measure of success.

Leaders are more than the protectors of the bottom line, they are the guardians of a business’ future, and there are certainly specific abilities and qualities which set apart the ‘great’ from the ’developing’ leader. Whilst we do not want to undermine the vital importance of  a leader being able to demonstrate success in driving measurable elements like revenue and EBITDA growth, having a CEO with the right leadership traits or characteristics could prove more rewarding to an investor’s value creation.

At Livingston James we are in a privileged position to work closely with business leaders and investors, supporting with critical appointments and providing leadership counsel on decision making. We have experience in assessing PE-backed CEOs and are able to present a strategic point of view on what makes a successful CEO candidate.

We recently invested time speaking with a group of investors to gain further insight into what traits they deem important when looking to appoint a CEO.  The panel included Calum Cusiter of Souter Investments, Ian Buchan of Nevis Capital, Malcolm Kpedekpo of Panoramic Growth Equity, Andrew Shannon of Circularity Capital, and David Gammie of BGF.  Here we share their priorities when looking to recruit a PE CEO.

 

Set Expectations & Handle Setbacks

 Calum Cusiter of Souter Investments commented that “we at Souter are investors and not operators. What we need in a CEO is a leader who can bring constructive debate and understand the investor’s mindset.”

A leader’s ability to set and maintain standards for their employees and customers is second to none. Ian Buchan of Nevis Capital suggested a leader’s influence on a business is being “pervasive and often seeing through the standards that they set for themselves and others”.  It is vital that the leader goes out of their way to demonstrate the standard that is expected and then holds themselves and others accountable to applying and maintaining these levels.  Buchan shared that Nevis Capital find that “high and consistent standards will spread down through the whole organisation and, most importantly, deliver excellence for the customer.  However, if a leader is seen to tolerate even small drops in standard, it can have a devastating ripple effect upon culture and customer service levels”.

Malcolm Kpedekpo of Panoramic Growth Equity believes that a CEO should lead through his or her actions, to “set culture and example through actions and visibility, making sure the CEO is driving culture from the top”. In addition, the growth expected in PE backed companies will naturally bring challenges, risks, and setbacks. Kpedekpo went on to say, “a good PE CEO can handle those setbacks and has sufficient resilience to pick themselves up and continue to drive the business forward”. Andrew Shannon of Circularity Capital further commented on the importance of a professionals’ “loyalty and commitment” to the success of the business and ensuring aspirations are met regardless of the challenges faced along the way.

The way they do things is the most important factor a leader can bring to the table because it translates right through the organisation and gives everyone a reference point for behaviours or decision making.  The leader does not need to be involved in the day-to-day operation because everyone knows what is expected of them or the business.

The PE CEO will go on a journey, and the successful ones will be able to drown out the noise and set clear expectations which they hold themselves and the wider firm accountable for. Like all leadership roles, you need to lead by action and ensure you have the coping mechanisms to bounce back.

Strike the Balance Between Self Confidence & Self Awareness

A standout comment made by this group of Investors is that the CEO and Investor relationship is that of “partnership” – a two-way relationship which welcomes constructive challenge and offers support when difficult decisions need to be made.

To really take advantage of this partnership a CEO needs to strike the balance of self-confidence and self-awareness. A tricky balance to get right, however one easier managed when professionals are considerate and emotionally mature.

When speaking with Kpedekpo, he commented that “it is often a lonely job being a PE CEO and therefore, they are required to be self-confident and exhibit that confidence to stakeholders”. Calum Cusiter further supported this point, adding “there is this perceived notion that CEOs have all the answers, and actually, everyone is on a continuum”. The best leaders are self-aware and emotionally intelligent enough to know their areas of strength and weakness and are confident enough to accept this.  As a result, they recruit to help fill the gaps and are comfortable consulting with others with more or different experience, to better the business’ position.

David Gammie of BGF further drove this point, commenting that “leaders need to be open to influence and constructive challenge – not too headstrong” to allow for more listening and collaboration. Further enforcing the importance of partnership between the CEO and Investor.

 

Empower the People Around Them

Once CEOs set a course for their business, their ability to engage and empower other people is key to creating a fruitful company culture. When it comes to engaging those around them, individuals who can handle clashing viewpoints and get the best out of their teams tend to advance to the CEO post sooner. A professional’s ability to empower and lead high performing teams, say Shannon and Gammie, is deemed an incredibly important trait for any CEO to have.

The general consensus amongst these Investors is that they look for a CEO who is not just about the shareholder value. Whilst this is of course still important, they look for a CEO who is passionate about customers and employees, and someone who is close enough to know what is going on.

Gammie additionally suggested that a successful CEO is “comfortable with not being the sole leader”. Enabling others to do their jobs will allow for greater and more “collaborative decision making”. Cusiter equally has similar views further commenting that if you “surround yourself by people better than you” it allows for greater innovations and delivery of the plan set for the business.

Buchan suggests that leaders should also “take the time to know and understand their team – what motivates them, where their strengths and weaknesses are and what type of people they are.”  The CEO should be able to “flex their own style of management and communication to suit each individual in order to get the best from them”.

Set Vision and Communicate

We all know that the best leaders can articulate their vision and the culture of the business very clearly, simply and concisely. Gammie and Shannon stated that is fundamental to have a CEO who can “strike the right balance between delivery today and forward strategic thinking”. Buchan continued to say that “good communication is vital, and we find that the best leaders are open and genuine in their communication about successes and failures in the business.”  To further stress this point Buchan continued to say that he believes “storytelling” is a very underrated skill.  “Stories or analogies communicate a more memorable message both quickly and easily”.  This can be especially important at times of change – for example, when new owners come on board or where there is a change in strategy or approach.

To discuss leadership recruitment in private equity backed businesses contact [email protected]

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