What it Takes to Become a PE-backed Chair

Following our recent article regarding the desired attributes in a successful CEO of private equity backed business, we now turn our attention to the role of the Chair.

Whilst the role of a private equity Chair has long been seen as desirable, the investor and management expectations, as well as the requirements and profile of candidates, are quickly evolving compared to only a few years ago.

Livingston James spoke with a number of Chairs, ranging from first time appointees to the more experienced, to gain further insight to the role’s nuances, and more importantly, what tips they could share with the aspirant Chair community.

Our panel included Tim Lacey – serial PE NXD and Chairman of Spaceright Group, Tony Lochery – former Chairman of Apc Technology Group PLC, Brand-rex Limited and Board member of Kwik-Fit, and Ian Hamilton, serial PE NXD, holding current chairmanships with Biotangents Ltd, Horizon Proteins Ltd, and Vytelle.

 

Setting the Scene

The Challenge of Gaining PE Exposure

There is a real reluctance by Investors to appoint an ‘unproven’ Chair to a portfolio business which unfortunately, has resulted in an exclusive group of experienced Chairs that the next generation find hard to break into. Additionally, a point made by Lochery, there is no formal qualification which certifies a person as a qualified Chairman, which could act as a tool to reassure Investors. This barrier to entry and lack of emerging talent is and will continue to result in acting private equity Chairs maxing out their capacity and spreading themselves too thinly.  This point is further supported by Hamilton, who suggested that investors and management teams’ expectations are quite rightly increasing with regards to engagement and time commitment, particularly when operating in a crisis. He commented that he would now only take on three engagements at any one time to ensure for maximum input.

 

What really makes for a successful Chair?

A Chairs’ impact on a business is his or her ability to positively influence its executive team, giving clear direction and setting of corporate goals and milestones. The biggest development area most Chairs face when firstly appointed is shifting from being the operator/final decision maker, to that of advisor. Hamilton highlighted that as Chair you are no longer in the driving seat and must find other ways to ensure your knowledge and value-add is listened to. To impact the business, a Chair needs to nurture and charge their ‘power’ through their people. Lacey continues to drive this point home by suggesting that bringing out opinion and insights from every corner of the Boardroom is of vital importance, a skill which will always need developing. The Chair must facilitate and set the tone for a collaborative Board culture where all voices are valued and heard. Lochery also suggests that rapport will be the key ingredient in success, and that establishing trust with your CEO is beyond crucial. The prime role as Chair, it would seem, is to navigate the value creation process and leave the CEO to navigate his or her business. Many private equity firms are beginning to recognise that what they define as ‘PE experience’ is not just having experience with homogenous investors, but rather extends to having a certain mindset and behavioural traits that they deem to be essential to operating successfully in these ownership structures.

The head-hunter’s opinion.

Appointing the correct Chair comes down to getting the right complementary skill set and experiences, taking into consideration the wider executive team, the investor, and other board members. Regardless of the landscape the business needs to be equipped with the correct balance of functional, situational, and domain experience to achieve all that it can within the defined investment horizon. But perhaps more importantly, what is keeping everything together is the cultural and behavioural alignment which can make for an exciting and impactful team if successfully executed and embedded within the organisation.

 

Make it Happen

Our expert panel, and the head-hunters at Livingston James share the top tips to secure a PE-backed Chair position.

Be Networked

Be focused on establishing relationships early on and gain exposure to experienced PE Chairs. Lochery placed huge value in his early year relationships with selected mentors. He proactively approached Investors to gain exposure to their Chairs, requested meetings and set a clear and structured agenda ensuring professionals time was best utilised.

From the perspective of a newly appointed PE Chair, Lacey stressed the importance of establishing credibility in the eyes of the Investors. “Investors like to add to their portfolio businesses people who have previously succeeded in a PE-backed business, so, if you still have the time for an executive career, secure a C-level role within a PE portfolio business so that you can build relationships around the boardroom table”. Beyond this, ensure you are adding value in other ways, “offer to provide insight or market diligence on investment opportunities they (investors) are considering”.

 

A key theme that shone through the panel when discussing how you position yourself (the Chair) to the market was that there is no ambiguity. Say what you want and ensure you have a robust follow up plan to ensure you are kept on Investors’ radars.

Be Defined

All panel participants placed great importance on a professional’s ability to clearly define their world and what they really want.  When marketing yourself to the Investor community it is crucial to approach with sheer determination and a willingness to succeed. Categories in which to consider when trying to define yourself – market focus, personal value add, sector specific or agnostic, size of PE deal, behavioural traits etc.

Lacey suggested that having defined your expertise as a NED or from an advisory capacity to owner managers, especially those who are considering a PE exit/ investment, will help you with the transition from executive to NXD and help define where you can add value to CEOs/ founders.

Lochery put it simply, “the Chair’s responsibility is to lead the Board, and it is the CEO’s responsibility to lead the business”. To be able to define who you are as a Chair, whether aspirant or experienced, you need to fully understand the role the Chair plays and be confident in how you define your abilities as a leader, leading through the values in which are important to you. As Lochery puts it, “demonstrate the human nature”.

Be Diligent

PE Chairs will have been involved in a range of businesses and gained exposure to a variety of business plans. More importantly, they will also have been exposed to some “successes and complete disasters”, as Hamilton comments. How a PE business reacts after 6 – 9 months of initial investment, where the Board have gleaned proper knowledge of the business as opposed to data provided by the extensive due diligence report, is crucial to everyone involved. This newly found data can result in “pressure and accelerated call to action which could include a knee jerk change to ideas, quick switch or slow removal for leadership and for a political Boardroom” says Hamilton.

Therefore, it is vitally important that proper diligence is placed when considering appointments within PE, particularly those of Chair. In unity, the advice given from our panel is to treat the recruitment process of a Chair role with the same diligence applied when completing an acquisition. Understand the market and business’s proposition, get an insight into the executive team, employee and customer engagement and most importantly, challenge the value proposition, current and future.

Our panel all agreed that it is important to meet the current non-exec team and really challenge what is required to deliver success and to get their insight into the CEO/Shareholder balance and respect.

An important closing comment from Hamilton, and one that stands out from the perspective of a head-hunter and the impact the professional will have on the business, is “do not take on the role unless you feel confident you can add value. The ego likes to be asked but longevity is based on delivery and performance”.

Be Brave

It is a challenging shift from Executive to Chair, and a role that can be pretty exposing and isolating. A common theme shared by our panel was the importance of honest and humility. It could be argued that the real role of a Chair is to stop conflict. Your role is no longer focused on the operational pressures of a business, it is now focused on changing perceptions and people’s thoughts.  A big ask which requires a certain level of confidence and emotional intelligence.

“You must be brave” says Hamilton, it can be a tough role to take on but, it is important not to hide away from the tough and difficult decisions. To help with this the panel suggested welcoming diversity in Board make up so that you capture new innovations, ensure for balance across the NED and to ensure for a broad sounding board to improve scrutiny decision making and perspective. Hamilton rounded this section off nicely, “ you are a collector of talented people” to ensure business success is met.

Be Independent

One of the key requirements of a Chair is to ensure governance is applied across the piece. The Chair must be able to apply sound judgement and be able to balance the differing share/stakeholders’ opinions as complexities increase and environments change. The Chair must be their own person and not take too much direction from significant shareholders/big characters that are at play in most, if not all, PE backed businesses, suggest all.

The panel was in agreement that mitigating conflict and having a clear plan to circumnavigate conflict is an essential skill required of a successful Chair. Your role is to be independent and not to take sides but, to simply find resolution. It is vital the Chairman drives all stakeholders to work together which, can only be done if the Chair is willing to commit time and due attention to the people within the business. To “breakdown the reality” as Hamilton puts it. You need to be accessible and engaged with the people in the organisation, not just at Board level, to be able to get the guts of the business/peoples’ real objectives.

Lacey raised an interesting challenge, which placed greater emphasis on the importance of relationship between Chair and CEO, in that often the Chair can be perceived to be the Investor’s appointment. He continues to say it is vitally important to understand and be empathetic to the perspectives of both CEO and PE investors and equally, the complexity of relationship and individual agendas. Lochery added to this point by saying that 50% of the time you (the Chair) will exit a business with a different CEO that you started with. Placing significant importance of a Chairs’ ability to remain objective.

It is clear from our expert panel that the role of PE-backed chair is nuanced and complex, but incredibly rewarding when done right.  It is also clear that there is a need for more Chairs to join the ranks of those already out there.

For a confidential discussion on the topics raised above, please contact [email protected]

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