Business Insight Zone

This short item from Deal Journal offers a nice insight to the CEO hiring process for private equity firms — and what that may mean for the private-equity veteran, Alberto Cribiore, who is running Merrill Lynch until a permanent successor can be recruited. The interviewee (JG = Jonathan Goldstein) is a founder of an executive headhunting outfit that helps private equity shops find CEOs for the businesses they run.

PE’s Hiring Advice for Merrill: Avoid the Chronically Unlucky

DJ: How do PE fund managers differ from other people looking to hire top executives?
JG: I think that maybe the most important thing a PE investor is looking for is that the operating manager – the CEO to be – appreciates the time frame that a PE firm works in — the need to move quickly and produce results. It’s a different time frame and a different mentality than CEOs of firms are typically used to.

This reminds me of a great article from the August issue of Bloomberg Markets: “The KKR Way.” [Note: PDF link.] The article talks about how KKR (a.k.a. Kohlberg Kravis Roberts) tackles management issues within the companies it buys. While the process is sophisticated, it’s hardly delicate: KKR hires hard-nosed executives with track records of serious operational success, it makes sure they have “skin in the game” (i.e. their own wealth is invested in the companies they run), and then it keeps very, very close tabs on how they improve performance.

And those improvements had better come quickly. The article quotes Michael Chu, a former KKR limited partner who went on to found his own private equity firm:

You don’t have the luxury of managing issues at the margin. If the market changes, you change the strategy. If the CEO doesn’t work out a year into the deal, you never shy away from the tough questions. You change the CEO.

The result is a relentless focus on operational excellence rather than any form of corporate window-dressing. Contrast this to the long, slow mediocrity that is the tenure of the average CEO.

I’ll say it again: being a CEO requires a special combination of skills that is not very common . . . but not that rare, either. You don’t churn through people in the top spot if you can help it, but you don’t avoid change when it’s necessary, either.

Addendum: Another Deal Journal post (about my favorite whipping boy, Chuck Prince) points toward the Management Turnover as Change Agent blog, which seems to have nothing but posts on CEO turnover. From a quick skim, looks like good stuff.

Category: Executives, Management