Insights On Portfolio Company Talent
April 15, 2022 – PE firms are increasingly aware of the critical role that leadership teams play in the performance of their portfolio companies. Moreover, the connections that come with these roles mean these individuals can be of wider value to the PE firm itself, aiding recruitment, due diligence efforts and facilitating business development, according to BoardEx.
PE firms are increasingly aware of the critical role that leadership teams play in the performance of their portfolio companies. Moreover, BoardEx says that the connections that come with these roles mean these individuals can be of wider value to the PE firm itself, aiding recruitment, due diligence efforts and facilitating business development. In a highly competitive market, firms that are able to manage, acquire and make the most of this talent stand to benefit considerably. PE firms are increasingly aware of the critical role that leadership teams – from the CEO and CFO to the board members and other executives – play in their portfolio companies. A recent Bain & Company report, based in part on a survey of PE professionals, found that the quality of portfolio company management is the reason most cited for deal success and the second most-cited reason for deal failure. In addition, more than 90 percent of respondents said that waiting too long to take action on talent issues had resulted in portfolio company underperformance in the past five years. Certainly, having the wrong leadership, particularly the CEO, can come with a heavy price.
BoardEx’s Insights on Portfolio Company Talent 2022 offers unique insight into the characteristics of the CEOs and CFOs who lead these companies, making it an essential read for firms looking to make the most of their talent management and acquisition strategies.
Critical Role That Leadership Teams Play
PE firms are increasingly aware of the critical role that leadership teams play in the performance of their portfolio companies. These team members also have valuable connections that bring wider value to the PE firm in terms of recruitment, due diligence and business development. Firms that are able to manage, acquire and make the most of this talent stand to benefit significantly.
More than two-thirds of current us portfolio company CEOs and CFOs were appointed externally. Some 71 percent of the CEOs and 75 percent of the CFOs were hired externally by the U.S. portfolio companies that are fully or partially owned by U.S. PE firms in the PEI 300. PE firms often replace – sometimes immediately – the CEOs and CFOs of the companies they acquire.
Upon assuming the role, the average CEO or CFO of a company owned by a PE firm had more than 20 years of professional experience. Today’s portfolio company leaders bring a wealth of experience to their roles. They also tend to have had some prior portfolio company experience, given the specific skills needed to drive company performance and, ultimately, achieve a successful exit.
Women Leaders Lacking
Just 7.5 percent of U.S. portfolio company CEOs are women, slightly higher than among businesses in The S&P 500. Among CFOs of PE-owned firms, women account for 14 percent of the total. Despite this scarcity, the low female representation among portfolio companies is not an outlier when seen against businesses in both the S&P 500 and the S&P SmallCap 600 Index.
Harvard University and the University of Pennsylvania have the highest proportion of alumni among current CEOs and CFOs. Harvard University leads among CEOs of U.S. portfolio companies, at 9.4 percent, while the University of Pennsylvania tops the CFO list, accounting for 6.8 percent. Northwestern University also appears among the top five for both roles. Four out of eight Ivy League schools are in the top 10.
Mckinsey & Company and leading tech firms account for the highest proportion of CEOs in their alumni. McKinsey & Company ranks first, having employed 3.5 percent of today’s U.S. PEI 300-owned portfolio company CEOs, while almost three percent have worked for IBM, and slightly fewer for Alphabet, Microsoft, and Cisco Systems. Among CFOs, global professional-services companies such as PwC (9.8 percent), EY (8.2 percent) and KPMG (6.2 percent) are highly represented.
This report is based on analysis of BoardEx’s proprietary global leadership database, covering board and non-board members, C-suite executives, senior leaders and professional advisers. The database contains more than 2 million profiles of public, private and not-for-profit organizations and the 1.5 million people who work for them. Approximately 33 percent of individuals are currently serving on boards of companies, and 38 percent are either board members or C-suite executives.