What Public Companies and Private Equity Can Learn from Each Other

January 27, 2025 – The factors contributing to a CEO’s success can differ significantly between private equity-owned companies and publicly traded companies. CEOs who have led in both public and PE-backed environments tell Spencer Stuart in a new report that private equity is more focused on fast value creation and a successful exit, which often stands in sharp contrast to public companies, where navigating board dynamics, public shareholders and quarterly guidance is often seen as key to success when managing perception over longer durations.
“However, considering today’s market realities, it’s not surprising that companies are looking past these differences, with private equity portfolio companies increasingly tapping public company talent pools to find new leaders — and vice versa,” the Spencer Stuart report said. There are close to 23,000 private equity portfolio companies in the United States today, and according to a report by the National Bureau of Economic Research, 71 percent of portfolio companies install a new CEO at the time of purchase.
“Meanwhile, the overall pool of CEO candidates is shrinking, as the Baby Boomer generation retires, and as new, lucrative non-CEO opportunities open up for experienced candidates, including board positions and PE operating partner positions,” the Spencer Stuart report explained. “All told, a shrinking talent pool under increasing demand creates an environment where companies don’t have the luxury of restricting their options.”
However, as Spencer Stuart has learned in the firm’s work on hundreds of CEO searches and succession plans annually for both PE-backed and public companies, there is plenty companies can do to find and evaluate candidates who can thrive even without explicit experience in one environment or another. Spencer Stuart’s research has shown how past playbooks are less useful when facing novel, unforeseen challenges. “Recognizing the differences in how to succeed in private and public settings, companies in both environments can better understand how to find leaders with the capacity to adapt and succeed,” the firm said.
How PE and Public Companies Differ: “Sprint vs. Marathon.”
There’s no doubt that the CEO experience and how success is defined differ between PE and public, according to the Spencer Stuart report. “Private equity firms are famously devoted to value creation and to a profitable exit over (most commonly) a five-year duration, whether by IPO, sale to a public buyer or sale to another private equity sponsor,” it said. “Further, the very nature of the private equity ownership model means that PE firms are quite literally invested in their company’s success, and as a result generally much more involved in strategy and operations than a public board would be.”
Meanwhile, the Spencer Stuart report notes that public company CEOs in general must face a greater deal of short-term scrutiny than their private equity counterparts. “Quarterly statements are typically the primary focus, with boards and public shareholders demanding immediate results balanced with a long-term vision for holding their investments for longer durations,” the study said. “Public company CEOs find more of their time consumed with managing board director and investor relationships, and often note their operational leadership is delegated more to other C-suite leaders.”
Related: A Look at Key Trends in Executive Recruiting for Private Equity-Backed Companies
Spencer Stuart’s conversations for this article, along with the firm’s experience as leadership advisers to both private equity–sponsored and publicly owned companies, demonstrate how each model could learn lessons from the other. Following is a look at some of these lessons.
What Public Companies Can Learn From PE.
Private equity firms are known for their laser-like focus on making moves that add value to the company in the context of the exit, whether by sale or public offering and on making that impact within a certain predetermined timeframe. This allows private equity to operate in near-to-medium-term timetables without worrying as much about quarterly setbacks. Public companies can lack that same focus on value, especially as they face pressure from boards and investors to meet quarterly results and address issues that may not directly impact the bottom line or may shift focus to more distant future trends. Public boards should find ways to help management teams spend more time in the business and to defend management teams when quarterly setbacks are needed to drive longer-term objectives.
Avoid “Short-Termism” that Comes From Quarterly Results.
As noted, PE firms are generally less beholden to short-term metrics, and in particular quarterly results, compared with public companies. “My first impression in private equity was, ‘Wow, the higher focus you can have on things that don’t pay off in one quarter, and the greater ability you have to invest in transformation.’” In a privately owned company, one former CEO told Spencer Stuart, “you have the permission to take a longer approach to value creation, and more air cover to sequence your choices.” In public companies, boards and investors often make that hard for CEOs to do, according to the study.
Opportunities and Challenges in Private Equity Recruiting
Private equity firms are saying that talent is the most important factor in driving growth. While financial engineering, inorganic growth, and market expansion remain important tools in the private equity toolbox, talent continues to emerge as key to growing companies and achieving the investment thesis, according to a report from Bespoke Partners. Yet unlike strategic assets, intellectual property, or other resources that fuel growth, talent can be notoriously difficult to optimize. In fact, the biggest challenge for the PE sector is getting talent right, according to Nat Schiffer, managing partner at The Christopher Group. “PE firms often compete with other financial services firms, technology companies, start-ups, and other industries for the limited pool of qualified talent with the necessary skill-sets and experience for the PE industry,” he said. “The intense competition for top talent can make it challenging to attract and retain qualified candidates who may have multiple options.”
“Day-to-day investor management and addressing board concerns are often the top priorities for public company CEOs,” the Spencer Stuart report said. “While these are important elements, public company CEOs spend much of their time managing issues that leave them with less time to personally impact operating performance. In some cases, this can create a big skill gap between what’s needed in a public company CEO versus a PE company, with setting direction and influencing skills being more critical than actually doing (or the other way around).”
Compensate Based on Results.
While CEOs in both contexts have performance hurdles and compensation tied to results, PE-backed CEOs in general operate with more extremes. “This means that the CEO could earn far less if performance goals are not achieved, but may also earn much greater compensation comparatively when goals are met,” the Spencer Stuart report said. “While some claim this dynamic creates greater risk appetite or requires a greater comfort with risk-taking behaviors, others claim this alignment creates maniacal focus and 24/7 work ethic from PE-backed executives.”
What PE Can Learn From Public Companies.
PE firms are often active participants in their portfolio companies’ operations. On one hand, this gives CEOs a much more active and invested partner in decision making. On the other hand, this relationship increases the risk that the CEO is being micromanaged, the Spencer Stuart report explains. “What I missed the most in private equity is extra space from the board,” one CEO told the firm. “Decisions that make an impact are at a higher level in public markets. It allows you to think at a higher level, and the board advises and supports you on this.”
Related: How Talent is Driving Private Equity Success
In particular, the way that privately owned companies are set up, with invested parties serving as the primary advisers, often leads to situations where leaders could find value in having more independent and diverse opinions on strategy and execution, the Spencer Stuart report notes. “Indeed, private companies often lack the wide range of capabilities that most large public company boards have,” the study said. “While a public board with less skin in the game than the PE owners brings its own challenges, many of the leaders we spoke with said they valued the opportunity to have people they can tap for unbiased, outside-in insights on a variety of issues.”
Maintain a Steady Pace.
The streamlined PE timeline and consolidated stakeholder base are often called out for their positive attributes. But many of the CEOs Spencer Stuart spoke with pointed out that the typical PE ownership structures can create their own stressors in certain situations. For example, the pace of change and 24/7 focus from PE sponsors can leave CEOs burned out. It is increasingly common for a PE firm to cycle through more than one CEO over the duration of its holding period. “The relentless focus on increasing value quickly can also limit CEOs’ options for growth, especially if value cannot be proven in a short period,” the search firm said. “And, exit strategy timelines that rarely extend beyond seven years can in fact deter longer-term thinking compared to public counterparts.”
The world of public companies, on the other hand, is steadier and more predictable. “It’s driven by disclosure, analysts, and no sudden moves,” one CEO told Spencer Stuart. “Overall, the trajectory over a five-year period is somewhat predictable, which in turn informs behavior.” For privately owned companies, opening the door to more long-horizon thinking can give CEOs valuable breathing room for driving value in unexpected ways.
Test the Edges on Value-Adding Strategies
While immediate value creation and exit strategies receive the primary focus in private equity settings, they can come at the expense of strategies that can be beneficial but in a longer-term context, according to the Spencer Stuart report. For example, one CEO noted that PE owners may be less inclined to invest in learning and development opportunities that don’t link to immediate changes. This isn’t to say PE sponsors care less about L&D than public companies, but tradeoffs get made. The reverse can also be true if something lies central to the investment thesis. For example, the report explains that if sustainability initiatives will bring about a greater ROI during a hold period or increase the multiple of an investment on exit, one may swiftly find sustainability initiatives take priority over other crucial elements.
The leaders Spencer Stuart spoke with align with what they learned in their client work. “Great leaders can be successful in both the public and private models,” the Spencer Stuart report said. “For executives considering transitioning between the two environments, it’s important to be mindful of the differences, and to understand how and if you can adjust your management style to adapt. And for public boards and sponsors looking for CEOs, while familiarity with the ownership environment is helpful, it’s important to understand how to assess for whether a leader may be able to transition between the two, and if you may be able to coach for it. By understanding each environment and what matters in each, public and private companies can operate better to get the most from their leaders and drive value for all stakeholders.”
Related: The Market for Senior Roles Heating Up at Private Equity Firms
Contributed by Scott A. Scanlon, Editor-in-Chief and Dale M. Zupsansky, Executive Editor – Hunt Scanlon Media