By David Kinley, Bluenose & Company
I was recently talking to a private equity firm that had lost a number of portfolio executives, ranging from technical leaders to CEOs. The story was similar to what I’d been hearing elsewhere: Roughly 70 percent of the firms I’ve spoken with in the last few months are convinced they’ll be losing leaders this year.
Those fears are part of a larger trend. According to Deloitte, about 70% of C-suite executives were seriously considering leaving, as of June. But the biggest worry is CEOs. Even at high-potential companies, many are reporting fatigue, hinting that it might be time to take a break to regain their bearings. Among PE firms, it’s causing a sense of urgency and panic that I haven’t seen since the 2008 recession.
Weary of the gauntlet
It shouldn’t be surprising. CEOs just finished the gauntlet of covid and the Great Resignation. Now they’re facing the new hurdle of climbing interest rates and possible recession.
Though growth executives are accustomed to change, their skills lie in rallying the troops and charging to greater heights. They’re not especially comfortable with layoffs and cuts.
They’re also under scrutiny like never before. Today’s instantaneous communication means feeling pressure from all sides – not just from their own people, but from the market, competitors, analysts and social media.
All this is reaching a breaking point as 2023’s new plans and budgets have kicked off. It’s the season of big decisions, like asking for more funding. CEOs also need to keep their own people happy. CTOs, for example, are entirely dependent on money. Without it, they get frustrated very, very fast.
This can mean battling investors and the board. It can mean the timetable for becoming cash-flow positive just went from two years to tomorrow. Add it all together, and a time out can look awfully attractive.
The problem for equity firms: the replacement pool is disappearing before our eyes. Everyone’s searching for CEOs with a track record of success. But it’s the top people who can afford to parachute out. And they’re bailing in accelerating numbers.
Even the most respected firms are having trouble. Some are pausing diversity and inclusion recruiting initiatives, realizing they can’t be choosy. Throwing in yet another level of complexity: What new leader can jump in and deliver on the company’s plans with no notice? Who will feel comfortable driving those initiatives with no participation in their creation? The pool is small and starting from scratch can put companies behind peers in executing their businesses as economic conditions wobble.
Lessons from the strong
We’ve seen these cycles before. Generally the same firms emerge from them stronger than others. They’re successful because they value talent. They understand that cycles change. They know that now’s the time to be a supportive partner and prove one’s mettle. Because what you do today will have considerable weight in your performance tomorrow.
When entrepreneurs talk to PEs about investing, they’re looking for more than money. They want partners who are positive and patient, who won’t fire the CEO or withdraw their money at the first sign of trouble. Whatever path you choose, that reputation will stick for some time. And it will likely be a factor in winning or losing future deals.
The strongest firms explore what’s causing fatigue – and offer support to combat it. They’re giving CEOs better timelines and enabling them to replace top talent. Support teams are expanding. Boards are getting more involved. They’re making sure that CFOs are strong enough to help carry the load. That other execs can run operations, so the CEO needn’t wear so many hats.
It’s a wise investment. If the CEO leaves, it usually takes six months to find a new one. Can you afford to go that long without one?
If the situation is beyond repair, it’s time to get aggressive. Fatigue doesn’t mean that everyone is leaving – some are simply looking for fresher, greener pastures.
If you’ve been thinking of building your team, now is the time to show that you’re a hiring company. There’s a good chance you won’t have to pay or promise as much. These days, people are driven by more than money.
The idea is to be more proactive than ever about supporting management, detecting possible departures, and putting solid succession plans in place.
After all, private equity firms are under the same pressures as CEOs. They’re worried about the withdrawal of money and losing limited partners. The good ones have been through this before. They’ll commit to the losses that may come, knowing that in a year or two they’ll come out rosy again. As long as they don’t panic.
David Kinley is the CEO of Bluenose & Company, a recruiting firm in Toronto