Private equity’s requirement for great C-suite leadership is proving to be pandemic-proof.
Though platform origination has slowed amidst the Covid-19 outbreak, PE firms continue to pursue elite talent. While Falcon has delivered several high-impact placements in recent months, filling a PE-backed C-suite position in the age of social distancing presents unique challenges.
Hiring Without Handshakes Now a Reality
Covid-19 has either paused or greatly reduced sponsor reliance on face-to-face interviews during the hiring process. Many recent C-suite offers have been extended and accepted with the parties never meeting in person.
This once unthinkable practice reflects the growing urgency for exceptional portfolio company leadership.
With decision-makers striving to ensure no detail is overlooked, the average number of interviews required to reach an offer has increased.
“The move to virtual has intensified the process,” says Lindsay Guzowski, Partner at Falcon. “Every candidate who is coming through the process seems to be undergoing extra steps or engaging with additional interviewers.”
Certain sponsors have leveraged creative tactics to facilitate in-person interaction – one firm seeking a locally-sourced executive utilized carefully coordinated outdoor walks as de facto interviews.
While the viability of in-person meetings is slowly returning, PE professionals forced to redefine essential travel have been impressed with the efficacy of modern remote work technology.
We anticipate virtual tools will play a larger role in both talent acquisition andportfolio management post-Covid-19.
Uncertainty Condenses the Candidate Pool
Though top-tier executives continue to enter new deals, shutdowns and stay-at-home orders have impacted the overall pool of candidates.
Many sitting executives who believed they were close to an exit (and thus willing to explore their next position) prior to Covid-19 have been stuck in stasis due to the decline in deal flow, and more executives coping with pre-existing personal or family health issues have removed themselves from consideration.
Candidate location heavily influences attitude around the pandemic. Leaders in New York City are responding very differently than those in rural or midwestern states; the proximity to people who have suffered from Covid-19 has an exponential impact on the attitude of jobseekers and their willingnessto take risks.
Generally, the modern candidate will only put themselves and their family through the associated uncertainty of a potential career move if they are fully committed to the opportunity.
As Falcon partner Rob Huxtable notes, “the pandemic has intensified candidates’ initial assessment of the opportunity. Those committed to pursuing the role are moving boldly, while those who are hesitant are quickly opting out of consideration.”
Negotiations Reflect a New Normal
Once in process, prospective C-suites have sought greater clarity on organizational liquidity and resiliency of the investment thesis. Covid-19 has created forceful headwinds for all but a handful of portfolio companies.
In response to this uncertain future, candidates have prioritized relatively higher base salaries while exhibiting a slightly reduced focus on equity. While skin in the game remains an essential element of alignment, the inherent variability in many sponsor-provided equity models have decreased overall appetite for risk. Determining an appropriate option grant strike price is more critical than ever, as executives who do not conduct thorough diligence risk joining a deal with their equity already underwater.
Another marked shift is the increased emphasis on work flexibility: Falcon has witnessed greater candidate demand and increased sponsor tolerance around remote work.
Many roles that previously required constant on-site presence now carry greater optionality for virtual management, a trend we expect to continue beyond the eventual application of an effective vaccine. This newfound flexibility may lead the average age of PE-backed C-suites to skew younger as an increasing number of adaptable, tech-savvy candidates are tapped to run portfolio companies.
For positions that do require leaders to consistently be in-office, the radius of willing commuters has tightened.
Candidates with school-aged children have also had to become more flexible in their scheduling. As Guzowski notes, there are far “more calls in the evenings with people who have younger kids … there have been times we are coordinating our kids’ bedtimes to find time for a call.”
Despite the far-reaching impact of the virus, the qualities of a successful recruitment have remained largely unchanged.
Sponsors require highly adept C-suite talent to create value and boldly lead their investments through uncertainty. Savvy executives who diligence the role and step in with a plan to navigate near-term headwinds remain poised to achieve winning outcomes with substantial upside.
Falcon provides C-suite talent solutions for middle-market private equity firms across North America.