Integré Partners Press
A study just released by Integré Partners reveals that
private equity and venture capital firms have squandered billions of dollars
over the last several decades
through inconsistent hiring at the CEO level. The study, distributed to 11,000
Managing Director level practitioners was revealing in a variety of ways,
according to Ralph Dieckmann, Managing Director at Integré
Partners, who conducted the study.
"The survey revealed that, although
65 percent of investors were generally satisfied with their CEO
selections, 27 percent of the respondents
said their ability to hire outstanding executives was either inconsistent or
unsatisfactory, while only eight percent rated themselves as consistently high
in their ability to hire the right people.
This may well be a function of
over reliance on their own networking and assessment abilities and a converse
under utilization of available professional evaluation skills," according to
Acting as a member of a board of
directors, a surprising eighty-one
percent of the respondents had been involved in a flawed CEO selection, with 35 percent estimating the recruiting,
relocation, severance, turnover and lost opportunity costs to their investors
had exceeded $5 million in a single
incident. That extrapolates
to an astounding $16 billion in attributable investor losses over the course of
the careers of the estimated 15,000 senior private equity and venture capital
professionals in the US and
When hiring at the CEO level, senior private equity professionals turn to
search firms in 53 percent of the cases (29 percent use the largest
ten firms, 25 percent use smaller ones) while they network to the
eventual hire 42 percent of the time.
The majority networked first,
however, spending up to two
months looking on their own before
turning the process over to a search firm.
Only four percent of the respondents said they consistently use consulting psychologists or
other professional assessment services; 36 percent have never used them. "This is problematic because investors are rarely trained in
executive assessment themselves, yet the survey clearly shows that
leadership accounts for the success or failure of a deal to a greater extent
than market positioning, operational excellence, or proprietary technology."
according to Dieckmann. Leadership
rated as the most important factor
in 40 percent of successful ventures
and the most important factor in 45 percent
of reported business failures.
"Hiring senior executives is always a
challenge and the bottom line here,"
says Dieckmann, "is that senior
private equity professionals need to re-evaluate the rigor of their
selection techniques and resist emotional and poorly researched hiring
decisions. In addition, managing directors and limited partners in
funds should be enhancing due diligence on the board hiring processes in their investee
companies. Working with experts in
executive search and selection can help reduce or eliminate unrealized business
in an environment of escalating multiples, results will be more difficult to
attain and the importance of sound leadership will multiply,
For more information on the survey,visit: Tabular
Results to see the tabular results.