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How to Structure the C-Suite of a Private Equity Portfolio Company

Private equity firms have significant investments in a wide variety of organizations. They often have multiple stakes in many companies they hold at once. Private equity firms typically try to grow their profits by improving the organization’s value before selling their business ownership to other stakeholders. 

The private equity organization’s ownership in a company typically allows it to have significant control over the company’s strategic direction for the future. Many private companies own a large portion of the company’s equity, allowing them to make decisions that impact the business in the short- and long-term.

One major decision a controlling private equity company must make concerns the executive leadership team. The private equity company will want to choose leaders who understand their vision for the company and can strategically implement it. While the leaders in the C-suite can vary, most organizations have a CEO, CFO, and COO.

The CEO: The Face of the Organization

The CEO is the face of the business. They are the one in charge of developing and implementing long-term goals. The CEO monitors each division to ensure everyone aligns with the company’s objectives.

Usually, the CEO creates a vision for the future. They may be the organization’s founder and typically have deep insight into the products and services of the company. They understand how the gears work and seek to keep them moving in the right direction.

However, the CEO’s role changes when a private equity firm controls the company. Investors become major business decision-makers when a private equity business buys a controlling stake in an organization. Instead of the CEO creating a vision on their own, the private equity firm may establish future objectives and put the CEO in charge of making them happen.

In some cases, the private equity firm may ask the original CEO to step down and replace them with someone they feel more comfortable working with. The new CEO must understand their objectives and feel confident in achieving them. 

A private equity organization that wants to hire a new CEO should look for the following:

  • Someone who understands their goals for the organization
  • A track record of joining existing companies and making successful changes
  • Willingness to collaborate with the private equity firm
  • Strategic leadership and communication abilities
  • Ability to encourage others to work toward new goals

Sometimes, private equity organizations know of CEOs they have previously worked with. They may move these individuals from one organization in their portfolio to another, especially if these CEOs have a solid history of success.

The CFO: Ruler of the Numbers

The CFO is responsible for overseeing the finance and accounting departments. They’ll ensure that results are carefully monitored and establish procedures for forecasting and budgeting. 

A private equity firm seeking to hire a new CFO will look for someone who can align with their vision and work within a set budget. The CFO will play a critical role in ensuring that the company spends its money effectively and that customers continue to pay promptly for products and services.

Sometimes, a private equity firm notes significant shortfalls in the finance department that a CFO can improve. For instance, if there is a history of customers not fulfilling their payment obligations, the private equity firm may push the CFO to make changes to the collection process.

The CFO can also seek to reduce unnecessary expenditures, improve cash flow, and collaborate with other departments to enhance processes. For example, they may cooperate with the sales division to develop more favorable customer contracts. Or they may work with the technology department to streamline procedures with optimal software. 

Like the CEO, the CFO of a company controlled by a private equity firm should understand the firm’s priorities and be able to implement them within the organization. When hiring a CFO, critical attributes to look for include:

  • A solid understanding of both accounting and finance best practices
  • Ability to lead large groups of employees
  • Robust communication skills
  • History of driving significant changes in other organizations
  • Capability to manage large-scale improvements in a short time

Of course, the CFO must be able to collaborate with everyone in the C-suite, including the CEO and COO. Any changes they implement must align with the private equity organization’s future goals. Regular communication with the C-suite team, managers of the company, and the private equity firm is mandatory.

The COO: The Manager of Organizational Activities

A CEO usually has a multitude of responsibilities. Sometimes, they may not be able to handle communication with outside agencies and the private equity firm while also managing the company’s daily affairs. If this is the case, a COO can help.

The COO acts as a second-in-command to the CEO. They handle the internal everyday workings of the company, ensuring everyone is acting per the organization’s goals. They usually oversee multiple departments, including operations and production. In some cases, they may help with sales and marketing.

The COO guarantees that the individuals involved in significant projects progress toward their objectives. They will consistently monitor results and suggest critical changes if a specific strategy does not appear to be working.

Private equity firms seeking to fill a COO role for a portfolio company should look for an individual who:

  • Has prior experience in the market sector or industry
  • Can continually monitor and drive results
  • Understands the vision of the private equity firm and other C-suite executives
  • Communicates effectively with other key individuals in the organization

Ideally, the COO will be the first to suggest strategy changes if current results don’t align with future objectives.

Filling Critical Roles

The CEO, CFO, and COO are critical functions of any organization. However, when a private equity firm takes control of a company, it will need to ensure its C-suite executives can fulfill the firm’s visions for the organization. 

Hiring the right people is essential for a private equity firm. If the firm doesn’t select the right executives who can interpret their perspective, they risk losing control of critical business decisions. 

Contributed by Cowen Partners Executive Search

Cowen Partners is the nation’s executive search firm, enabling companies to harness the power of human capital to fuel their success. Cowen Partners gives our clients access to the top 1% of human capital to create opportunities that accelerate their growth and market share. With Cowen Partners, clients can grow at scale, create value, and drive results with world class talent. Our clients are both small and large, publicly traded, pre-IPO, private, and non-profit organizations. Clients are typically $50 million to multi-billion dollar revenue Fortune 1000 companies or have assets between $500 million to $15 billion. Successful placements span the entire C-Suite and include VP and director level leadership roles. With our proven processes and guaranteed results, we have successfully placed hundreds of candidates in industries including technology, healthcare, manufacturing, retail, financial services, and private equity.

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