A Second Total Investment Story
Investors asked us to assess the COO of a company they were planning to acquire who had said that he would leave the company if he were not promoted to CEO. Investors wanted to know of significant issues that they should be aware of with respect to his leadership and management skills. Could he establish himself as the CEO — a major strategist and the executive driving operational change and growth?
As we detail below, our assessment answered with a definitive “Yes!” Two years later, investors sold the business. They rated Wayne as an “Outstanding” CEO who beat his budget every single month they owned the Company. Investors attributed the success of the investment to two factors. The first was the economic cycle: “The wind was not just at our back; it was howling at our back!” The Company had excess capacity, had already paid for the asset it leased, and customers’ demand for the asset was greater than expected. Those issues coupled with Wayne’s leadership made the Company successful.
The following is what we reported to investors regarding Wayne’s strengths and weaknesses. Wayne is an example of not being able to rely on past performance to predict future leadership. He had never been CEO before.
Wayne is extremely intelligent. He is a logical, sequential, and quick thinker. He possesses the ability to think through alternative scenarios in a sophisticated way. He possesses the readiness to think flexibly in the face of contradictory evidence. As a complex thinker, Wayne is able creatively to bring disparate pieces into a meaningful whole. This synthesizing quality gives rise to a well-developed ability to see patterns, which, in turn, fuels the speed with which he makes decisions. He also has the maturity to live with the fact that he has made mistakes, and having made mistakes, he tries to learn from them.
Wayne also has social intelligence. He has insight into himself and is aware of what transpires around him. His readiness to perceive and integrate internal and external sources of information allows him not only to formulate effective business strategy but also to motivate and work well with others in executing it. To the extent that his intuitive decision-making biases him to take action without a full consideration of evidence and counterarguments, Wayne solicits the viewpoints of others before making final decisions. This is an admirable quality and evidence of a sophistication and maturity in his functioning. Wayne’s style encourages constructive conflict as a way to explore fully opportunities and problems and to resolve them.
Unusual for an executive in his late 30s, Wayne has a mature identity as a leader. He sees himself as a father figure, at times encouraging, forgiving, and empathic toward his subordinates, at other times critical, reprimanding, and willing to mete out deserved punishment. Related to Wayne’s maturity is his serious and pragmatic style. He accepts basic social values. He plays by the rules. He seeks others’ input and makes decisions after consulting them. He prefers that his subordinates accept his leadership without his having to invoke the formal authority of his role. He wants the support of his team while clearly seeking out the responsibilities as leader.
Important to Wayne’s self-image is that he be perceived as a good person. He does not easily handle criticism that appears to question (or that he construes as questioning) his morality or his fundamental decency as a person. One of the few weaknesses in Wayne’s functioning is that he becomes defensive when he fears that others have judged him as having done something bad. His need that others perceive him in a good light makes him slightly rigid and less open and creative than he could be. It also makes him dependent on superiors for recognition and praise.
Wayne’s management style rests on a belief that his personal values apply as much to subordinates as they do to him. He pushes himself to take advantage of business opportunities and to do the best he can, and he expects the same of others. He does not tolerate subordinates who do not live up to expectations. He will not hesitate to be critical and is a demanding boss. He requires integrity, reliability, and competent performance in others. He does not tolerate mediocrity or dishonesty.
Wayne’s tendency to be somewhat rigid does not interfere with being pragmatic. He understands bottom-line pressures and responds to them in a way that is appropriate for the success of the business, which includes dismissing subordinates who do not meet expectations or are otherwise dispensable.
Wayne is likely to demonstrate the leadership that investors expect. He possesses the emotional resources to cope with the demands of the CEO role, both now and in the future. Wayne is extremely ambitious and believes he is now at a point in his career where he is ready to run an organization. We agree. Wayne has no noteworthy deficits in his leadership. Indeed, he is more than eager to demonstrate his capacities to lead. Investors’ role in working with Wayne should emphasize supporting him so that he can live up to his own high expectations.
To that end, we had three suggestions.
One, investors should be as explicit as possible with Wayne regarding expectations, goals, timetables, and resources he will have available (now and in the future). He has a tendency to get touchy when presented with demands or expectations that were not previously established. Because he is so conscientious, he tends not to respond well to what he perceives as vague and poorly defined expectations. It is in these situations that Wayne is likely to be defensive. Investors should couch their criticisms to minimize the chances that he feels perceived as a bad person.
Two, investors should give Wayne a clear understanding of how they intend to work with him. He will keep his end of the understanding and will expect them to live up to their end. He will become frustrated if investors fail to perform as promised. Investors should be up front what the process of control will be, and what the limits are. Investors should put these ground rules in writing so that Wayne cannot later complain he did not know.
Three, Wayne seeks recognition and support without being needy or exhibitionistic. He is a conscientious and moral person. It is important to him that others recognize those qualities in him. This bears on how investors should recognize Wayne’s achievements. He would like to be valued in the same moral terms he understands himself. He might like financial rewards but would also like others to see his skills and ability to grow the business. Investors should give him appropriate feedback if things are going well, and encourage him to keep up the good work.
In sum, Wayne is a conscientious but pragmatic and bottom-line focused executive. He will do what it takes to help the Company be successful, achieving expectations in a moral way. This is exactly what he did.
The one potential weakness we pointed out was that Wayne was sensitive to criticism and did not want to make a mistake. Investors related this characteristic to the observation that he could have been quicker to terminate a manager who came along with an acquisition. “[Wayne] is conservative and doesn’t have a quick trigger finger and will make sure it’s the guy who can’t succeed as opposed to the position. Ultimately we let him do what he thought was best.”
A version of this story appeared in our 2008 article, published in The Journal of Private Equity.
About the Author
Leslie S. Pratch is the founder and CEO of Pratch & Company. A clinical psychologist and MBA, she advises private equity investors, management committees and Boards of Directors of public and privately held companies whether the executives being considered to lead companies possess the psychological resources and personality strengths needed to succeed. In her recently published book, Looks Good on Paper? (Columbia University Press, 2014), she shares insights from more than twenty years of executive evaluations and offers an empirically based approach to identify executives who will be effective within organizations — and to flag those who will ultimately very likely fail — by evaluating aspects of personality and character that are hidden beneath the surface.