Integré Partners Press Release:

January 10, 2005

THE RESULTS

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 Dieckmann.

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 Canada.

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 successes.   Particularly in an environment of escalating multiples, results will be more difficult to attain and the importance of sound leadership will multiply, too." 

For more information on the survey, visit: Survey Results to see a results summary or: Tabular Results to see the tabular results.

TWO-MINUTE FOLLOW UP SURVEY

Because the authors did not anticipate the high level of platform company executive failures reported in the original study, several critical additional questions remain unanswered.  If you have been involved in the selection process in a CEO level hiring failure, would you please click on:  Two Minute Survey  and take two minutes to answer five questions which will help us identify which factors have contributed most heavily to these mistakes?

THE NEXT SURVEY TOPIC

Integré Partners intends to conduct semi-annual surveys on topics important to the private equity investment profession.  If you have a topic you would like us to explore, please send us your ideas.

ABOUT INTEGRÉ PARTNERS

Integré Partners and its antecedent firms have been providing executive search and buy-side acquisition consulting services since 1979.  The firm is generalist in nature, serving a broad range of industries both basic and technical, and derives quality results through the combination of heavily research oriented work plans and the selective deployment of highly experienced professionals, who average well over 20 years of consulting experience each.