The majority of UK-focused private equity (PE) investors – around two thirds – are on the hunt for new leaders for their portfolio firms to help them navigate a challenging business environment plagued with disruption.
As executive leaders and investors attempt to recover from pandemic-induced supply-chain disruption, volatile market demand and concerns about workforce health, many boards are dealing with multiple crises for the first time, finds Robert Half’s Boardroom Navigator 2023.
Against a backdrop of economic uncertainty, recruitment of executive leaders – including finance chiefs – among growth-hungry businesses is a challenge. Indeed, almost half (42%) of the PE investors surveyed said that they are hunting for new leaders to manage supply-chain disruptions at their portfolio firms, and 38% are looking for those with the ability to navigate a high-inflation environment.
Philip Hendrickx, managing director executive search, Benelux, at Robert Half, says UK SMEs should cast a geographically wide net in their search for executive talent. Business leaders in countries with experience of the headwinds now affecting the UK may prove valuable hires for domestic SMEs, Hendrickx says.
Recent research from the NGO Invest Europe shows that there are currently around 95,000 companies in Europe that receive some form of PE support – the majority of which are SMEs.
“Those in PE ownership are often undergoing an extensive change and transformation process – either because they have run into economic difficulties or have an ambitious strategy to execute an IPO,” Hendrickx says.
Against that backdrop, key macroeconomic factors are prompting PE investors to analyse how their portfolio companies are managed, to determine whether decision-makers have what it takes to manoeuvre their firm successfully through what Hendrickx describes as “an increasingly dense mix of challenges.”
That mix includes crisis hotspots, global warming, the energy crisis, supply-chain disruption, inflation, shortage of skilled labour, rising globalisation, an attendant rise of competition, ESG compliance and the need to embrace digital transformation.
Hendrickx says top managers now need the skill-set of a Swiss Army knife. “In the past, distinctive and outstanding technical expertise was enough, but that no longer seems sufficient today.” And CFOs are by no means immune to the demand for new skill-sets, he says.
Until recently, the typical requirements for the post were outstanding accounting, reporting and investor relations skills, plus a superior grasp of corporate finance and M&A. “Now, though, it is very different,” Hendrickx notes.
“Not only do CFOs require in-depth knowledge of ESG and the underlying regulations to ensure compliance, they must also have extensive expertise in digitalisation to successfully implement projects around process automation, for instance, and to be able to carry out significantly more extensive and comprehensive reporting efficiently.”
On top of that, CFOs must demonstrate a detailed understanding of the business and industry as a whole and act as strategic partners across divisions, going “way beyond” the finance remit.
Wealth of experience
With that in mind, Hendrickx says, companies – and PE investors with an influence on the appointment of top management positions in their portfolio firms – would be well advised to seek suitable candidates from countries and regions that are used to dealing with similar challenges.
“Look to South America. A continent marked by high inflation, a shortage of skilled professionals and domestic political crises has nonetheless spawned many successful, global companies led by top managers who have built up a wealth of experience over time, understanding how companies can be managed successfully amid those economic omens.”
The current challenges mean that ongoing learning and training must be a fundamental building block of every executive team. As well as taking advantage of development routes such as university and certification courses, leaders must take part in networking events with like-minded people “to ensure an ongoing exchange of experience.”
At the same time, “constant dialogue with investors beyond performance” can also open up important avenues for learning. “Many PE backers have commitments in other regions of the world and will therefore have corresponding experience on hand – possibly to the extent that they could offer sparring partners from their own portfolios,” Hendrickx says.
ICAEW Head of Business Simon Gray, who spent more than a decade in the recruitment industry, says: “Businesses are facing a multitude of complex and, in some cases, new challenges – many with an international dimension. Adopting a worldwide recruitment strategy to find talent with the most relevant experience makes perfect sense, and should add diversity of thinking to existing boards.
“I talk regularly to ICAEW business members, and the role of the CFO is now much broader than it used to be. When something new pops up – regulatory, technological, geopolitical or other – it’s frequently the CFO’s desk that it lands on.”
Peter van Veen, ICAEW Director, Corporate Governance and Stewardship, adds: “Investors are looking to the CFO and their team to quantify the risks to the business, ensure compliance with governance and financial reporting standards and look after investors’ interests.
“In this increasingly turbulent world, companies need to look far and wide to secure board members with the correct skills and experience to navigate choppy waters and deliver the desired returns.”
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