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Making your move: How do you transition from CEO to Chairman in Private Equity?

By Louise Chaplin. Published on 2 February 2017


For those with experience as a Chief Executive Officer (CEO), transitioning to a Chairman role, and even having a portfolio career, can be an obvious progression. But making that move isn’t as easy or intuitive as you may think.

 

The distinction between CEO and Chairman

It may seem as though, if you have considerable experience running a business, moving from CEO to Chairman should be simple. You may even assume that companies will be clamouring to gain your expertise – but that’s not always the case. Why? Because the two roles require significantly different skill sets and experience.

A CEO’s responsibilities revolve around managing a company day-to-day and enacting the board’s decisions and policies. In contrast, the Chairman’s role is to steer clear of operational management, instead leading the board, determining its agenda and making sure the business operates effectively. The Chairman plays a vital role in shaping the board’s culture and ensuring it is open, appropriately challenging and productive. He or she also takes responsibility for communicating effectively with board members and shareholders, in a highly nuanced role that’s integral to company success.

So, while the CEO is at the helm, the Chairman is the most important figure behind the scenes, ensuring the ship stays on course to reach its destination.

How to prepare a transition to Chairman

A key challenge when making this move is breaking into your first role – particularly if entering a new sector. Private equity, for example, offers highly attractive roles for Chairmen, but requires niche knowledge and experience.

One person who has successfully made the move across is Peter Manning. Previously holding a number of senior and CEO positions within telecoms and technology, in recent years he’s expanded into the private equity space through Non-Executive Directorships and Chairman roles. So how did he achieve this?

Knowing he wanted to make the move, he took a strategic approach.

“If you want to have a well-developed portfolio it takes ten years, so you’ve got to plan ahead,” he advises. Pragmatically, Peter started redirecting his career to build credentials that would enable him to move into private equity.

Aware that private equity houses usually seek independent Chairmen rather than Non-Executive Directors, he sought out that experience through a Chairman role with Axell Wireless Ltd.

For those interested in a private equity Chairmanship, Peter advises finding opportunities that enable you to understand how the private equity model works, including leveraged finance, buy and build strategies, multiple arbitrage and managing third-party lenders. Developing a deep understanding of the market, competitors and business context is vital when it comes to sense-checking business decisions.

“I understood how to run companies, but the additional corporate finance knowledge was missing,” he explains. “My advice is to develop that understanding in your mid-50s so that, in your 60s, you can have a strong career building on that experience.”

What makes a good Chairman?

Peter believes that building and managing relationships is critical to successful Chairmanship. Empathy and flexibility are also essential, as is the ability to get on with different people.

“Invariably, there will be difficult relationships,” says Peter. “You have to adapt to different styles of Chief Executives while being supportive yet challenging.”

The Chairman acts as a guide – someone the CEO asks for counsel – as well as setting the culture and shaping strategic direction. Doing so effectively requires deep understanding of corporate governance and legal responsibilities – and experience of infrequent events, such as a merger or acquisition, and subsequent integration. With duty of care to the company’s owners and employees, it’s also important to understand the boundaries of prudent financial management.

Beware the pitfalls

One of the greatest challenges for someone moving from CEO to Chairman can be to stick to their role and not try to run the business. Leading the company is the CEO’s job. The Chairman cannot dictate and demand. Instead, he or she needs to make sure the board is functioning efficiently and deliver influence, while allowing others the scope to manage.

Implementing an infrastructure that ensures everyone is aligned with company objectives – from strategy to technology, remuneration and financing – is key to this.

Also remember that a Chairman isn’t just managing downwards, but externally, with the public, clients and stakeholders. This is particularly true within private equity, where the Chairman provides a critical portal into the business. So, having the right skills to navigate that dynamic, understanding what owners and external bodies need to hear, requires considerable experience.

The Chairman also plays a vital role in choosing board members and must to take a holistic view of the board’s needs. He or she must also honour their duty to champion yet challenge the board, using critical thinking, resolution and diplomacy to influence the decision-making process.

Perhaps the greatest challenge lies in building a strong relationship with the CEO, but remaining objective and willing to question decisions – albeit with tact.

So, how to get started

Having established a strategy and trajectory for a Chairman role, and built up the right knowledge and expertise, the next challenge is how to win your first role.

“You can’t be too selective in the beginning or else you won’t get a position,” says Peter. “At this stage you have to be opportunistic. But make sure you’re comfortable with the core organic and inorganic growth story of the company and research the business thoroughly.”

In addition, Peter argues that a bit of public company experience can also be helpful, particularly when it comes to governance expertise. The rigorous practices of public companies are also valuable for private companies, too. “Putting effective governance in place pays dividends and adds value to the company,” he says. “So don’t be shy pushing this agenda.”

And of course there’s the question of remuneration, which differs considerably to the full-exec package of a CEO or CFO. Whether your package is structured around a day rate, full-time employment, equity or co-investment, it’s important to do your research and understand which combination is right for you.

And the final piece of advice? Simply, networking; particularly within private equity.

“The private equity universe is relatively small, so reputation and word of mouth carry a lot of weight,” confesses Peter. But it’s also a valuable learning resource. Speaking to other Chairmen will expand your network, while offering insight on the nature and difficulties involved in the role. Building an early understanding of these challenges will help you shape your career trajectory to amass the skills and knowledge needed for a Chairmanship.

 

Peter, thank you for speaking to us and sharing your experiences and advice. If you are looking for your next opportunity on the Board, or are thinking about progressing your career in this space, please feel free to get in touch with myself, Louise Chaplin, or Edward Fanshawe.

 

 

Sources:
http://www.out-law.com/en/topics/corporate/company-law-and-corporate-governance/the-role-of-the-board-man-and-non-executive-directors–the-uk-corporate-governance-code/

Louise Chaplin

PARTNER
HEAD OF BOARD PRACTICE

Specialising in executive search within board level positions, Louise’s unique combination of expertise and experience enables her to work closely with both clients and candidates at a senior level to ensure the best possible outcomes.

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