A study of 51 managing partners, partners and principals of European private equity firms who completed an online leadership assessment that demonstrates a bias (conscious or unconscious) that nudges leaders to hire and promote people ‘just like us’ remains strong.
The survey found that two-thirds of European private equity leaders have either ‘forecaster’ or ‘pilot’ as their predominant leadership style. The prevalence of the former style is perhaps unsurprising, as forecasters tend to be deeply knowledgeable in their particular area of expertise, adept at critical analysis, and often excel at anticipatory thinking. Indeed, most private equity professionals started in banking or consulting and are equipped with skills in analytics and finance, progressing along similar career paths in what has grown into an established industry.
It is easy, therefore, to imagine that forecasters would rise to the top of private equity firms, as in many ways their leadership style fits the work. Forecasters love gathering data and deepening their expertise, tend to be happiest when they can synthesise observations, and are typically adept at harnessing their skills to foresee events and trends. Colleagues view them as knowledgeable and farsighted.
Similarly, ‘pilots’ are understandably common in European private equity, given that they tend to thrive in ambiguous, complex, fast-changing, and challenging environments. Pilots also tend to be forward-looking, capable of generating compelling strategies and translating strategy into action. Because they have clear opinions and relish challenges, they exhibit an intensity that many colleagues admire, but that some may find draining.
Beware of the blind spots
All leadership styles contain blind spots, not just strengths. Could these styles therefore be holding back the private equity industry as much as they help define it? Forecasters, for example, tend to become overly wedded to their own thinking, and can be slow to make decisions in unfamiliar circumstances, as their predilection is to continue gathering data to feel more informed.
Forecasters may also often have a hard time influencing or gaining buy-in from people who ‘trust their gut’ more than the numbers when making decisions. Yet, forecasters working in private equity encounter that trait with regularity – in the form of early-stage entrepreneurs, founder-owners and family businesses.
Such a fixation on data could lead forecasters to rely too much on financial engineering to realise returns, potentially stifling a portfolio company’s innovation. And the priority they place on intellectual reasoning can crowd out the emotional connections that leaders of other styles may require for inspiration. This is an important point as many of our survey respondents stated they wanted more PE leaders with ‘soft skills’, citing inspiration, imagination, passion, energy and emotional intelligence as desired traits.
Pilots, too, have their blind spots. Their strongly held views can dominate the room and leave little space for others to freely share their thoughts and insights, thus having a stifling effect on creativity and encouraging groupthink or false consensus. Pilots may conduct meetings as if the right decisions have already been made – or are obvious – rather than treating meetings as opportunities for learning. Moreover, pilots often have difficulty stepping back and letting others lead.
A missing skill
In addition to analysing the most prevalent leadership styles among European PE leaders, Financier Worldwide also determined which styles were rarest, as these represent opportunities for firms to add, or further develop, particular leadership strengths. Notably, the least prevalent style was that of the ‘energiser’, a style characterised by the ability to build enthusiasm and inspire buy-in and engagement in others.
Energisers tend to help others to see the meaning in the task at hand – a valuable skill that our research suggests is relatively rare among the organisations we studied. The roots of this finding may stem from the industry’s historical tendency to be an ‘up-or-out’ environment with a hard-nosed approach to doing business.
Regardless of the reason, PE firms that lack the cooperation and people-first focus that ‘energisers’ bring could be at a disadvantage in times of rapid growth or disruptive change – environments in which energisers thrive. Similarly, energisers bring an abiding optimism to their interactions, a valuable leadership trait in any business climate.