June 17, 2020
“The single biggest way to impact an organization is to focus on leadership development. There is almost no limit to the potential of an organization that recruits good people, raises them up as leaders and continually develops them.”
– John Maxwell
Upgrade a leadership team from average to effective, and the growth rate will increase by 20% (drxDATA). Effective leaders are some of the greatest value creation levers in Private Equity. Human performance (a learning culture, engagement and interpersonal connection) is arguably more pivotal than transactional aspects (finance, timely exiting) in generating the greatest returns.
In short, you can produce greater enterprise value from transformational leadership teams than transactional leadership teams.
Occupational and performance psychologists are criticised for being safe, anodyne and trying to keep everybody happy. But leadership development, often regarded as a soft skill, is hard to do well! Leading, inspiring, motivating and engaging people is a considerable challenge, and can often actually be the ‘hard’ skills.
Self-awareness is the first necessity. Do I understand myself? What is my impact on the organisation in respect of the way I come across to others, my style of communication, my behaviour under pressure, how I give and receive trust? Leadership thoughts, feelings and behaviours are infectious; the self-aware leader increases self-awareness in individuals and teams, with beneficial results.
Self-regulation is equally vital. There are different coping mechanisms for different situations. The stereotype of the dominant, extrovert leader is an outdated concept. The world is not black and white but grey, and adaptability, flexibility and agility are needed to negotiate this nuanced challenge.
The two qualities act and react together. Without awareness, regulation is impossible. When both work together, the leader feels in control and confident and this is reflected in the behaviour of his team.
And then there is learning: unflagging, truly lifelong learning in a world that is constantly changing and needing new insights. The reflective element is crucial, through self-reflection / journaling or by external input from an executive coach, mentor or formal leadership development.
“Leadership and learning are indispensable to each other.”
– John F. Kennedy
As the head of the leadership pyramid, the CEO is obviously one of the most pivotal positions. But effective leadership is not just delivered by one person, however inspirational. It is about the collective leadership of the top echelons of a company. It is about understanding that people are better, stronger and more effective together than apart.
At Drax we have developed market leading predictive analytics tools and algorithms to support Private Equity businesses to evaluate the value creation capability of individuals and leadership teams. Based off a unique data set across every single Private Equity transaction since 2010, we can benchmark individuals, teams or businesses against market leaders to determine the profile which will be most additive to a business’s value creation strategy. We call this the Leadership Success Propensity Model (LSPM).
As author Patrick Lencioni puts it, teamwork remains the ultimate competitive advantage of a business, both because it is so powerful and because it is so rare. Considering these insights, we are also developing a proprietary psychometric called P.A.C.E. which is based on research into hundreds of PE management teams, and more than 50 interviews conducted with CEOs, CFOs, Chairs and Investment Directors. (The largest previous study into Private Equity leadership and behaviours interviewed only 12 CEOs)! The characteristics identified are:
Authentic, transparent and open, instils trust in others
Strategic mindset and stretch, manages complexity, action orientated.
Growth mindset, nimble learning, inquisitive about own and others’ behaviour
Drives vision and purpose, empowers others, ensures accountability.
The PACE model of development is the only tool in the market designed specifically for Private Equity, recognising the specific leadership behaviours needed to succeed in this environment. We aim to make this an industry standard that drives the assessment and understanding of high-performance behaviours in a PE environment. To finish where I started, we at Drax believe that a high-performing leadership team will drive the enterprise value of a company and is the biggest opportunity that PE houses must invest in to generate a more consistent high-performing team, and ultimately higher returns.
Partner and Head of Leadership