Korn Ferry: Tapping a New Talent Pipeline

Private equity and small cap firms urgently need executives to run energy enterprises in Europe, the Middle East, and Africa. But can the new CEOs move over from big oil and gas companies?

EMEA’s vastly different CEO talent.

As oil prices have retreated globally, private equity firms have advanced into Europe, the Middle East, and Africa searching for attractive investment opportunities. “Private-equity funds that once profited from energy deals in North American shale are hunting in a new bargain basement for cut-price oil-and-gas fields: almost everywhere else,” The Wall Street Journal announced last year.

Although private-equity firms found the supply of oil and gas opportunities in Europe, the Middle East and Africa to be plentiful, they also have discovered that CEOs with requisite experience is scare there. “Clearly, North America is a much more developed region for private equity, with many success stories,” notes Lord John Browne, executive chairman of DEA and Letter One Energy. As a result, he adds, North America has a “pool of CEO talent that funds are comfortable investing behind.… In EMEA, the dynamics around CEO talent are vastly different.”

This imbalance raises a crucial question for private equity firms and boards of small-cap oil and gas companies seeking to exploit investment opportunities: Can executives from large oil and gas companies transition well to private-equity-backed and small-cap companies and thrive as CEOs in a more entrepreneurial environment?

The answer is a cautious yes, at least in EMEA. That opinion is based on early examples, the application of leadership science, and insights from interviews with two dozen portfolio company executives, private equity firm leaders and small-cap company board members. Hiring teams can identify large-company CEOs who can lead PE-backed companies in EMEA with a rigorous and precise approach, similar to approaches that businesses routinely apply to tracking and valuing key performance measures. Companies scrutinize inventory, product quality, operating expenses, profit margin, and client demand with useful metrics offering insights into current and future values. They can seek similar clarity in assessing executives’ competencies, experiences, traits, and drivers when selecting large companies’ oil and gas leaders most likely to thrive in new roles. This paper examines the challenge of finding this type of CEO in EMEA, introduces a framework for evaluating candidates for PE-backed or small-cap companies, and presents an ideal CEO profile based on information from 23 portfolio company CEOs and private equity firm leaders.

Five Challenges

CEOs of PE-backed and small-cap companies describe these challenges for large-company CEOs moving to a PE or small-cap environment:

1. Finite capital: Unlike their big company counterparts, small enterprise CEOs operate with tight capital constraints; they must be extremely efficient in allocating capital.
2. Entrepreneurial spirit: In large companies, executives may succeed by navigating internal politics and avoiding bad decisions; in small companies, they must bet big on well-crafted plans with risks.
3. Accountability: There is nowhere to hide if returns fail to meet expectations in small companies; accountability cannot be shared among many, as it can in large corporations.
4. Operational experience: Small companies’ leaders tend to possess deep operational expertise in a target basin. Large-company leaders tend to gain broad experience as they rotate through roles and geography.
5. Lean staffs: Successful execs must wear many hats in smaller, low-cost operations.

To read the full report, click here.