The Bespoke Executive Officer (BEO): The Unspoken PE Best-Practice

Co-authored by Mohamad Chahine, Volunteer Advisor and Faculty Member, and the Value Creation Innovation Institute (VCII)

In Private Equity (PE), innovation is the key to sustaining success and driving value creation. One such innovation, a practice both subtle and profound, has become a hallmark of the most effective PE firms: the Bespoke Executive Officer (BEO). This si a new term we are coining at the Value Creation Innovation Institute (VCII);  this concept represents an unspoken yet pivotal strategy where PE deal teams dynamically fill leadership gaps within portfolio companies, creating a tailored, adaptive leadership model. This viewpoint explores the essence of the Bespoke Executive Officer (BEO), its implementation, and the transformative impact it can have on both PE firms and their portfolio companies.

Introduction: Defining the Bespoke Executive Officer

The Bespoke Executive Officer is an intuitive and strategic approach where PE firms leverage the diverse expertise within their deal teams to address specific leadership needs in their portfolio companies. This model is characterized by its flexibility and customization, allowing deal teams to step into various leadership roles as required, thereby creating a virtual, bespoke CEO. This practice is not only intuitive and effective but also inherently aligned with the rapid, results-driven nature of PE investments (short holding period, focus on results, ability to effect key personnel change, etc.)

The Nature of Private Equity Leadership

In the PE landscape, the deal teams are composed of highly talented professionals, each bringing unique skills and perspectives. These individuals excel in areas such as finance, strategy, and market analysis, yet they may lack the operational leadership experience typically required to run a company on a day-to-day basis. Given the typical 3-5 year holding period of PE investments, along with the frequent involvement in small-cap to  mid-cap deals (either by mandate or bolt-on M&A) where they interact with family owners or founders, the need for a tailored leadership approach becomes paramount.

Creating the Bespoke Executive Officer: A Strategic Necessity

Adapting to Gaps

In the face of varied and complex challenges, PE deal teams naturally gravitate towards the BEO model. By assigning leadership responsibilities based on individual strengths, these teams effectively fill the gaps left by existing leadership. This collective effort ensures all critical operational areas—whether marketing, operations, or finance—are competently managed, thus enhancing overall company performance.  This is team performance at its best!

Cost Efficiency

The BEO model is not just about filling gaps; it also brings significant cost efficiencies. By utilizing existing deal team members to cover leadership roles, PE firms avoid the high costs (and digression) associated with hiring multiple top-tier executives. This streamlined approach reduces redundancy and aligns the leadership structure more closely with strategic goals.

Implementation Strategies: Crafting the Bespoke Leadership

Assigning Committees and Shadowing

A cornerstone of the BEO model is the strategic assignment of committees to the board. These committees, led by deal team members, focus on critical operational areas. By shadowing senior leadership team (SLT) members, the deal team gains in-depth insights into the company’s operations, enabling more informed and effective decision-making.

Empowering Team Members

Empowering team members to step into leadership roles requires a culture of trust and support. PE firms must cultivate an environment where team members feel confident and capable of assuming these responsibilities, knowing they have the backing of their peers and the organization. It is always ok to make mistakes;  especially creatively making new ones!

Coping withe the BEO: 

Navigating the Dynamics: For PE Firms

Building a Diverse Talent Pool

To implement the BEO model effectively, PE firms should prioritize building a diverse talent pool. Diversity in skills and backgrounds enhances the capability of the deal team to address various leadership challenges, bringing a broad range of perspectives and solutions.

Avoiding the Cookie-Cutter Mold

Each portfolio company has unique needs and challenges. PE firms must tailor their leadership approach to fit the specific context, avoiding a one-size-fits-all mentality. This bespoke approach ensures that leadership interventions are precisely targeted and effective.

Navigating the Dynamics: For CEOs and SLTs

Understanding the Cues

CEOs and SLT members in portfolio companies should be attuned to the cues from the PE deal team. Recognizing the intent and value of the BEO model can foster collaboration and alignment, ensuring that efforts are directed towards common goals.

Being a Team Player

It is crucial for existing leadership to support and collaborate with the deal team. Keep in mind - the whole idea in the first place was the deal team not trying to  change (or replace) SLT members; so do not try to change them!!
Engaging in open communication and aligning with the strategic objectives set by the deal team can lead to better outcomes and a more harmonious working relationship.

The Future: Embracing the Fractional CEO Hybrid Model

The BEO model sets the stage for the next evolution in Corporate eadership - though unlikely to be embraced by PE firms at their OpCos:  the Fractional CEO Hybrid Model. This model involves integrating experienced executives on a part-time basis to complement the SLT - similar to the bespoke team. These fractional CEOs provide targeted expertise and mentorship, further enhancing the leadership capabilities within the portfolio company.

The Power of Bespoke Leadership

The Bespoke Executive Officer represents a groundbreaking approach in the realm of Private Equity. By leveraging the diverse talents of deal team members and fostering a culture of collaboration and empowerment, PE firms can drive significant value creation. For CEOs and SLTs, understanding and embracing this model can lead to more effective partnerships and better overall performance.

As we look towards the future, the integration of fractional CEOs into the bespoke model offers a promising path forward. This approach not only addresses immediate leadership needs but also builds a robust foundation for sustained growth and success.

Whether you like this or not, the Bespoke Executive Officer is more than a strategy; it is a testament to the innovative and adaptive spirit of Private Equity. By embracing this model, PE firms can navigate the complexities of the business landscape with agility and precision, ensuring that their investments thrive and deliver exceptional returns.

For more insights and strategies on optimizing leadership and value creation, visit the Value Creation Innovation Institute.