Private equity is becoming more willing to consider step-up executives for critical leadership roles. But broadening the candidate pool only works if the way we assess those candidates evolves with it.
Private equity does not buy a company to keep it the same. It invests because it believes the business can become something more valuable than it is today.
Which makes me wonder about a contradiction.
If we are investing in transformation, why do we so often select the leaders expected to create it based on familiarity?
Same industry. Similar or larger P&L. Prior private equity experience. Prior CEO, COO or CFO title. Prior exit.
All useful signals.
But evidence of what?
Tell me someone has successfully run a $700 million P&L and I am impressed. Before deciding what that means, though, I want to know how they got there.
Did they build it? Did they spend 20 years inside the company, moving through increasingly complex assignments? Were they there while the business grew from $100 million to $700 million? If so, what role did they actually play in that growth?
Did they live through acquisitions, integrations, ERP conversions, reorganizations and leadership changes? Did they learn how a large organization works when it is aligned, and what happens when it is not?
Or did they arrive after most of the systems, people and infrastructure were already in place?
On the other side, perhaps another executive was handed a struggling $10 million business with little infrastructure and told, “Good luck.”
Maybe that executive had to build the leadership team, develop the operating structure, change systems, expand geographically, improve margins, create accountability, integrate acquisitions and navigate the organizational change required to reach $50 million.
Those are very different career headlines. Neither tells us enough on its own.
Scale tells us the size of the business an executive has carried. It does not tell us whether they have performed the work the next business requires.
An executive who inherited a large, established organization and successfully stabilized it may be exactly the right leader for a stabilization thesis. But if the investment requires building infrastructure, integrating acquisitions, developing leadership, changing systems and scaling an organization several times over, the executive with the smaller P&L may have far more relevant experience if that is the work they have actually done.
The better match is not necessarily the executive who has operated the business closest to the destination. It may be the executive who has already navigated the journey required to get there.
That does not diminish large-company experience. Quite the opposite.
Years inside complex organizations can expose a leader to things that are almost impossible to understand from the outside: integrations that work and integrations that fail, major system conversions, acquisitions, reorganizations, matrixed decision-making, new leadership teams, cost reductions, cultural change and the consequences of decisions made several levels above you.
All of that experience has value.
But experience, learning and causality are different things.
What did the executive experience? What did they learn? What did they personally cause to happen?
And perhaps most importantly:
How closely does the work they actually performed resemble the work this business now requires?
The Destination Is Not the Job Description
This distinction matters because the headline objective of an investment thesis can easily become a proxy for the executive specification.
Suppose the value-creation plan calls for taking a company from $600 million to $1 billion.
The obvious response might be to look for someone who has already operated a billion-dollar business.
That may be exactly the right person. But $1 billion is the outcome. It is not the job description.
A value-creation plan may define the financial destination with tremendous precision: revenue, EBITDA, organic growth, acquisition cadence, margin expansion and exit expectations.
But those outcomes depend on operational work.
What has to be built, fixed, integrated, changed or preserved for those numbers to become possible?
Perhaps previous integration efforts have failed. Maybe trust between the platform and acquired companies has deteriorated. The operating model may not have kept pace with acquisition activity. Leadership capability may be inconsistent. Systems may not communicate. Accountability may be unclear. The commercial engine may need to scale while the organization is simultaneously integrating acquisitions.
If that is the situation, the executive requirement is much more specific than P&L size.
The organization may need someone capable of rebuilding trust, creating alignment, integrating businesses, developing leaders, designing operating structures, establishing accountability and then scaling the resulting platform.
The financial target is the outcome. The operational journey is the job.
That journey should inform the leadership specification before the search begins.
If the work required to reach the target is never translated into specific leadership capabilities, the search can easily default to the most visible proxies: industry, title, P&L size, sponsor experience and prior exits.
That is familiarity of profile.
It is not necessarily familiarity with the work that needs to be performed.
The Candidate Pool Is Changing. Has the Assessment Changed With It?
One encouraging development is that sponsors and boards appear increasingly willing to consider executives stepping into a CEO, COO or CFO role for the first time.
I think that is a positive change.
Every experienced executive was a first-time executive once. At some point, someone had to decide that the body of evidence was strong enough before the title existed.
But opening the candidate pool creates another challenge.
The executive who has already held the title in the same industry at comparable scale presents a familiar profile. They have been a CEO. They have run $500 million. They have worked for a sponsor. They have been through an exit.
That profile is easy to understand.
A step-up executive has to make a different case.
Their readiness may exist across the career rather than inside one title: experiences inside large organizations, increasingly difficult assignments, direct operating responsibility, growth, failure, acquisitions, working with founders, transformations, building teams, solving problems and lessons accumulated over many years.
The industry may be changing the candidate profile faster than it is changing the candidate assessment.
If the assessment process was built primarily around candidates whose backgrounds closely match the specification, simply allowing a different kind of candidate into that process may not be enough.
Where Does the Evidence Get Lost?
I do not know what happens in every boardroom once the final candidates arrive, and I have not sat on that side of enough searches to pretend I do.
What I do know is how quickly the early process can become a comparison against a specification.
“Walk me through your career” is a perfectly reasonable place to start.
What happens next matters.
So your first P&L responsibility came here?
You led sales in this role?
The largest business you directly managed was this?
You participated in the acquisition but did not actually lead it?
You have not held the COO title before?
Every one of those can be a legitimate qualification question.
But taken together, they can tell us a great deal about where someone differs from the specification without necessarily telling us very much about the leader sitting across the table.
A specification tells us what experience the client believes it wants. Qualification questions tell us how closely the candidate matches it.
Neither necessarily tells us whether the candidate has performed the work the value-creation plan requires.
Can this person create alignment across businesses that do not trust the platform? Can they integrate without destroying what made an acquired company successful? Can they build the next layer of leadership? Can they determine what should be standardized and what should remain local? Can they create the operating discipline required for the next stage of growth?
Those questions require a different conversation.
And that leads to a question I keep coming back to:
If the deepest executive assessment happens late in the process, how confident are we that the candidates most capable of creating the value survived the filters at the beginning?
A familiar profile is easy to recognize.
Accumulated capability takes a conversation to understand.
AI Has Made the First Interview Harder
AI adds another complication.
Candidates have always positioned their experience around the jobs they pursue. There is nothing inherently wrong with that. A résumé should make the relevance of someone’s experience easier to understand.
What has changed is the speed and sophistication with which that positioning can now happen.
A job specification, résumé and LinkedIn profile can be combined and rewritten in minutes. AI can take accurate facts from different parts of a career and assemble them into a narrative that implies greater scope, ownership or impact than actually existed.
It does not even have to fabricate anything.
An experience from one company, a responsibility from another and an accomplishment from somewhere else can all be factually accurate while the narrative created from them leads the reader to a conclusion that is not.
The facts can all be true and the story can still be wrong.
Recruiters have good reason to scrutinize what they are hearing.
But that creates another problem.
A 30-minute executive screening call may now be trying to accomplish several things at once: check the specification, determine whether the candidate’s story is authentic and assess whether the person has the capability to do the job.
The first two require validation.
The third requires discovery.
And if most of the conversation is spent checking credentials and testing whether the narrative holds together, when does the recruiter get the chance to understand what the candidate can actually create and whether that experience matches the work ahead?
Some executives can be understood from a résumé line.
Others can only be understood by understanding the career.
Underwrite the Work, Then the Evidence
Private equity already knows how to ask hard questions about a business.
What constrains growth? What capabilities are missing? What assumptions have to prove true? What needs to be built, fixed or integrated? What could derail the investment thesis?
Perhaps executive selection should follow a similar discipline.
Start with the investment thesis and the current state of the business. Translate the desired financial outcomes into the operational work required to achieve them. Translate that work into the leadership capabilities required to perform it. Then assess the evidence across each candidate’s career.
That sequence matters whether the sponsor is selecting the first CEO after an acquisition or replacing a leader several years into the hold. The destination may remain the same while the work required to get there has changed considerably.
What did this executive inherit? What was broken or missing? What did they actually own? What did they build? What did they change? What happened because of it? What happened as the organization scaled? What did they learn when something failed? What happened when they were given greater responsibility?
And most importantly, how does that body of evidence map to the work this business needs done now?
That is where measuring the delta becomes useful: the difference between what existed when the executive arrived and what existed when they were done.
The delta may show up in revenue, profitability, talent, operating discipline, customer retention, integration, culture or organizational capability.
But even delta needs context.
The executive who took a business from $10 million to $50 million is not automatically more capable than the executive running a complex $700 million organization. And the executive running $700 million is not automatically more capable because the number is larger.
The question is not which résumé is bigger. It is which body of evidence is more relevant to the work ahead.
Only then should the traditional signals be weighed: title, industry, P&L scale, private equity experience and exits.
Those signals still matter.
They just should not substitute for understanding the work.
And that leads to what may be the most uncomfortable part of the argument:
The easiest executive to explain to the board is not necessarily the executive best equipped to create the outcome.
Familiarity Does Not Stop With the Hire
There is another reason this matters.
A newly hired CEO naturally wants people around them they know and trust: a former CFO, COO, commercial leader or others who understand how the CEO operates and can move quickly together.
There are real advantages to that.
But the trust exists primarily inside the imported leadership team.
Who is earning trust with the organization?
That matters enormously in a private equity roll-up, where the acquired OpCos may have founders, long-tenured employees, strong local leaders and cultures that existed long before the platform did.
The executives brought in by the CEO know who hired them. Naturally, they want to prove that person made the right decision.
The people now reporting to them are asking something different.
Do you understand our business? Do you respect what we built? Are you here to help us succeed or replace us? Is there still an opportunity for me here?
A leadership team can arrive with enormous trust in one another and almost none from the organization it has been hired to lead.
If senior positions continue to go to people from the same outside network, incumbent talent notices.
The path upward begins to look predetermined. Some people leave. Some disengage. Others learn that managing upward may matter more than challenging the prevailing view.
The entrepreneurial energy that made those businesses attractive in the first place can slowly disappear.
The danger is not simply hiring for familiarity. It is allowing familiarity to become the operating model.
Familiarity May Reduce Risk. It May Also Change It.
There is a rational reason familiarity carries so much weight.
A candidate who has already held the title, operated at comparable scale, worked in the industry and experienced private equity ownership can feel like the lower-risk choice. The profile is easier to qualify, easier to recommend and easier to defend.
But there are different kinds of risk.
Selection risk and execution risk are not necessarily the same thing.
The familiar candidate may reduce the perceived risk of making the hire. But if the value-creation plan requires building, integrating, repairing or scaling things that executive has never actually had to build, integrate, repair or scale, familiarity with the profile may provide surprisingly little protection against execution risk.
The safest candidate to select is not necessarily the safest candidate to execute the thesis.
None of this argues that industry experience, scale, previous titles or sponsor experience should matter less. They should matter.
The question is what we believe they prove.
A successful playbook from one organization may not transfer cleanly to another. An executive may have operated at scale without ever having built it. A trusted leadership team may arrive aligned with each other but disconnected from the businesses underneath them. And an executive whose capabilities are unusually well matched to the actual work may never survive the early filters long enough to have the deeper conversation.
So perhaps familiarity does not eliminate executive risk.
It changes which risks we are taking.
Private equity does not invest in a business simply because of what it has already been. It invests because of what it believes can be created next.
If the candidate pool is beginning to evolve, perhaps the assessment process should evolve with it.
The leadership question should not simply be:
Who has already operated in a company that looks most like the one we are trying to build?
It should also ask:
What work has to be done for this company to become what we have underwritten, and which executive has the strongest evidence that they can do that work?
Because if transformation is the investment thesis, leadership should be chosen for the ability to create what comes next, not simply for familiarity with what came before.
