Written by Geoffrey Votta
If you’re looking to realize your growth potential in the midst of market changes and challenges due to the COVID-19 pandemic, recruiting “A” players must be a top priority.
About half of executive hires fail within 18 months, according to the Corporate Leadership Council. These failures can cost anywhere from 2.5 to 27 times that executive’s salary, per RHR International's calculations. That's a cost many companies can't afford — certainly not now — and I imagine the multiple is even higher in private equity due to the fast pace of business.
But the problem isn’t your hires — it’s your hiring process.
A Glassdoor survey found that 69% of companies have made costly hiring mistakes as a result of bad interview processes. But what is it about the processes that lead executives and operating partners to the wrong leaders of their portfolio companies?
Often, it’s an over-reliance on job descriptions — which are just marketing tools — rather than assessment tools that enable us to evaluate candidates concretely, like scorecards.
Think about it: How do you know whether someone is a good fit? Like conducting due diligence on a deal, you need a quantitative framework to assess whether or not candidates can move the needle on your specific investment goals. Scorecards are ideal because they stack candidates against specific, measurable outcomes — not just a list of responsibilities.
How to create effective scorecards
Produce and use scorecards to fill your portfolio company leadership teams with “A” players using these three steps:
1. Build your scorecard
Scorecards have three components. First, they should articulate a mission — your overarching goal — that is both quantifiable and timebound. For a chief sales officer, it might be “Deliver 40% CAGR to grow revenue by $500 million by 2022.” For a chief restructuring officer, it could be something like “Grow EBITDA to 20% by 2022.”
Second, define specific outcomes that serve your mission. Break it down into measurable goals that you’ll use during performance reviews. These could relate to finances, operations, talent, commercial or others. For a CSO, it might be “Shorten the sales cycle by 10%.”
Finally, determine the right mix of competencies. What specific behaviors are ideal? How will the executive drive change or accomplish the outcomes you’ve chosen?
2. Benchmark candidates
With those components defined, you can better assess worthwhile candidates. Say one of your target outcomes is that your CFO leads a team in rolling out a new financial reporting system over the next year. Knowing that the best predictor of future success is past performance, your scorecard should measure how successfully the candidate’s previous teams accomplished such an implementation under his or her leadership.
You can then use behavioral interview questions to dive into the candidate’s change management competency. You might ask, “What’s the most challenging change you’ve managed?” and “How did you measure success?”
3. Go deep to evaluate finalists
Once you’ve narrowed your set of finalists, your job is to go even deeper. This is when moving beyond traditional interview formats can help.
Extensive behavioral questions, such as those used in the Topgrading and ghSMART methodologies — which are the foundation of everything we do at my current company — will give you a fuller picture of a candidate’s personality and performance history. Validated psychometric tools, such as mental agility tests, can also be illuminating — especially when you need to hire high performers in a PE context that requires fast thinking and problem-solving.
If you’re using standard interview methods, chances are you’re batting .500 on your hires at best. That may be a great average in baseball, but it’s not as impressive in PE transformation. Using scorecards in your hiring process can help you find the right talent to grow your portfolio companies now — and clock stellar returns when you exit.
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