In this episode, we speak with Dr. Erica Rivera, Managing Partner and Executive Advisor at Crenshaw Associates. Erica has a long and very successful track record assessing and advising Boards, CEOs and C-Suite leaders on CEO succession, board evaluation and leadership within global fortune companies and private equity.

Bill Glenn: Erica let’s start with where the current landscape for leadership assessments and development is in private equity today.

Erica Rivera: It’s interesting, you can look at it from two different perspectives. You can look at it from the perspective of what private equity firms are doing with their internal development of human capital. Then you can look at it in terms of what they’re doing in their portfolio companies to develop key executives, which is typically focused on the C-Suite executives that investors are relying on ultimately for value creation.

Bill Glenn: Has that trend changed over the past couple of years?

Erica Rivera: It has changed. It’s changed in both areas. From an internal development standpoint, increasingly private equity firms have realized that operating margins aren’t the only opportunity for value creation. In fact, an even greater opportunity to create value in a business hinges upon who the executives are and how they are focused on key business priorities. How they hire the right people, how they hire the right executive teams to work together, how they are driving forward in goals, priorities, et cetera. So that’s on the side of portfolio management.

Then in terms of internal human capital, moreover, large firms, as well as some of the mid cap firms, are looking at creating in-house consulting teams. The in-house consulting team goes beyond your typical operating partner role into various areas. Some could be in the digital and AI space or digital transformation. The other areas are in human capital, as well as for some industries, supply chain experts, et cetera. If you’re building an in-house consulting team in a private equity firm, you’re offering the portfolio company all of these incredible services and expertise to enable value creation and success.

Bill Glenn: So, how do you get there?

Erica Rivera: The beauty of advisory businesses like ours is that we can come into this catapulting of pushing value creation of businesses forward with an objective lens to identify whether PE firms are hiring the right talent internally to support their portfolio as well as assessing and developing talent within the actual portfolio companies.

Bill Glenn: To that point, how are private equity firms fully utilizing executive and team coaching and development both internally and for their portfolio companies?

Erica Rivera: Good question! I want to say over the past seven years or so, assessment has become far more commonplace. Which is fantastic for our business and the way we can impact and help catapult businesses forward.

I think where there’s still a great opportunity in what we refer to as the “so what?” The “what next?”  You can have a great assessment process and uncover opportunities to enhance executives’ behavior, enhance the way they’re leading an organization. But it is very hard on a day-to-day basis for an executive to monitor themselves and continue to focus on where their development opportunities are and honestly evaluate their own behavior day-to-day to see if they’re advancing. Where our industry really comes in is informing that “so what.” So, what do you do about the data that you’ve uncovered? And that’s where executive advisory leadership capabilities and leadership advisory coaching come into play, not only for the individual but for the team.

It’s incredible to see an executive advance in their impact through self-awareness and understanding that they’ve gained through their assessment. It’s another thing to see an executive put an actionable development plan in place. So that they have an even greater impact, can focus more on the business priorities, are able to determine the business priorities, and hire the right people to support the business. That’s where team effectiveness comes into play.

With team effectiveness programs, you’re trying to get to the heart of what an executive team can do as a sum of different parts versus an individual executive. And as we all know, an entire team is the secret sauce to an organization, not one individual.

For example, let’s say you were able to do assessments across a full team. You can take that aggregated data from a full executive team, understanding where the strengths are, where the gaps are, and learn how the team can play on each other’s strengths and gaps, filling in for one another. Then the team has greater clarity to identify what’s next in how they go forward together and lead the business, the organization, drive priorities, create action plans and impact.

Bill Glenn: So, in looking at the gaps, that’s the piece where “What’s next in PE” comes into play?

Erica Rivera: Exactly. The thing about PE is how fast things move. If you’re coming in as an investor and you have a value creation plan that has a timeframe of one to three years or one to five years – timeframes for exits and transactions have fluctuated over the years. But when you’re looking at a finite timeframe, for the most part, you really need to get action quickly. So, you bring in a new executive to fill gaps. Bill, as we know, when onboarding executives to an organization, it takes time to really get up to speed and get entrenched into the business as well as create followership and action and energy in order to move a business forward.

Then add the layer of investment thesis time frame on top of that, you really have to hit the ground running. It’s an understatement, right? You have to be able to hit the ground running and move fast while bringing others along with you. Effective onboarding means knowing where the landmines are, knowing one’s own strengths ,  and whom on their team to rely on for their own gaps to really drive change or drive impact quickly. And that comes through both assessment and  just-in-time coaching.

Bill Glenn: What differentiator are PE firms looking for in a provider?

Erica Rivera: Private equity firms look for providers who can quickly respond to their needs. Because decisions need to be made quickly in private equity, as well as within their portfolio companies. PE firms are looking for advisory partners that understand the differences between private equity and publicly backed companies. If an advisory partner can speak the language of what it means to be a successful executive in private equity, they can better help a PE firm effectively evaluate their executives, in terms of who’s going to land well and who’s not going to land well.

One of the things I always look at in using both assessments as well as a deep dive interview is how an executive will work with the private equity board. Private equity boards are unique from public boards. They tend to be more involved, for example meeting monthly versus quarterly. There are executives, investors, and other appointees on the board who will call a CEO daily, if not a few times a day, as well as the CFO, the CRO, and rest of the C-Suite. Public companies do not work that way. Having an executive who understands what it’s like to work with a private equity board, in how it differs from working for a public company, is critical.

Bill Glenn: Generalizing a bit, have the PE firms adjusted their competency models for senior executives and CEOs, given the pace of change? Understanding that there are different sectors that private equity works in, and different evolutions or states that their portfolio companies are in, how have the firms adapted?

Erica Rivera: I think global macro and microeconomic, and environmental, changes have been pushing all businesses to move at a faster and more agile pace. With the pandemic over the past four years, that pace has only been heightened. I think this has compelled the private equity space to understand the external factors that play into driving and leading a business, and therefore leadership competencies. Private equity firms have always talked about having agile, fast-paced executives. This has evolved to requiring agile, fast-paced executives who can deal with the challenges of supply chain, have a strong network of executives, are are experienced in different types of businesses, are able to flex and find creative solutions, who can manage the needs of having diverse work environments that reflect not only the world we live in, but often the diversity of a customer base.

Over the past few years, we have seen real challenges in the workplace that have affected every single type of business, and private equity has responded to that.

Bill Glenn: In what ways would you say that, in a broader generalization- are they ahead or behind the curve? What would they see as a competitive advantage?

Erica Rivera: I think private equity is ahead of the curve in being more thoughtful in creating their boards. They have more flexibility, they have more options, and they have sometimes a much broader network of executives to dig into in order to create a more diverse board than public companies have.

Private equity has also made commitments around hiring ethnically diverse, gender diverse, and growth mindset diverse executives within their portfolio and to their boards. I do believe they’re ahead of the curve there and making headway at a much faster pace than public companies are.

Bill Glenn: You’ve talked a bit about pace, speed and decision making. How do private equity firms evaluate if they got it right or not?

Erica Rivera: This is one place I think private equity can borrow from the public sector space. Over the years, part of the best practices in the public sector is an end of year CEO evaluation by the board, which includes a self-evaluation from the CEO. Not all boards do this, but it’s an effective cadence and measuring point to do it at the end of the year. The evaluations are meant to review what decisions were successful and which missed the mark. For private equity, it’s beneficial to review what our value creation goals were, and based on the environment, needs to change based on how the business and micro economic changes have been shifted over the year, and proactively focusing on what to do going forward. It becomes a reset button for the new fiscal year.

We have one company we’ve worked with throughout the years who have focused on scaling the business to get beyond that $1 billion mark, which is a hurdle in the private markets. Toward the end of the year, the board and the CEO decided to look back and evaluate what they got right and where they missed their objectives to better define their target for the next year in value creation and growth towards double digits in their space. So, we worked with them to do a CEO end of year evaluation where the CEO self-evaluates, and then we conducted a full 360 stakeholder feedback evaluation that included the board, the executive leadership team and some C-minus-one executives.  Overall, the goal was to gather feedback on how the CEO hit the mark and where there are opportunities going forward, given the business challenges, precisely where the CEO can do things differently. At the same time, the board decided to do their own self-evaluation as well, since the board’s sole purpose is to support the CEO and the business. The board made a smart, forward-thinking decision to combine the data from the CEO evaluation, both self-evaluation and stakeholder feedback evaluation, and the board self-evaluation. This enabled the organization to reset where their priorities and goals were for the next year.

The result was an incredibly successful piece of work for the business which enabled them to have a really strong strategy session come the Fall. This period of time provides an ideal opportunity to do CEO and board self-evaluations, which then sets that business up for their end of year strategy session moving into the next fiscal year.

Bill Glenn: Are there differences in assessment profiles or tendencies for portfolio executives versus fortune global companies such as stress indicators, motives, or values?

Erica Rivera:  In the Fortune 50 businesses we work with, executives need to be that much savvier to speed, to being agile, and to understand constant shifts and challenges in business trends. The same goes for private equity as a business that worked fast and required agile executives who could drive speed to execution.  In private equity, the pressure is on immediately and there is typically a limited amount of time to develop a strategy or opportunity and execute on it. That’s where the fail fast concept came in for technology. Now we hear less about fail fast and more about speed to execution. Executives who have comfort with calculated risk taking, who are grounded in data and analytics are much more in demand, because of their ability to make smart decisions and know when to pivot or move forward. It can be very different from the speed at which your typical Fortune 100 company moves.

For example, a current client of ours has a current pressure for speed to execution because of what their competition is doing. However, as a public company, they have between two to three quarters, or up to a year, to make decisions and shift their strategy and priorities. In private equity, taking a year to shift strategy and adjust priorities is not viable.

Bill Glenn:  There are certainly examples of Fortune 50 companies that would emphasize their need of speed and change, which would inform their search for leaders with the ability to execute quickly.

Erica Rivera: Absolutely, public companies are also looking for leaders who are agile and comfortable with a certain degree of risk taking, outside of some of the finance functions, beginning with the CFO, who needs to be far more strategic and conservative in their risk. With our global economy, increasing competition, consolidation of industries, there is a need for a level of speed to execution. The difference with private equity is that speed requires a faster pace in terms of expectation than in a public company environment which has a greater regulatory requirement, and board and shareholder requirements.

Bill Glenn: An interesting correlation is where large public companies are trying to develop the agility and speed that PE firms have, PE is probably trying to adopt some of the discipline and governance that large public companies have.

Erica Rivera: There is definitely truth in that observation based on the growth of private equity over the past 15 to 20 years. Recent data places the number of PE firms at about 2000 firms of all sizes from large cap, mid cap, and small cap. When we think about how the private markets have grown over the past 20 years, there’s a decreasing gap between how a public company works versus the way private markets work.

Bill Glenn: You and I have talked about the current environment of velocity, and the volume of change and disruption in business, which I think is best described by the term VUCA: Velocity, Uncertainty, Complexity, and Ambiguity. The term originated in the late 1980s from the Army War College to describe the environment at the time. How does the term describe the challenges that the current environment poses on leadership and leaders?

Erica Rivera: I think that it’s amazing to think how far back that term dates because it is so prevalent currently, both in the private and public markets. Speed and timeframes have shifted. Businesses need to be laser focused on priorities, cost measures, and challenges in the workforce. As a result, leadership competencies have shifted. If we were to study the leadership competencies that were created in organizations 10 years ago, they would be fairly different than they are today. Today, the shelf life for an executive team charter, competency model, or executive scorecard that we develop for clients is typically two to three years, maximum.

Historically, these models had a shelf life of four to five years, possibly at a minimum. This was a required shift in the way we advise executives due to these volatile environments they are confronting.

Bill Glenn: Given this environment, what are some of Crenshaw’s key differentiators to address the issues?

Erica Rivera: When it comes to coaching and advising executives, the effect and impact of the consultant or advisor is twofold. There is an impact to behavioral change, so that an executive shows up and engages differently, or in a steady and consistent way that has brought them success in the past. But given the VUCA environment and the complexity of business today, it is essential that coaches and advisors understand what it’s like to be in a business and run a business.

They need that duality of understanding of an operations leader and an expert on behavioral change. What’s extraordinary about Crenshaw is how deep our advisors and coaches have worked in a variety of businesses, held multiple roles, and in several different industries. Grounding that advisory experience for an executive in real life business experience is an absolute differentiator.

Bill Glenn: An important question for any advisor is whether they’ve sat in the seat of the executive. While the current environment is different than others, several of our coaches and advisors carry the experience of leading during the financial crisis or through other periods of key changes and disruptions.

Erica Rivera: Having been in business for years myself before going into the field of psychology, I often approach ideas that sound great in theory from a question of whether it is plausible in practice and what that experience will be like for the executive and their team. Expectations should always be managed from what a realistic time frame is when we’re asking an executive to change their behavior or change their model in a project approach from a perspective of what’s realistic and practical. Behavior change is difficult for human beings who are often resistant to change. Human beings are the biggest disruptor to businesses when we think about the past four to five years. The pandemic disrupted our business environment, but human beings were the ones to have the biggest disruptions and act as the biggest disruptors to the environment. As executive coaches who offer advice and actionable ideas for impact, we need to make sure that they are practical, which is a skill that is best developed through real world business experience.

Bill Glenn: Even teams with great talent don’t always optimize their effectiveness, especially in a highly competitive and disruptive environment that they are operating in. How do we address this?

Erica Rivera: Historically, while executive teams and direct reports of the CEO were pressured to deliver to a business strategy and to business priorities, that pressure has only been heightened with increased competition and the VUCA environment.

What we can do with teams is provide an objective lens to understand where their gaps are. We do that first by evaluating the fundamental core style of everyone on the team individually, and then help develop those team members into better leaders. Then we can look at that team as a powerful aggregate to collectively push, change, monitor and drive a strategic agenda.

When you look at a team’s data and aggregate their assessment data quantitatively, benchmarked against a global norm, as well as qualitatively based on their own experiences, motives and values, and the goal is to align both strengths and gaps so that they complement one another. Through this process, we’re able to identify what their preferences are and where they might lean in one way versus another, and measure that again against their strategic priorities.

Bill Glenn: It’s interesting because even teams aren’t static. There’s a dynamic element to adding new members, transitions, and change. One of the greatest challenges I see for rising executives moving into C-Suite roles is their need to operate with an enterprise lens as opposed to a functional one, or being able to utilize both skillsets in their position. Where these  high potential executives have excelled at their function, they now have to support the CEO with the enterprise challenges and objectives.

Erica Rivera: In the past it was the corporate functions that predominantly had to be enterprise focused. However, in the current competitive environment where operational capital is at a premium, all senior executives also have a responsibility to think about what is best for the enterprise and the business, which is not something that comes second nature for all leaders. With several of the C-Suite leaders we work with, they have a deep fundamental knowledge that got them to the position that they’re in, but what is going to make them a successful C-Suite leader is how they engage as an enterprise leader outside of their core competencies, skills, expertise, and foundational knowledge. That can be a challenging shift for executives, which is why it’s a major focus in how we onboard executives.

A consistent data point that stands out [over many years] is that fifty percent of executives fail in new roles which is not determinative of their skills, abilities, competencies, tenure, or emotional IQ. All of those factors may align well with the role, but integrating into a new company quickly  in order to make a considerable impact is as great a challenge today as it was twenty years ago, yet in a far more complex business environment.

Bill Glenn: It’s important to note that this requirement, to develop that alternate lens, applies to both internal promotions and external hires all the same. So when it comes to succession planning to the C-Suite, given that the need to shift to a more enterprise lens in how they operate, what do we look for during the assessment process?

Erica Rivera: For succession planning, we look for ability to scale, to possess a growth mindset, an ability to be agile in developing new skills, and to think about new opportunities for ways to learn. There are critical organizational skills we look for, from both a strategic thinking and strategic planning aspect. Another factor is the ability to double one’s purview in size, space, and even from a global perspective. It’s a significant developmental endeavor in which an executive is trying to take their skills and multiply them to the necessary level in a larger role. As advisors, there are different markers that we look for when evaluating whether an executive is capable of scaling in role.

Bill Glenn: Relatedly, in our succession planning work, what does collaboration look like with CHROs  that enable them to make best selection and optimize team effectiveness at the C-Suite level?

Erica Rivera: Our CHRO clients  often look to us to strategize on how to develop a strong pipeline for internal C-Suite succession and eventual CEO succession, as opposed to searching externally. The preference is often internal versus external due to the protracted timetable to onboard an external C-Suite leader . There are also benefits to motivating internal talent through leadership development opportunities, employee engagement and establishing a culture of growth and professional development.

This adds to the complexity that CHROs are dealing with. For our CHROs, our focus is to enable them to effectively identify and develop a pipeline of executive talent. We’ve achieved this in a number of different ways. For example, recent engagements have incorporated individual learning, coaching, and assessment components for high-potential executives. We also fold in the senior leadership team to meaningfully support and work with high-potential executives not only in their domain area, but across the entire business. These robust programs that are executed over the course of the year, where our role is to enhance, monitor and evaluate professional development progress, compliment the work that CHROs are leading internally to develop talent.

Bill Glenn: In addition to developing a succession strategy, what are other key priorities for CHROs today?

Erica Rivera: This need for scaling leadership across all sectors and facets of the business leads to conversations and innovation around workplace flexibility and workplace of the future and how that affects commitments to developing employees and observing how they perform in a larger role.

The conversations around workplace flexibility and the challenges of work from home are actually about employee engagement, talent acquisition challenges and developing talent for the future.

Part of that concern is the shortened tenure of C-Suite executives. We’ve seen a trend in the length of time executives spend at that C-Suite level getting shorter and shorter over years. It has been reported that the average tenure of a CEO is about five years, where previously ten years was the norm. Turnover in the C-Suite places incredible pressure on CHROs  to place and onboard new executives faster and in setting up effective succession strategies. This involves thinking about a diverse pipeline, as well as a sustainable pipeline for executives who are ready now, versus ready in three years, versus ready in five years. These strategies and programs are what Human Resource and Human Capital leaders are thinking about and where they engage with us.

Bill Glenn: How do we engage with these HR leaders on CEO succession specifically?

Erica Rivera: The message we are continually projecting to our HR partners is that CEO and overall C-Suite succession is a journey, not an event. There are a number of examples out there very recently in the past couple of years where CEO succession has not been successful, where we’ll see a previous CEO who had moved into the executive chair role has had to shift back to being CEO, or a new CEO, either internal or externally placed, is quickly thought to be a bad fit and is replaced by someone from the board. In our experience, this occurs where effective timing was not taken into consideration in the CEO succession process, and that’s an area of thought leadership we’re continually evolving.

CEO succession is still often thought about as something you need to plan for a year or two out, whereas we recommend planning from five to seven years ahead for CEO succession, because we don’t know what to expect in that time period. There are many recent examples where a planned CEO succession fails because the successor took a role elsewhere, or the organization experiences a severe disruption in the planning process. We strongly encourage having conversations around succession at a minimum of three to four years before any expected change in tenure.

Bill Glenn: What are some of the advantages to optimizing the CEO succession process that help prepare for where the organization is going to be in three to five years and how their business model may change due to certain disruptors? And how does this affect thinking about leadership competencies that are needed presently as compared to what may be needed in the future but aren’t critical today?

Erica Rivera: One of the important reasons to have an objective CEO succession plan, if nothing else, is because boards and CEOs tend to look at the sitting CEO as the template for the future CEO. This line of thinking doesn’t quite emphasize analyzing what business changes, evolutions in the landscape, and overall industry challenges may occur. The CEO that an organization needs tomorrow, next year, or in five years can be far different from the CEO that was needed the past five years.

That is where our process and analysis around CEO succession begins. We provoke questions around where the business is today and how companies anticipate the business changing in the near term. This involves interviewing board members, the executive leadership team, and the CEO on what shifts can be anticipated based on industry environment, and how that drives the goals and strategy. All of this data is what is considered when establishing competencies for the ideal CEO of the future.

When a business properly maps out their CEO succession, they can begin to identify who currently in the organization has some of those competencies and can gain exposure over two to three years to potentially fill the CEO role.

Bill Glenn: It seems to me that Crenshaw’s ability to align and form the right long-term partnerships with our customers is critically important for success.

Erica Rivera: It’s advantageous for our clients, and for Crenshaw, to develop the familiarity and an understanding of the company’s objectives when it comes to succession and developmental work.  For all of us who work in CEO succession, we’ve been fascinated with the public case study that we’ve observed closely with Disney’s CEO succession challenges. As Bob Iger stepped down from Disney and the country was coming out of COVID, Disney’s greatest challenge was to recover from how badly business had been hit in the theme park space, leaving an enormous financial burden. In the midst of layoffs, furloughs and challenges in the parks business, there was a substantial push to install a parks person as the successor. That decision may have been short-sighted, as it didn’t take into consideration whether that made sense going forward. Disney had succeeded in recent years as a commercial and creative driver with the acquisitions of Marvel and the Fox assets. It’s a difficult business to evaluate with how unprecedented a disruption like COVID affected their parks division. Presumably, there was a very strong CEO succession plan in place that was upended by the pandemic. It was reported that the parks had not closed for one day in 50 years, and yet they were consecutively closed throughout COVID. As impossible as it is to anticipate everything, a CEO succession process needs to account for longevity, and not in-the-moment business challenges.