Experience can be deceiving when it comes to securing success

 

ThinkstockPhotos-502867683-537x350Are you confident

Sometimes the wrong person looks like the right person, but backing the wrong person can be a disaster. Just because someone is in an industry and has been successful to date does not mean they have the “right stuff” for what you need now.

Are you confident the people leading your companies have the “right stuff,” or are you just hoping based on what they’ve done in the past?

Do you have a deal coming up where you’d be more comfortable knowing that the person leading the team has the skills and stability to thrive even in changing and unexpected times?

Consider the case of Jack, a CEO who turned out not to be what was expected….

The sad tale of Jack

Jack was the CEO of a start up exploiting opportunities in a rapidly consolidating but still highly fragmented distribution industry. He was a successful, smart corporate lawyer with a mergers and acquisitions background in this industry.

Jack’s start-up enjoyed no important advantages in terms of technology or marketing. The plan was to identify good targets and to close deals at attractive prices. Competition was intense as several of the industry’s global players were pursuing the same strategy. Management capability was crucial, and Jack was part of a management team with formidable strengths. Investors had already agreed to supply Jack’s company acquisition capital when they asked me to assess him.

What I reported after assessing Jack

Jack is hard working, self-reliant, and verbally very intelligent.

But his coping style is reactive and avoidant. He is especially weak when working with others. He is not good at generating goals or overcoming obstacles. He does not easily tolerate ambiguity; the more poorly defined the problem, the more passive his coping.

When confronted by matters that require him to take initiative, improvise, or be decisive he becomes extremely anxious. At such times, he is unable to withstand the tension that would accompany seeking a full understanding of issues and working to resolve them. In an effort to get rid of problems that vex him, he offers facile, simplistic solutions that gloss over crucial details. As a result, he forecloses options when he would be better off reflecting in order to develop effective solutions.

This passive coping compromises the quality of his judgment to the point that would put the venture at risk. Unfortunately, the issues most likely to make his business successful – such as finding targets at attractive prices and handling them in a timely manner – are precisely the issues likely to bring out his passive coping.

Jack has a narrow expertise, and beyond this range, his coping breaks down. If his company were to run into difficulty – if it missed deadlines, timetables, or forecasts – his passive coping would interfere with the venture being as successful as it needed to be.

What happened (the ugly, the bad, and the good)

As investors worked more closely with Jack in his first negotiation with a seller, they saw the poor judgment our assessment had highlighted. He entered into an agreement with a seller on terms the investors had explicitly rejected. After Jack rejected their directives and moved ahead without considering their concerns, they put on the brakes by withdrawing funding. Fortunately (for Jack), another private equity firm did the deal. Unfortunately (for Jack), they had to replace him with a new CEO. The company subsequently thrived under the successor CEO.

Conclusions that can be drawn

Assessment can help you identify a disaster waiting to happen before it happens. You have to know where to look.

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How to Avoid an Ugly Mess

 

 

How to Avoid an Ugly Mess

By Leslie S. Pratch

Not every management assessment is the same. Picking the right assessment approach could mean the difference between having an outstanding investment return and having to explain an ugly mess to your partners. Different options answer different questions, so you need to figure out what you most want to learn.

What you might like to know

Has he done it before?

This question is good to ask when you know what you want and are sure it isn’t going to change. A good way to answer this question is with a talent and skill assessment. Search firms, many assessment firms, and many psychologists focus on past achievements. They document if the “candidate has done it before in a compelling fashion”. Typically, they use behavioural interviewing to understand how and when the candidate has “done it before”.

If you plan to exit the deal in three to five years, and know that the company won’t change and the world won’t change in that interim, and that there will be no unexpected opportunities and no unexpected problems, then this could be a good approach — for your needs.

How will he cope with change?

Will he capitalise on opportunity? Can he do something no one has ever done? How much do you care about how well the candidate will perform under new or unexpected conditions? You can pick someone who seems like he fits the bill but the world changes for better or worse. When it changes for the worse, you see how adaptable he is. But you may not know when it changes for the better, because the executive doesn’t take advantage of the change until the competition does.

In faster-moving or more uncertain markets, expecting the unexpected makes sense. You need someone with skills but ability to cope — which requires raw cognitive capability and a stable information-seeking personality much more than specific pre-defined skills — is also critical. Talent and skill assessments don’t address these at all. An approach aimed at understanding active coping capabilities as they will be needed for the business challenge fits well here.

How can you get the most of the executive?

Sometimes a candidate brings a lot but isn’t perfect. That introduces the other party in the interaction — you. How can you act so you capitalise on the executive’s strengths and proactively protect against his weaknesses as a leader? Talent and skill assessments won’t shed any light here; Pratchco’s approach to understanding personality as part of the assessment will.

How will he cope in a private equity environment?

The pace is fast and CEOs have to cope with having investors challenging their thinking. If they’ve been in a private equity environment in the past and you know the investors they worked with before, a talent assessment is adequate. If they’ve never been in a private equity environment or you don’t know the other investors, you should use Pratchco.

Are incumbents worth keeping, even though the strategy is changing?

You are inheriting a management team. They know the business and losing them would be a big loss. But they haven’t done what is being called for next, even if they thought of it (similar to founders’ problem with startup), so they will all fail a simple talent assessment. But they might very well be keeping if you could supplement them with your skills or add a team member at the right time. If you assume they can’t do it, you will have to hire a new team, which will lack the understanding of the company the original team had.

What’s in it for the executive?

Executives don’t generally relish the opportunity to be assessed. Putting them through a painful assessment that provides no value to them won’t be a great way to start a relationship and might even be a way to end one.

Talent and skill assessments document what the executive says and usually provide no value to the executive. Assessments that find underlying themes can help executives understand themselves better and can provide guidance that the executives can use to improve how they interact with others (including but not limited to you).


A version of this post appeared in The European Financial Review

About the Author

Leslie S. Pratch is the founder and CEO of Pratch & Company. A clinical psychologist and MBA, she advises private equity investors, management committees and Boards of Directors of public and privately held companies whether the executives being considered to lead companies possess the psychological resources and personality strengths needed to succeed. In her recently published book, Looks Good on Paper? (Columbia University Press, 2014), she shares insights from more than twenty years of executive evaluations and offers an empirically based approach to identify executives who will be effective within organisations — and to flag those who will ultimately very likely fail — by evaluating aspects of personality and character that are hidden beneath the surface.

Psychological Autonomy in Business

Leslie S. Pratch

Leslie S. Pratch

The president and CEO of Pratch & Company in New Canaan, Connecticut, Leslie S. Pratch capitalizes on her decades of experience as a clinical psychologist to assess and/or coach corporate executives and candidates for senior administrative positions. In Good on Paper, her comprehensive study of business psychology, Leslie S. Pratch defines and explains the importance of psychological autonomy.

Loosely defined as an inherent or learned freedom to choose, psychological autonomy involves the ability to disregard immediate professional and personal pressures when weighing the essential value or lack of value in any given business situation. This can be tremendously difficult to accomplish in the face of ongoing demands of company superiors, board members, customers, suppliers, the media, and/or the general public.

Psychological autonomy requires both substantial self-awareness and an equally perceptive awareness of others. First and foremost, one must be fully aware of both the internal and external influences that might interfere with his or her ability to make critical decisions. Then, the person must learn to assess these influences in terms of overall legitimacy and significance. Finally, individuals must learn to eliminate any unworthy influences from the decision-making process.