Private equity firms may have had a mixed press, but there is one field in which, in recent years, many of them have certainly been innovative, and that is recruitment.
During the boom times in particular, many of them shunned the traditional model of hiring a headhunter, preferably with the right old school tie, who would trawl through a database of contacts before coming up with a list of suitable chaps (and they generally were chaps) some months later. They were not like that.
To be in with private equity people you had to be dynamic, to think outside the box, most of all someone who could move fast. Nowhere was this more apparent than at the MBI Friday events set up many years ago by Directorbank, a Leeds-based recruitment firm specialising in non-executive appointments to private equity-led businesses.
At these events (held just as often in London as in Leeds) potential candidates and those who might just happen to be available would mingle with private equity professionals, often wearing no ties at all but with the nattiest of smartphones, and contacts were made on the night that could very well lead to job offers being posted out the following morning.
Of course, the world of private equity has become a more sullen place since then. Veteran recruiter John Pearce admits this. “Private equity has certainly had its troubles,” he says.
“There have probably been too many firms out there chasing the same number of deals, so there has been a degree of consolidation. Some firms have gone into run-off, which means they are not making any more investments.
"Duke Street, for example, has done that. They were everybody’s darling, and made some great investments in their time, but they have since struggled.”
Nevertheless, he is hoping that whatever may have happened to the houses themselves, their methods of recruitment may still have attracted a keen following, and not just from within the private investment community.
Pearce is familiar with the intricacies of such events as MBI Fridays because for six years he worked for Directorbank. Pearce, who is based in Leeds, now plans to adopt a similar approach – if a very different execution – to his new venture, the Chief Officers Group. Certainly he seems to have attracted a lot of attention.
He has already won financial backing from a number of what he calls high net worth individuals, two of whom are also playing an active role in managing the organisation.
Tim Harrison comes from a background with 3i, the grande dame of private equity houses, where he finished up as director for pan-European buyouts, while Chris Ward was a partner at Deloitte for nearly three decades, specialising in corporate finance and finishing off in Dubai, where he ran the accountancy practice’s financial advisory services. In the few months the Chief Officers Group has been in operation, it has also attracted a number of top assignments.
Just some of the work the six-strong team is involved in includes helping with the fundraising and the creation of a top management team for the global roll out of an ultra high end luxury brand that is going to be endorsed by a wellknown supermodel; finding a chief executive for a global software business based in the UK that wants to break further into the US market; and placing a chairman on the board of a special effects business that works with all the top Hollywood studios.
Pearce is particularly keen on the work he has been doing with Richard Pennycook, who is shortly due to stand down as group finance director of Morrisons after eight years in the role, although he will continue in a number of other roles including chairman of the Hut Group and chairman of the audit committee at Persimmon. Pearce has been helping Pennycook both with his own future commitments, but also in finding a replacement for his role at Morrisons.
That has finally borne fruit with the appointment of Trevor Strain, who previously worked for Tesco. Such a process has been going on for four years, which is unusual for Pearce because what he says potential clients like about his new practice, as initially they did for Directorbank, is its relative speed at turning jobs around – with little up-front cost.
This, he says, is proving particularly attractive to the UK’s big banks, who are still working out what to do with many of the troubled companies they have found themselves in charge of who have become too saddled with debt as a result of the leveraged deals they have done in the past.
“The banks are certainly taking more control,” he says, “and there are plenty of debt for equity swaps around. But they are also having to think more carefully about how those businesses are managed. We are talking to banks and they love what we do because they need to get access to people with great track records.
"We get to know a group of high calibre individuals who happen to be on the market because they have been successful. Usually they will want to take a 2 to 3% stake in the company as well, just to show their commitment.
"They are proven candidates who have probably already made decent money. They have got the T-shirt, you might say. We also like to deal with people who have been through the private equity cycle before. Some have already had five or six chairmanships. Or they are people who have come out of the big corporate world.”
This contrasts sharply, he says, with the experience such banks may already have had with traditional headhunters. “We can get access to the right people quickly,” he says, “but many banks haven’t got experience of this.
"Some have individual relationships with headhunters, but such relationships are usually very fragmented. In any case, traditional headhunters cannot work quickly enough, and they usually need a retainer each time.
"That usually means a third of the money now, and then the rest when they produce the shortlist. And I would bet anything that that shortlist they show you is the same list of names you might have seen six months ago.”
Such antics are a sleight of hand, he says, and are not something he wants the Chief Officers Group to indulge in. “Headhunters talk about their job as if it were some kind of science,” he says.
“They say: ‘We don’t have any database, we just use our natural intuition.’ But the more fool you if you believe that. We all know headhunters certainly do have databases, and use them regularly to search for candidates.”
In fact, he says, the database has become such a tool in the search industry, partly because the industry likes to think that there are so many potential candidates out there, that the whole executive search service is in danger of becoming commoditised. This was one of the things he saw happening at Directorbank, he says, which persuaded him to move on. With over 3,000 people on your books, he says, it becomes very hard to keep relationships personal.
“You can’t have 3,000 amazing people, and keeping in touch with such a large number is very difficult.” He says at the Chief Officers Group instead they probably have a pool of people that is around a tenth of that number – only he knows they will have been properly vetted, and will usually only have made it into the pool on the recommendation of someone else already in there.
“We have worked out who the good people are,” he says. “We don’t start from scratch, we go to them.” It is this approach, he says, which has made the likes of Pennycook have faith in what Pearce advises. “Richard paid me the biggest compliment by saying that I almost never come up with duff candidates.
"He said: ‘You send suggestions through on spec, which I normally hate, because people do it all the time, but when I get one from you I know I need to take notice.’” The other thing Pearce says his organisation is not is an interim management agency. “We don’t deal with career interim managers,” he says.
“Our candidates are first and foremost businessmen. Career interim managers are people who have typically decided that they want to be an interim only, and charge a nice fat day rate. Our people are not really interested in a day rate. Some will do that as a stop gap, particularly if it gives them new experience. But they want a permanent role.” The one exception to this might be finance directors, which are something of a speciality for Pearce – at Directorbank he says he once placed 32 in one year.
“They are slightly more of a commodity, and they are aware of it,” he says. “But even then most of them are not interested in three months’ work. It would be more like five years.” But he does want to give his new agency more of an international focus. The importance of this was something that first struck him when at Directorbank he was asked to go out and set up an office in Frankfurt.
“It made me realise what a big world it is,” he says, “and at the time I thought Directorbank was perhaps being too UK-centric. UK PLC certainly wasn’t the place to invest a lot of time in 2008 and 2009. I thought that was the wrong direction. “I think the model we have now of connecting private equity should be rolled out internationally. I had a lot of success in Frankfurt.
"We did deals all around Europe, generally fewer but bigger deals, and that I think will be perfect for the Chief Officers Group. We are dealing with a high calibre group who are international businessmen. So we have also started dealing with firms investing in Eastern Europe. They wanted access to Western experts, with knowledge to pass on. I remember being in Brussels Airport, realising that really Leeds is just a pimple on the map. So is London in many respects.
"And that is why, almost inevitably, his travels for his new agency have already taken him out to the Far East. “There is clearly a lot of money in China,” he says, “but there are also businesses wanting to do business in the West – to make British acquisitions.
"So we have been out to Hong Kong to meet the private equity professionals there. They know we are not going to replicate the model in the same way. Private equity tends only to take minority stakes there. And culture and trust is important.
"Putting a non-Chinese chairman on a board out there to them is almost like a loss of face. So what we want to do is give businesses in China access to Western experts so that they can do deals and bolt-on acquisitions. One firm we encountered is really a bunch of Canadians who moved out there, and want to find businesses in the West and improve them.”
Such activity was no doubt much discussed at the official opening the Chief Officers Group had in London in March – yes, despite the work already done, the agency hadn’t actually had one.
To show they meant business Pearce pulled out all the stops to have the event at Claridges – a top-notch venue, says Pearce, where he could rest assured that guests would not be distracted by other events going on at the same time. He also brought along Steve
Tappin, a business coaching guru with a wide experience of doing business in the Far East (as laid out further on his website www.xinfu.com) to give a welcome address. “It’s been quite an investment,” says Pearce, “But it’s part of what we do. It’s for exactly the same reason that I don’t really like calling our candidates candidates. I much prefer to call them members. “We should be introducing our candidates to other ‘candidates,’ so eventually I hope they might pay to be part of something, if we do it well.”
It’s certainly a new way of looking at recruiting.