When I was a CEO, I thought I understood private equity.
I didn’t. And what I’ve learned since my retirement, and since becoming directly involved in the world of private equity, points the way to a new career path for thousands of talented senior executives – and a new engine for value creation.
As a CEO, I had significant exposure to private equity, enough that I had in no way bought into the media’s caricature: rapacious privateers who destroy companies.
But I saw private equity through the eyes of an outsider. As CEO of Aetna, I was a buyer of portfolio companies rather than a participant in the value creation process. From the end of the assembly line, what happened in manufacturing wasn’t visible to me.
When I retired from Aetna, I became part of the private equity world. It turned out to be a natural fit. I could continue doing what I’d been doing: bringing my experience to bear to ensure that business potential was fully realized.
And that, I discovered, is what private equity actually does. It does not just provide capital and ideas – it harnesses business experience and insight in order to create value.
When I explored a number of private equity firms it was clear not all of them were equal in their values and approach. The firm I elected to join met my criteria. I was able to become part of the manufacturing team. I discovered that what my new colleagues actually did was to provide the executive talent, scalable processes and strategic perspective necessary for portfolio companies to live up to their opportunities.
That was what I couldn’t see from my CEO seat – the scope and impact of private equity stewardship. In some cases this is as simple a matter as finding the right CEO. But in many cases the matter is more complex: assembling or changing the leadership team.
Sometimes the work is focused not on leadership but rather on helping companies understand their capabilities: for example, combining elements of two business lines against a set of customer needs in order to create a third line of business.
All of this is the daily fare of private equity. No matter the focus of a particular equity firm – financial, operational, talent or process –the goal among top-tier firms is always the same: a better-performing business.
And that, of course, is also the focus of senior business leaders. For leaders that grasp this, there is a tremendous opportunity: to enter into private equity and create new value in portfolio companies.
If enough business leaders seize the opportunity, the impact could even reach beyond individual businesses.
Consider. If the senior business leadership cohort is comprised of the top five executives at each of the Fortune 500 companies, that’s a total of 2,500 current CEOs, COOs and division heads - smart men and women with the talent, insight, experience and scar tissue required to run a business.
Many, perhaps a majority of these business leaders are of the baby boom generation. Within a few years, if not sooner, they’ll be entering retirement. But like me, they’ll only be retiring from corporations, not from work and not from value creation. Given their numbers, if they enter private equity, their impact could be transformative.
And if you remember that the leadership cohort includes not just the current Fortune 500 leadership but their successors, the scale of the opportunity becomes fully apparent: a steady, sustainable flow of battle-hardened executives who can help fuel growth, not just for individual companies but for the entire U.S. economy.
The work is not easy – it is more than merely serving on the Board of a portfolio company, though less than being a full-time executive. But there are rewards, both psychic and financial, in direct proportion to the degree of engagement. Therefore, I sincerely hope that the current generation of leaders will start to think – now, not waiting for the moment of their retirement – about how they can continue to create value in their post-corporate lives. And I hope that they will choose the private equity path.