One common myth about leadership is the idea of the “born leader,” whereby certain individuals are born with inherent leadership traits. However, leadership is not exclusively determined by genetics or innate abilities. Rather, leadership traits can be learned. 

In this episode of The Corner Series, McGuireWoods’ Geoff Cockrell welcomes guest Leon Brujis, an experienced investor who serves as Partner and Head of the East Coast Division of 65 Equity Partners, a global investment firm. 

Tune in to hear Leon share his thoughts on the necessary components of leadership in a private equity-backed platform, including the significance of the CEO and the characteristics and traits that make a good CEO. Leon also discusses tools such as psychometric evaluations, that can be useful in making assessments. 

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☑️ Resource mentioned: The CEO Next Door 

This podcast was recorded and is being made available by McGuireWoods for informational purposes only. By accessing this podcast, you acknowledge that McGuireWoods makes no warranty, guarantee, or representation as to the accuracy or sufficiency of the information featured in the podcast. The views, information, or opinions expressed during this podcast series are solely those of the individuals involved and do not necessarily reflect those of McGuireWoods. This podcast should not be used as a substitute for competent legal advice from a licensed professional attorney in your state and should not be construed as an offer to make or consider any investment or course of action.

This is The Corner Series, a McGuireWoods series exploring business and legal issues prevalent in today's private equity industry. Tune in with McGuireWoods partner Geoff Cockrell as he and specialists share real world insight to help enhance your knowledge.

Thank you for joining another episode of The Corner Series. I'm your host, Geoff Cockrell, partner at McGuireWoods. Here at The Corner Series, we try to bring together deal makers and thought leaders at the intersection of healthcare and private equity. I'm thrilled to be joined today with Leon Brujis from 65 Equity Partners. Leon is an investor and just has a lot of interesting thoughts around the necessary components of leadership in a private equity backed platform. But Leon, maybe to start us off, if you could introduce yourself and 65 Equity Partners before we jump into some discussion.

Geoff, thank you so much for having me in your podcast. I look forward to a great discussion. My name is Leon Brujis. I am a private equity investor with close to 20 years of investing experience. I am currently the partner and head of East Coast for 65 Equity Partners. 65 is a global investment platform based out of Singapore with offices in London, San Francisco, New York, and obviously in Singapore. We are currently managing $3.3 billion of assets, and our strategy is rather unique in that we are solely focused on investing behind family and founder owned businesses where we can be a minority investor and help them grow.

Thanks, Leon. As I look at investment thesises of private equity investors, there's a lot of different components, whether it's the plan, the model, pricing, and while they're all important, today we're going to be talking about the significance of the CEO and the characteristics that make a good CEO. How central is that single person in executing a vision and a plan for a platform?

I think that as you think of the top two or three pillars of an investment, the management team, particularly the CEO, the top foremost leader of the organization has to be number one or number two, and really when you are deciding on making an investment, if you're a majority private equity investor, really want to back a strong CEO, hope that it will work out. And if it doesn't, your only option really is to switch him or her out. On our case, it's kind of the opposite. We're backing a founder or a family member and we really start with that relationship. If we miss the underwriting of that relationship, then the investment won't work as well. So for us at 65, underwriting the leadership of the organization, particularly the CEO, is simply a critical component.

So Leon, given the centrality of the CEO figure, you're investing in family owned or founder owned businesses, how often is that founder or a family member themselves that transformative CEO, or do you have to go out and find one?

Well, I would say every time that we're making an investment, that individual is already at the organization and our investment thesis is around backing this individual. Now, there is an important caveat. In some instances, the CEOs that we back are in the process of transitioning out of the business because of age or personal reasons, and in that case, we can help through a multi-year transition period, recruiting the would-be CEO and assimilating that person and integrating them to the organization, so that when the business is ready for a new investor, potentially a majority investor, the transition has taken place.

What are some of the characteristics of the CEO that you're looking for?

I think when we think about backing a CEO, one of the things that is important to highlight, and I think it's a common misconception, is I don't think anyone is born to be a CEO, but rather you can become a CEO, and the traits that we look for are all things that can be learned and can be assessed, and I think we kind of distill it to four categories. And this is in part based on research done by a firm called ghSMART who wrote a really interesting book called The CEO Next Door. And the four attributes we look for are decisiveness, and decisiveness really means the ability to make a decision and make the right decision. CEOs understand that there is such a thing as decision fatigue, and so they try to reduce complexity and turn it into simple decisions and reduce the amount of decisions that they make.

The second thing we do is engaging for impact, and what that really means is that you have to think about the CEO as the orchestra conductor, and really we want someone that knows how to empower a team and drive results through the team. We also look for people that are accountable and reliable. I think that those to me are really important attributes where people are available, reliable, accountable, and have that sort of the buck stops with me attitude. And then lastly, we need people that are adaptable. I think as Yogi Berra used to say, "Forecasting is very hard, particularly about the future," and also we know that it's not the smartest or the strongest that survive, but the ones that adapt to change the best. So, those are really the four attributes that we look for: decisiveness, engaging for impact, reliability, and ability to adapt.

You talked about these characteristics being developed. Those didn't sound like personality traits, and I know there's often a lot of discussion around personality types being suitable for certain roles. How significant is personality type in your analysis or is that secondary to these traits that can be learned by any personality type?

That's a great point and a great question, Geoff. I think for the CEO and for the investor choosing the right kind of person for the stage of the company is also critical, and I think it's independent from the four attributes that I just highlighted. There are certain situations that require a certain CEO and certain others that require a completely different personality set. Here again, I think that there are archetypes of CEOs that you can think about pursuing, depending on the situation and investment you find yourself in. Number one is sort of the sky is the limit CEO. The sky is the limit CEO is usually best suited for high growth, more startup type of environment. These are folks that are very aggressive and very adaptable, but sometimes they're more, let's just say, scatterbrained, and so reliability is less available, though less important. There's also the operational CEO, this is the CEO that really is very good at engineering processes, reducing costs, streamlining operations.

Usually, I think of these CEOs as the ones that are maybe the first private equity majority recap where new leadership is needed to take the chaotic entrepreneurial approach and bring some processes to it. For the folks that are more in the turnaround and restructuring their ghSMART calls the ER surgeon, this is the turnaround star usually very effective at making decisions, but also usually these CEOs get bored quickly and move from turnaround to turnaround. And then lastly, they're sort of the, they call it the safe pair of hands, and this is the CEO that can take a business and continue the trajectory, won't make any bold moves that will sort of safeguard the assets.

So, you've got kind of personality traits being relevant, you've got these characteristics that you're looking for and these archetypes. How do you go about assessing what the CEO that you're looking to back assessing what their characteristics are? How do you go about that?

To me it's something that it is harder to do because a lot of this relies on conversations and on references and on trying to get to assess all of these in a relatively short period of time, but here are sort of the way I'd like to approach this. Number one, to the extent that we can use expert assessment, be it from an outside firm or from someone in our own organization that is used to assessing talent, I think that's always very helpful. I think the reference process is incredibly important and how to conduct references sometimes can give you insight into behaviors of this individual that are harder to pick up from talking to the individual assessment.

Something that I have explored in the past is there are certain assessment tools you can have executives take psychometric evaluations that can shed light into some of this. Ultimately, I would say relying only on your own assessment of leaders in my experience, has not proven to be the best outcomes. Usually a lot of those decisions are made straight from the gut and your ability to relate with that person, which doesn't necessarily translate to performance. So to recap, it's a difficult process. The more you can involve third parties, other individuals at your firm, expert advice, the better outcomes you will have.

So, a business goes through kind of a life cycle that may need different things at different times. How often is a singular CEO going to be equipped to see that business through various stages, or do you kind of in the background expect that at certain inflection points it's probably going to need to be somebody else?

If you look at any successful company, there is usually a moment where new leadership is needed. Now, with all of this, it really depends, and you've seen companies that go from CEO to CEO and companies that have a founder that leads the business for 40 years and it's a great outcome. I would say generally speaking, less change at the top suite is better, though I would say some change over a long period of time can be very good.

These characteristics, is it always in one person or can a good CEO kind of cobble together team members that have different elements of these characteristics? Does it have to be all embedded in a single person?

No, that's a great point, and I think it comes to one of the other really strong and important attributes that we haven't talked about yet, which is really to me, the success of the CEO is also predicated on the ability to build and form a team. So, the answer to your question is if this CEO and individual is highly adaptable to change and they can look for expertise that they lack in others and build and change the team around them as the environment changes, then I think that will be the hallmark of what will make a CEO successful in the long-term.

When you think of these traits and characteristics as being not statically present in someone, but they're evolving, how do you go about coaching and nurturing these traits once you're involved with a platform?

Well, I think it starts by developing a strong sense of partnership and a strong relationship. I think giving our CEOs the concept of psychological safety where they feel like they... Without taking accountability away, that we can have really great conversations that are straightforward and open. I think that's what gives us, from a board capacity, the ability to coach the CEOs. Ultimately, we have this saying at 65 that we want our CEOs to call us on their best days and on their worst days, and really what that means is that on the best days is that they feel like we have learned the business and know the business well enough that we will be able to celebrate their victories with them and on their worst days, the same thing, we've learned the business enough and know them and the situation well enough that we can be a sounding board to them when unexpected things come up or problems arise.

I'm sure that every CEO you back and platform you back is not a dream scenario once you're involved in it. When it goes sideways, specifically with respect to the choice of the CEO, what does going sideways look like?

Great question. I actually want to point out another interesting thing about CEOs, which I always focus on, which is in the study by ghSMART, it came out that for all great CEOs at some point, they confronted a major career catastrophe, and I think good CEOs understand that mistakes will happen and that one should expect adversity, and that's where that kind of decisiveness and adaptability that we spoke about before comes up. And so, those are the things that when things break down, I look to the CEO for leadership. So you ask, how does that look when things don't work out?

I think in any investment that we make, we don't plan for things to go wrong, but we try to prepare for things can go wrong, and I think when I see that there is a lack of decisiveness, a lack of a plan, when too much emotions get involved and executives are not able to control them, that's when my spidey sense goes up and I get the sense that a change is needed, but it's important to separate what the situation is happening, in this case bad, from how the executive reacts and how the executive reacts is really to me what informs whether new leadership is needed or we have the right captain on the ship.

Can you, without getting into too many specifics, describe some of the most successful CEOs that you've backed and some of their characteristics in their development and growth?

I think on a private equity context, what I have found is that CEOs that understand the private equity model, that are data-oriented and have analytical rigor, as well as they understand that we are data minded and data-oriented, when I see that CEOs managing their business through metrics and they have found the right combination of driving vision inside their organization, they command the respect of their team, and are very data-oriented, that's when I see those are the ingredients that I typically see in successful CEOs. And I think the opposite is also true. When I see that a lot of CEOs, Geoff, come through the ranks in marketing and sales divisions, and they're able to usually communicate very effectively, which is paramount for any CEO, but sometimes, and this is obviously not a generalization, but sometimes when they're less metric oriented and are over reliant on their CFOs for the numbers and when you can tell that they're not commanding the respect, that is usually palpable at board meetings, Geoff. That's when you see situations that either we start with coaching and then with potential changes.

Leon, we've talked about the characteristics that you're looking for. What are some characteristics that you're kind of screening for, the negative characteristics that you don't want?

Thanks, Geoff, great question. Here again, I think that we can sort of look for five common hazards that we want to stay away from CEOs. Number one is what we're going to call the skeletons in the closet, and these are situations where CEOs really have had a string of behavioral matters that have made the change in the jobs and they really haven't been able to adapt and move from the past. And whenever we see skeletons in the closet, that's usually a red flag. Another thing, and this is harder to evaluate, but it's easy to see once the person is on the job, is CEOs that don't delegate and therefore have too many demands on their time. I spoke earlier about the real issue of decision fatigue and decision fatigue is real, and if you're not able to limit the demands and focus on keep the most important thing, the most important thing, that can also be another red flag.

I think there's always an over attribution component to CEOs and they usually get praised or blamed for anything that happens, even if it was directly attributable to them, and their ability to separate themselves without coming off as offensive or less accountable is incredibly important. I think that particularly in today's day and age, and with the advent of technology, there is a lot of tools to help CEOs do their jobs better, and leveraging those tools is critical. And so, CEOs that don't keep up with the times, I think, it's also not a good sign. And then lastly is what I spoke about earlier, which is their ability to control their emotions. We as human beings are emotional beings, and we can't control what happens to us, but we can control how we react and how the CEOs react and they handle pressure is a key component of being a great CEO. So, we want CEOs that create winning routines and great habits.

Leon, we could talk about this all afternoon, but I think we'll end it there. In my experience, I totally agree with the premise that having a strong leader is such a unifying characteristic of the platforms that I've seen have success, and the absence of that is usually the catalyst for them not having success. So, I think the thought process is exactly right. Leon, thank you for joining me. This has been a ton of fun and we'll have to do it again sometime.

Thank you very much for having me.

Thank you for joining us on this installment of The Corner Series. To learn more about today's discussion, please email host Geoff Cockrell at gcockrell@mcguirewoods.com. We look forward to hearing from you. This series was recorded and is being made available by McGuireWoods for informational purposes only. By accessing this series, you acknowledge that McGuireWoods makes no warranty, guarantee, or representation as to the accuracy or sufficiency of the information featured in this installment. The views, information, or opinions expressed are solely those of the individuals involved and do not necessarily reflect those of McGuireWoods. This series should not be used as a substitute for competent legal advice from a licensed professional attorney in your state and should not be construed as an offer to make or consider any investment or course of action.