It is rare that executives will admit they are stubborn, hostile, or disingenuous – certainly not in interviews with those able to hire or fund them. To the contrary, most executives are persistent, assertive, and sincere, and their responses on self-report measures, including interviews, are calculated to demonstrate those abilities. Even the most astute interviewer will have trouble distinguishing, for example, stubbornness from persistence. Dysfunctional aspects of a personality may become evident until the individual experiences severe stress, when the need for capable functioning is greatest. It is usually only under stress that an individual’s true character will show itself.

The most distinctive aspects of active coping operate at levels that the candidate being assessed can neither identify nor control. Our proprietary methodology – Active Coping Assessment – requires the candidate to fall back on his or her inner psychological resources to cope with the demands of the assessment.

What makes the Active Coping Assessment so useful is its psychological realism. This gives our approach tremendous ability to predict how an individual will actually function as a leader across stressful situations.

Methodology

The central issue we examine is how an executive will handle the emotional stress caused by challenging, unforeseem business situations.

Our assessment instruments present the candidate with vague, ambiguous, mildly discomfiting situations, each requiring a response. Although it will not be apparent, each situation has been carefully designed to elicit different aspects of the kinds of psychological functioning that are critical to effective performance.

To generate a response, the candidate must fall back on his inner psychological resources. The executive has no cues for how to answer, and no answer is right or wrong, good or bad. There is no pretending, no role-playing, and no faking good. Nothing about the test situation allows one to rehearse a response or to give a canned answer. Formal education, training, and work experience neither enhance nor detract from the adequacy of one’s response. Executives cannot evaluate the meaning of their responses as they relate to their potential performance in the job. Most respondents will not be able to identify exactly how or why they feel stressed.

By linking an executive’s values and motivations to the strength and stability of his or her coping tendencies, we can predict how an executive will respond to the demands of a complex management role.

Success Rate of Assessment

A clinical psychology method of assessment increases the accuracy of predictions of managerial success or failure. This method goes beyond interviewing and reference checking to examine an executive’s psychological tendencies to behave in unforeseen business situations in ways that create or destroy value. Research examining the predictive validities of our assessments indicates our assessments are extremely accurate in predicting how executives would perform. Research tracking the effectiveness of our assessments to predict actual performance shows our assessments are effective more than 98% of the time.

Empirical Validation

We continue to conduct empirical research fine-tuning our approach. In a recent paper (2008), we present data generated using a clinical psychological method of assessment for nine executives of five portfolio companies of a particular private equity firm. This was one in a series of papers examining the validity of a structural psychological approach to helping to select executives. This structural approach links three components: the operating executive, the strategy, and the execution of that strategy. The paper demonstrates one application of this approach: It treats each particular situation concretely, in its own terms, without trying to draw general conclusions from the observed facts. Predicting how management is likely to perform under highly stressful conditions is one of the most difficult evaluations to make.

Typically, companies look at what an executive has done in the past. To validate what executives claim about themselves, they may also conduct interviews and check references. That approach relies mostly on measures of past performance. On its own, however, past performance is inadequate to forecast the future. As Warren Buffet (and the S.E.C.) has reminded us, past performance is no guarantee of future returns. Measures of past performance confound individual capability and situational factors. How an executive has performed in the past may not predict how he or she will perform in the future – especially as industry and organizational conditions change.

To predict how an executive will perform under novel or challenging conditions requires a model that takes into account the dynamics of the executive, the strategy, and the operating environment. In a four-year prospective longitudinal study that was funded by the University of Chicago Booth School of Business, we conducted the first systematic effort to identify in advance individuals with the psychological resources needed to be successful business leaders. Subsequently, we conducted one of the first and most extensive empirical studies into the personality characteristics of successful CEOs of private equity-backed firms.

A central feature of our model is a construct called active coping. Active coping is the individual’s readiness to adapt resourcefully and effectively to challenge and change. Active coping is manifested in the individual’s propensity to strive to achieve personal aims and to overcome difficulties, rather than passively retreat or be overwhelmed by frustration. Active coping predicts the behavior and success of individuals when the setting – the characteristics of the environment in which the individual may have to behave in the future – cannot be fully specified in advance. For top management roles, the environment is especially complex and difficult to predict. Individuals with the greatest likelihood of performing successfully in top management roles will be those who can respond in an adaptive manner to emergent, dynamic, and complex situations. This means that companies choosing executives for such roles need to assess their readiness to acquire new skills and strategies for coping with novelty.

Here, techniques borrowed from clinical psychology can help. These techniques, combined with customary management evaluation tools, can increase the accuracy of executive selection and the likelihood of positive returns by establishing whether the executives who will drive portfolio company performance will execute successfully the company’s strategy in complex and uncertain operating conditions.

An executive’s past performance is partially the result of happenstance, that is, factors extraneous to and uncontrolled by him or her. An executive’s past performance does not automatically imply the capacity to succeed in a new environment. We disentangle the role of chance and circumstance from the executive’s objective past and ongoing ability to function under conditions of challenging uncertainty. We tease out the particular talents that worked for the executive in the past and discuss the circumstances under which those talents might not work in the future. Just as investors evaluate a company to understand the underlying basis for earnings growth, we assess an executive to explain and predict individual performance. We measure performance success against the degree to which the executive has met the requirements of his or her role. A prediction of how the executive will function in that particular management role emerges from an analysis of the person, the organization, and the environment.

A clinical assessment method allows us to assess the underlying psychological forces that lead to success or failure among already high achieving individuals. Examining the dynamics of the person-firm-environment interaction makes it possible to set forth scenarios in which an executive’s underlying psychological tendencies might present risks – or opportunities – to investors or board members who can provide appropriate support and incentives. A clinical method also indicates ways to structure and manage the relationship between the investors and the operating executive.