October 28, 2020 – Bain & Company, the leading global advisor to the private equity industry, and Hunt Scanlon Media, the leading talent intelligence provider to the human capital and private equity sectors, have entered into a partnership to gather data to better understand current PE portfolio company executive talent issues and their link to investment performance. “With more detailed insight on the critical talent issues facing the private equity sector, our collaboration with Hunt Scanlon will allow us to work together to develop solutions that drive value creation,” said Johanne Dessard, global financial investors/private equity practice director at Bain & Company.
The aggregate results of a joint survey now underway will be featured in Bain & Company’s 12th annual Global PE Report in February 2021, as well as at Hunt Scanlon’s private equity talent conferences to be held in New York, San Francisco and London next year. “Hunt Scanlon has been collecting actionable talent data for more than three decades,” said Christopher W. Hunt, president of Hunt Scanlon. “We believe this partnership with Bain & Company will allow for a quantifiable, data-driven look at value creation and how top talent enriches returns.”
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Revolutionary Changes Afoot
According to PE talent chiefs, there is a fundamental shift underway in private equity. According to Jason O’Briant, managing director of human resources at Blackstone, private equity firms are continually improving the process of talent management, moving beyond traditional views of human resources to something more transformative – with a heavy emphasis on talent management & development, culture and engagement. This dynamic transformation in focus, and how it will help to improve everything from talent acquisition and recruitment to engagement and retention strategies, is now at the forefront of the entire sector. Blackstone, KKR, The Carlyle Group and many others are in the vanguard of revolutionary changes afoot.
“A critical component of this approach has been to apply more rigorous assessment to the management team and especially the CEO,” noted a recent Spencer Stuart report. Private equity firms have been early, enthusiastic adopters and expert users of cutting-edge assessment methodologies in recent years, said the search firm.
“Many firms have institutionalized the assessment of management teams during the first 100 days following a deal, giving them deep insights into their new investment. This allows them to plan and shape the right support structure around the management team and apply the full range of the investor’s new functional capabilities to position the team for success,” said the Spencer Stuart report.
“Not only have we seen increased use of assessments by PE firms over the past several years, their use is increasingly sophisticated,” said Scott Gregory, CEO of Hogan Assessments, a global provider of personality assessment and leadership development services. “Although a key focus remains on ensuring the right CEO is in place, there is a trend in using assessment to ensure the CEO and his or her team function well as a unit and increased interest in linking leader personality to financial metrics,” he said. “We’re also seeing assessment used earlier than in the past, even during the due diligence process, which enables deals to close with a clear plan in place for team support and succession.”
The COVID-19 Effect
So, what has changed in 2020 in the current COVID-19 environment, and what can we expect as the year progresses? One executive search consultant who has specialized in private equity recruiting for four decades has some thoughts.
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For private equity firms, nothing impacts an investment return more than talent. Why? Institutional investors increasingly see portfolio company talent management as a crucial lever for value creation, risk mitigation and growth. But there is a fundamental shift underway at PE firms. They are moving beyond traditional views of human resources to something more transformative – with a heavy emphasis on talent management & development, culture and engagement. According to this latest landmark research report from Hunt Scanlon, it all has to do with unleashing higher levels of leadership performance to boost results. And that has required a hard look at value creation and how top talent enriches returns.
This year, Hunt Scanlon interviewed private equity leaders and their chief talent officers as well as leading executive recruiters from across the sector. Expertise was shared from leaders at Russell Reynolds Associates; Bain & Company; The Carlyle Group; Notch Partners; Francisco Partners; TPG; Frederickson Partners; Clayton, Dubilier & Rice; Coulter Partners; Hogan Assessments; Summit Partners; Apollo Global Management; Audax Group; Summit Leadership Partners; Slayton Search Partners; PierceGray; Caldwell; Acertitude; Blackstone; Ares Management; Solomon Page; CEO.works; JM Search; Diversified Search; HREquity; Invenias; FMG Leading; Innova International; Wilton & Bain; Bowdoin Group; Charles Aris; Kingsley Gate Partners; StevenDouglas and others from across the PE spectrum.
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“There are multiple transactions that have been cancelled or delayed due to the current economic environment,” said John Marshall, co-founder and CEO of JM Search, a senior-level talent provider serving private equity investors, portfolio companies and Fortune 1000s. “This has enabled CEOs to reevaluate their current situation from a timing and economic standpoint,” he said. “This uncertainty has encouraged them to be more open to new opportunities that have opened up in the industry.”
At the beginning of the pandemic, said Mr. Marshall, there was understandably a great deal of confusion and unknown about how long it would last and its impact on businesses. “In some ways, there was a strong similarity to the economic crash in 2008.” One the biggest similarities from a human capital perspective, he added: companies at both times would need to recruit different types of leaders.
Over the past several months, said Mr. Marshall, his firm has witnessed a heightened level of interest in team building. “There is now a strong emphasis on recruiting top talent to lead organizations through the pandemic and to prepare companies for the future.” One interesting outcome of the current situation, he said, is that “the pandemic has exposed leaders that looked better than they actually were because of a strong economy. Management at all levels is now being tested on having true leadership skills and strategic capabilities. I believe that sponsors of these businesses have acknowledged the necessity, now more than ever, of having strong C-suite leadership.”
A Reevaluation of Leadership
According to the latest Hunt Scanlon ‘2020 Global Private Equity Talent Leadership Report,’ institutional investors increasingly see portfolio company talent management as a crucial lever for value creation, risk mitigation and growth. And virtually every PE firm and their portfolio companies – along with many traditional companies – have detailed playbooks at the ready for how to respond when the booming economy they enjoyed in recent years finally reversed course this year. Everyone knew it would come; it was just a matter of when. Yet, according to private equity operating executives and their talent leaders, no one was fully prepared for a disruption of the magnitude of the coronavirus pandemic of 2020.
“At the core of PE’s handling of the pandemic has been a vigorous focus on leadership” said Scott A. Scanlon, CEO of Greenwich, Conn-based Hunt Scanlon. “Beyond the chief executive, the roles of CFO, CHRO, heads of technology, CISO, you name it – they have all taken on heightened significance in the face of this crisis. We believe in many ways, seen and unseen, that this will continue longer after COVID-19 is beaten back.”
The pandemic, in fact, has rewritten the script for many portfolio companies in search of talent. According to one expert, even areas of businesses that are thriving because of COVID-19 – such as grocery store delivery and telemedicine – demand that companies make huge adjustments or risk losing customers. “It means that we need a reevaluation of leadership because we need a reevaluation of the strategy or the value creation plan that was in place when the investments were made,” said Hugh MacArthur, head of the global private equity practice at Bain & Company. “There are going to be some businesses that are going to be fundamentally different coming out of the crisis. What’s going to create value in those businesses is going to be fundamentally different than in the past.”
Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; and Stephen Sawicki, Managing Editor – Hunt Scanlon Media