Talent Continues to be the Driving Force Behind Private Equity Firms

Private equity firms are saying that talent is the most important factor in driving growth. But what does it take to fill senior roles for these companies? Laura Kinder of Daversa Partners, Tim Robb of Eric Salmon, Andrew Oliver of WilsonHCG, Eric Walczykowski of Bespoke Partners, Dana Feller of Hudson Gate Partners, Keith Giarman of DHR Global, Shawn Cole of Cowen Partners, Pete Petrella of TalentRise, and Chris Smith of Leathwaite share their views!

June 16, 2023 – It has never been harder to attract top talent to private equity and PE portfolio companies. “We’re seeing a huge reluctance to leave jobs for anything less than top brands, and successfully recruiting out the absolute all-stars is requiring more than just outsized economics,” said Jordan Brugg, global head of private equity for Spencer Stuart. So, what can PE firms do? A recent report from Spencer Stuart lays out a few ideas. Start the process early. “It bears repeating that the war for talent has never been more fierce, so you need to move extremely fast when you see someone who fits,” the Spencer Stuart report said. “As a result, our clients are spending more time at the outset before launching searches to get all the stakeholders in agreement; candidates can smell misalignment. This means you need to iron out the business strategy, the case for the role, and the compensation parameters early on.”

Spencer Stuart says that at the senior-most hiring levels, it has been commonplace to have more ambiguity when chasing big-name executives and difference makers. “But owners and investors can no longer afford this lack of clarity and the best in the business are spending more time linking how value will be created by each role on the team, and what that means they need from each position,” the firm said. “Doing the upfront work and getting an early jump on aligning stakeholders can actually save you considerable time in the end.”

Don’t Eliminate Candidates Too Soon

Talent is scarce and hard to attract. Suddenly, the evolution of the employee-first mindset is not just about the broader workforce, but also about the senior executive, according to the Spencer Stuart report. “If you meet a good candidate, but aren’t quite sure they are the solution, keep them engaged,” the study said. “It is painful to run a full process only to find one of your earlier candidates (or top employees) was the best solution out there after all. In this market, chances are they will no longer be available if you didn’t keep them in the process and take them seriously throughout.”

The report notes that the “work-anytime-from-anywhere-with-any-device” mindset is becoming pervasive, as is the notion of creating your own “corporate ladder” vs. climbing someone else’s. Spencer Stuart asks, in a world where everyone can become a leader, why would we expect our more senior hires and top talent to wait around for an appointment?

Rethink Your Ideal Candidate

“Massive wealth creation and compensation expectations during these last few years, combined with the strong need and desire for more diverse teams have changed the profile for in-demand talent,” the Spencer Stuart report said. “Next-gen and step-up candidates from lower in an organization, who may be less proven but are highly capable and motivated, become more appealing. This increases the need for better assessments that examine not just experience, but also individuals’ capability, character, and potential.”

“Top talent needs to see and feel the commitment to their recruitment to believe in the value of the opportunity,” the Spencer Stuart report says. “Without this, they have plenty of other options where they know they will be important. Too often sponsors seek out the most efficient process and delegate responsibilities. If it’s a priority hire — and a priority candidate — the process and stakeholders need to reflect this.”

Hunt Scanlon Media recently spoke with top executive search consultants and senior executives about the current state of the private equity sector. Here is what they had to say:

Leading PE Talent Experts Weigh in

“While the market remains highly competitive, we are seeing the best PE companies continuously attracting high interest from candidates,” said Laura Kinder, president of Daversa Partners. “Despite recent economic events affecting the industry, there has never been greater opportunity for PE nor more access to top tech leaders. A significant trend we are seeing is the spike in interest from tech executives towards more traditional public companies. This is largely due to the opportunity for transformation as traditional companies continue  to adopt more tech-centric business models. Many of these larger, public companies have struggled to optimize and integrate technological solutions  into their overall business strategy, which is why the need for tech leaders with bold visions has become critical for driving change across this sector. Leading an organization through digital transformation is no easy feat, and ultimately requires a combination of critical capabilities, experience, and instincts, which is why the bar has been set so high for executive candidates to meet the operational excellence required in this market. What these public organizations need are customer-first tech leaders who are dynamic, change-oriented, and forward thinking. Ultimately, these leaders will be the agents of change and innovation across this sector.”

“One of the most unique traits that PE firms look for in prospective leaders is the ability to work effectively with a board of directors,” Ms. Kinder said. “The executive team and board of directors should operate in alignment as both play a critical role in governing and guiding an organization toward achieving its strategic goals. Another important trait is the familiarity with the operating style of the organization. Leaders must have a deep understanding of the intricacies of organizational operations so that they can make informed strategic decisions. Operational efficiency is also highly valued, as this is critical for streamlining processes, driving productivity, and optimizing resource allocation to ensure the organization is running effectively and efficiently.”

“Regardless of the type of company, culture always plays a critical role in driving employee retention,” said Ms. Kinder. “One of the key indicators of a healthy culture is transparency from the top down, which instills a sense of trust across the organization. This is especially important when instilling the business’ mission and goals, as the synchronicity between employee and company values plays a huge role in retention. Employees should have a deep understanding of the company’s overall mission, how that ties into the broader organizational goals, and ultimately how that influences their individual objectives.”

“We’re finding that it is still very competitive hiring senior talent for the most successful PE Funds and their portfolio companies, although we have noticed that hiring in some sectors and verticals has plateaued,” said Tim Robb, a consultant in Eric Salmon’s London office. “However, the market leaders continue to pipeline great talent even if they are not immediately in a position to execute a hiring mandate.”

“Our PE clients trust us to find senior investment professionals globally for their deal teams, their portfolio talent, and operating partners, and other critical hires such value strategy team leaders,” Mr. Robb said. “For these funds, we have completed several mandates recently which required diversity traits in the short lists, alongside the usual expectations of strong origination and deal flow, combined with value creation skills. We are also a trusted partner for PE portfolio board builds and executive hires. In PE portfolio companies, our clients mandate us to find world-class ‘athletes’ at the top of their game – who typically tend to be purpose-led, mission-driven, and action-oriented. As a signatory to Chapter Zero, we also assess candidates for their commitment to sustainability and other ESG criteria.”

“Diversity features strongly in all our board work and our executive hiring – and can be difficult in some sectors that PE invests in, but not impossible,” said Mr. Robb. “Ultimately our clients want to see short lists of the most capable, viable candidates and will hire based on a blended scorecard, balancing diversity with other important factors including cultural fit, merit, and competencies.”

“We find that cultural fit is one of the strongest indicators of success in our search assignments, and we will invest significant time in the discovery phase to understand our client’s culture, and in assessment to match candidates who will resonate with, rather than reject that culture – and vice-versa,” Mr. Robb said. “Our placements are guaranteed (in the unlikely event that a placed candidate doesn’t work out, we will re-run the search for free) so we invest a great deal of time, effort, and judgement to ensure that short-listed candidates fit or exceed the brief, including on cultural aspects.”

“The PE space has always been challenging mainly because of the high standards set by the vast majority of employers and that is no less true today,” said Andrew Oliver, EVP and head of Asia-Pacific at WilsonHCG. “What has subtly shifted though is the dynamic around the pool of potential candidates, and how their drivers, decision-making, and priorities are evolving. Leaders within the sector need to have a balance of highly evolved technical IQ within deal evaluation, as well as the EQ to evaluate the human side of working with successful entrepreneurs. This combination of an often-conflicting set of skills is somewhat unique in the space.”

“PE has traditionally hired from areas such as investment banking and management consultancy, which in turn, historically struggle with a satisfactory level of diversity in terms of gender, background, and ethnicity,” Mr. Oliver said. “However, our observation is that there is an ongoing commitment to address this imbalance within the sector, and forward-thinking investment firms have long recognized the importance of diversity in a high functioning environment.”

“PE is a highly competitive environment, and the reality is that without paying a significant amount of attention to culture, there is an inherent risk to success,” said Mr. Oliver. “Finding the right mix of a collegiate, supportive, and collaborative environment will set companies apart. Those that fall foul of the toxic mixture of selfish behavior in the workplace will see high levels of turnover.”

“It has been a seller’s market in private equity leadership talent for the past two years,” said Eric Walczykowski, CEO of Bespoke Partners. That means top talent – seasoned executives with private equity experience – have been in high demand as firms look to kick-start growth for their portfolio companies. Our Private Equity Talent Benchmark Report includes datapoints about the competitive market. For example, the average cash compensation for C-suite executives in private equity portfolio companies has gone up almost 20 percent since 2018. In addition, turnover of C-suite executives has reached new levels, with turnover topping 10 percent in some quarters of 2022. That means one out of every 10 positions we track turned over that quarter, which is about double the historical average. These all point to the very tight market for leadership talent in private equity and we see signs of this tightness continuing for the foreseeable future.”

“By far the trait and skill-set in highest demand is the ability to drive capital-efficient growth, or profitable growth,” Mr. Walczykowski said. In some portions of the software industry, the grow at all costs mentality focused on growing market share in a sort of land grab. The idea is that it is worth winning new customers even at a high cost so you have a major share of the market. Then you make the customer relationship profitable over the long term with sticky services and recurring revenue engagements. But now spending is cooling thanks to market headwinds. So this high-expense approach makes less sense because you have less certainty that customers will engage in the long-term. Instead, we see that portfolio companies are pivoting toward capital-efficiency, ensuring resources are used effectively to win customers and profitability can be achieved more quickly.  So leaders who can drive profitable growth are being courted by many firms.”

We work with many clients on their diversity, equity, and inclusion efforts,” said Mr. Walczykowski. “Often it is simply a matter of making sure diversity is clearly understood as a goal for the buildout of leadership teams and is part of the human resources objectives of the firm. It is not hard to achieve diversity or underrepresented placements. In fact, in a recent audit of our placements over the last three years, we have placed approximately 40 percent underrepresented candidates. But it does not end with candidate slates and placements. It is imperative that the corporate culture support the success of underrepresented candidates, with programs oriented toward development and belonging as chief values. This continues to put an emphasis on the need for a strategic chief people officer, a role we see appearing in more and more companies we work with.”

“Culture is immensely important and is often central to employee retention and execution on growth plans. It’s widely understood that a positive, supportive culture leads to stronger employee engagement. Engaged employees are excited and motivated to help one another to succeed,” said Mr. Walczykowski. “And we practice what we preach. We make a point of fostering a strong corporate culture ourselves, and we work with clients to bring them leaders with the same mindset.”

“We have noticed a shift over the past six months and top talent has remained open to hearing about exciting new opportunities; however, a significant percentage of top candidates are deciding to stay in their current roles – even after spending weeks and months going through an entire (often grueling) interview process,” said Dana Feller, founder and managing partner of Hudson Gate Partners. “We are absolutely seeing firsthand that the Great Resignation has evolved into the Great Remain. After dipping their toes into the market, many candidates are deciding to stay put. Often times, the reason for this is that the offers they are receiving are not enticing enough for them to leave a job that they are generally happy in. Since the overall economy has slowed down, there is a perception amongst employers that they are getting the power back from candidates. That is not true for the absolute best performers. Those individuals still need to be lured and recruited with better pay, title promotion, significantly increased responsibility/opportunity, etc.”

“Leaders in private equity require a unique combination of strategic thinking, deal-making skills, financial acumen, high EQ, expertise in operations, and strong relationship building skills (with both investors and employees),” said Mr. Feller.

“Diversity within portfolio companies is not more difficult to achieve than other sectors.,” Ms. Feller said “However, within the funds themselves, diversity still poses a challenge on the investments side due to many factors, including lifestyle choices and work/life balance concerns. The diversity story is completely different on the infrastructure side of PE funds, however. At Hudson Gate Partners, we are specialists at recruiting for all non-investment roles within PE. These roles include accounting, finance, legal, compliance, human capital, investor relations, marketing, technology, data science, administration, and operations. We have great success in hiring diverse candidates into these departments at PE funds. The candidates are plentiful and the job opportunities are enticing. In fact, over 70 percent of our placements are either BIPOC or female.”

“Culture is important in this sector and certainly does drive employee retention to a certain extent,” said Ms. Feller. “However, we also see many candidates who would be happier working at another fund – a fund with a more engaging and collaborative culture or a fund whose investment mission aligns better with their values – but who cannot bring themselves to leave the prestige of their current firm and the golden handcuffs. Some very well-known funds are able to retain employees even though culture is not a top priority.”

“The PE sector is extremely competitive, but not just because there are not enough great CEOs or CFOs or whatever,” said Keith Giarman, managing partner, global private equity practice at DHR Global. “Simply put, PE firms have gotten much more exacting in defining competencies for their top talent over the years. Part of that stems from a better-informed view developed based on trial and error. It also emanates from the proliferation of talent assessment experts as part of their portfolio support groups. Related to the last point, these talent experts are more disciplined defining competencies and the use of data-centric tools like testing and business case analysis in determining fit. The more exacting the requirements, the smaller the pool becomes with the more obviously qualified candidates in high demand – and getting called by multiple firms at once all the time.”

The PE sector needs executives who think like an owner of the business,” Mr. Giarman said. “They need to be execution focused, metric-oriented, highly analytic and align well with the PE firms and their teams and culture. In general, we need executives who can get more done faster driving EBITDA performance without building an army of people around them. Focus and the ability to drive a culture of accountability are key.”

“Culture is critical,” said Mr. Giarman. “It goes hand in hand with the driving need for accountability and the right kind of talent at all levels. Culture obviously extends beyond accountability to other values the company embraces. Without a complete view of the culture required tied to business strategy, without focusing on the employee experience, you can’t expect the company to wow its customers and revel in their work environment every day. Said differently, if your only message to employees is drive EBITDA and everything else will be great you will not get complete buy-in and you won’t hit your targets.”

“Whether it be new acquisitions or existing porticos’ adapting to economic changes, private equity continues to drive the vast majority of executive searches,” said Shawn Cole, president and co-founder of Cowen Partners Executive Search. “With growing demand for turnaround experienced candidates, competition remains high for a candidate profile that hasn’t been in demand for over a decade. Many portcos are looking for a pivot and PE demands experienced executives with an operator mindset.”

Is diversity more difficult to achieve in this sector? “Yes,” Mr. Cole said. “Unless leadership is highly progressives, diversity has historically only been a priority for upper middle market PE portcos. Most PE leadership is only focused on candidate work experience and driving results.”

“Matching candidate and organizational culture successfully can overcome the pressures and stress, and inherent turnover, found in the PE environment resulting in long-term candidate value,” said Mr. Cole. “Lower/ middle market portcos would benefit if they better understood what cultural fit meant for their business and bottom line.”

“It remains very competitive for top talent in all industries, including the PE sector,” said Pete Petrella, practice leader, executive search at TalentRise. “We have noticed that PE firms are acquiring many companies where the ownership and leadership of the organization are aging into retirement. The PE firm often must quickly assess executive team skills and experience gaps and place new leadership into the organization to implement the company’s strategic initiatives. The demand for talent has remained high for executives with a proven track record of success growing profitably in a business by achieving revenue targets and navigating rapidly changing or unexpected economic headwinds. PE firms sometimes struggle to find the right talent to take the organization they acquired forward when their pool of trusted, seasoned executives are fully deployed, and they seek the assistance of outside firms like TalentRise.”

Mr. Petrella explains that the ability to be adaptable to constant change is more prominent in this sector than most. “People must wear many hats when joining a PE-backed firm to ensure that the company has the right strategy in place to be growth-focused,” he said. “Often these firms are under some distress when acquired, so the desired leaders in this sector need to understand many areas of the business to quickly assess and modify to meet the goals of the acquiring PE firm. These leaders also have to be KPI and metrics-driven and have experience scaling a business through M&A. PE firms acquire companies with the thought of possible future mergers or sales. Therefore, PE firms have specific metrics to meet to ensure the company performs as expected when acquiring the business. Leadership must be very focused and excel in organizing and aligning their team around organizational KPIs to meet the PE firm’s goals.”

“It is equally difficult to achieve diversity in this sector as in many others,” Mr. Petrella said. “The efforts of creating a more diverse work environment are exceptionally prominent with PE-backed firms. Recent hiring team efforts to be more inclusive in the search process have opened the minds of firms to widen their thought process on whom to hire as a new leadership executive, including people who have different skill-sets and backgrounds from more traditional hiring practices for these firms.”

“Due to the speed and pace employees tend to work and the focus on metrics and KPIs, PE can have a reputation for burnout,” said Mr. Petrella. “The firm’s culture and portfolio companies are critical to attracting talent. The firm’s values and the compelling reasons why individuals enjoy working there should be very clear in talent attraction messaging and daily implementation to retain talent. This type of commitment to a strong culture will help with both retaining and acquiring talent.”

“The market remains highly competitive although the dynamics and drivers for why have shifted,” said Chris Smith, partner at Leathwaite. “Twelve to eighteen months ago, the scarcity of talent was driven by competition due to growth and so many companies firing on all cylinders. Candidates have a plethora of options and so competition was fierce with firms fighting for (and paying for) the attention of the best talent. With many firms facing headwinds, there is now almost a wholesale shift towards value creation and whether firms have the right leadership in place to perform and transform. We have seen particular movement in CEO, CFO and CHRO where a new and different skillset is required in order to deliver performance and drive value. For example, CFOs now need to be able to balance the drive for cost and efficiency with investment for strategic growth while also, in many instances, building team capability quickly and fixing the basics. Additionally, the desire to find c-suite executives who have a strong track record in PE remains which does drive talent scarcity.”

Mr. Smith also notes that across the C-suite, there are consistent themes that point to an executive’s success in role. “They include, outcome orientation, high personal accountability, data and financial literacy, strong communication, an ability to work at pace and with a high degree of resilience, being a leader who can build strong teams and create followership, commerciality with an acute understanding of what drives value and how to shape priorities accordingly, a balance of strategic and operational with a willingness to be hands-on, and someone who has high standards but isn’t hamstrung by the pursuit of perfection,” he said.

Private equity is an exciting but demanding environment to work in with a reputation for being tough and unforgiving, according to Mr. Smith. “While the impeccably high standards, intellectual high bar, and requirement for pace remains, the appreciation of culture and how this drives employee attraction and engagement has definitely evolved significantly over recent years,” he said. “As a result, firms have been able to attract, retain and develop a broader and more diverse talent set. There has been a focus on organizational culture, values and behaviors – including shaping what good leadership looks like – at management and fund-levels which is paying dividends. Furthermore, culture is increasingly a factor in due diligence prior to an acquisitions and/ or forms part of the human capital value creation plan. This diagnostic is part of understanding an organization’s health, agility and readiness for growth or change, its inclusivity, ability to attract top tier talent, and the capability of its leadership. All critical factors in driving or inhibiting performance and growth.”

Related: The Market for Senior Roles Heating Up at Private Equity Firms

Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; and Stephen Sawicki, Managing Editor – Hunt Scanlon Media

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