What Private Equity Firms Seek in Their Next CHRO
June 13, 2022 – A leadership role at a private equity firm is a demanding one. For a PE firm, the challenge of helping start-up companies raise needed capital is filled with the excitement of working with these fast-moving, growth-oriented businesses. “Successful PE firms have a laser focus on raising funds to grow their portfolio companies and recognize that one way to accelerate this growth is to ensure the company has a progressive HR leader,” said Sally Stetson of Salveson Stetson Group in a new report. The search firm has partnered with a number of private equity firms to fill key positions. “We increasingly see one critical role that PE firms identify is that of the chief human resources officer,” said Ms. Stetson. “Typically, the role of the CHRO is either a newly created position or is an upgrade from the firm’s existing talent pool.” According to Ms. Stetson, there are many qualifications and competencies her firm consistently seeks for PE clients when hiring a CHRO. Among them: a demonstrated track record, experience leading transformational change, strong talent management experience, a focus on employee culture and company brand, an ability to build trust across an organization, being able to operate strategically as well as tactically, and a focus on metric and analytics, including others.
Demonstrated Track Record
As the top HR officer in the company, the CHRO will need to assess, build and enhance the human resource structure to meet the growing needs of the business, according to Ms. Stetson. “Due to the unique demands of PE firms, the best candidates should have prior experience and be comfortable working for an entrepreneurial and fast-growing company,” she said. “However, it’s often helpful to have worked for larger companies where they learned HR best practices.”
Experience Leading Transformational Change
The PE sponsored companies are frequently start-ups that are seeking capital in order to challenge the status quo. Ms. Stetson notes that the ideal CHRO in these often-uncharted environments, must show that they can lead the successful growth and profitability of these entrepreneurial companies.
Strong Talent Management Experience
“PE firms understand the importance of aligning business and talent strategies, because it’s people that pave the way to profitability and growth,” Ms. Stetson said. “It’s the role of the CHRO to develop the organization to design and build their successful team. The CHRO leads the effort to attract, develop, and retain top talent that achieve aggressive business goals.”
Creates and Enhances Employee Culture and Company Brand
Ms. Stetson notes that it’s no surprise that happy employees are more productive than disgruntled employees. “Next to the CEO, the CHRO is the most senior executive charged with establishing, fostering, and in some cases, transforming the firm’s culture, mission, and core values to increase employee engagement and drive performance,” she said. “The CHRO must recruit and onboard employees who embrace the company’s culture. Equally important is to establish a process to identify employees who are not a good culture fit, and respectfully help them to exit.”
Extraordinary Ability to Build Trust Across the Organization
More progressive PE firms realize the value of hiring and supporting a talented HR leader to serve as a coach, advisor, and valued partner to the CEO, according to Ms. Stetson. CHROs are also highly engaged with the portfolio managers as well as their leadership teams. They must build trust and effective relationships with the senior leadership team and across the organization.
Over Two-Thirds of Current U.S. Portfolio Company CEOs and CFOs Were Appointed Externally
BoardEx’s Insights on Portfolio Company Talent 2022 offers unique insight into the characteristics of the CEOs and CFOs who lead these companies, making it an essential read for firms looking to make the most of their talent management and acquisition strategies.
Leadership teams play a critical role in their portfolio companies and the impact on company performance. The CEOs and CFOs brought in to steer these companies are selected for their experience and connections aiding the PE firm in recruitment, due diligence efforts and facilitating business development. To view the full report click here!
Operate Strategically as Well as Tactically
As a coach and advisor to the CEO, COO, and CFO, Ms. Stetson stresses that the CHRO must possess an understanding of the organization’s business model. Knowing how the money comes, goes, and flows through the business helps build a high-performing team.
Ability to Work Effectively Across Geographically Dispersed Sites
In many cases, the ability to recruit the best talent means reaching beyond your city limits, even around the world, Ms. Stetson notes. Especially in today’s COVID era when many companies are working from home, the ability of HR leaders to engage and keep their teams motivated remotely is an essential skill.
Ability to Juggle Multiple Priorities and Shift Gears Depending Upon the Business Strategy
“By their nature, PE sponsored companies often move fast,” said Ms. Stetson. “They must be nimble to anticipate and react to changes that affect their business. As a result, the CHRO for a PE firm must create an organization that embraces frequent change and is flexible enough to remain productive through it while staying committed to the company’s financial, strategic, and cultural objectives.”
Strong Communication Expertise
As in any business, the CHRO position at a private equity firm requires strong people skills. As a key leadership role, the CHRO must be a strong communicator and reach out to the employee base to ensure they are informed and engaged, according to Ms. Stetson.
As the leader of the HR team, Ms. Stetson says at that the buck stops at the CHRO. “Measuring important human resources data, metrics like headcount, cost to hire, benefits participation, and more, uncover valuable insights that can help the CHRO make better informed business decisions,” she said.
Related: 3 Qualities Private Equity Firms Seek When Picking Portfolio CEOs
These qualifications may resonate with many who have held HR leadership roles in PE firms. “Each PE firm is unique in the way they support their portfolio companies and most HR leaders are highly engaged with the portfolio managers as well as their leadership team in growing the business,” said Ms. Stetson. “They are demanding roles but always filled with the excitement of working in growth-oriented environments. The more progressive PE firms realize the value creation of hiring and supporting a talented HR leader who will serve as a coach and advisor to the CEO. If they are good at it, they will be one of the most valued partners of the CEO and help guide them towards a successful exit.”
Proven Search Consultants
Founded in 1996 by John Salveson and Ms. Stetson, Salveson Stetson Group is today a multi-specialty search firm which places senior executives in a wide range of business positions, including: general management, sales, marketing, finance, operations, and human resources. The firm has several specialty practices in human resources and finance, with specialty practices in the life sciences and wholesale distribution sectors.
Ms. Stetson brings more than two decades of experience as an executive search consultant. She has worked across diverse industries including life sciences and pharmaceutical, healthcare systems, manufacturing, telecommunications, non-profit and professional services. Ms. Stetson also serves as practice leader for the firm’s human resources specialty practice. Prior to co-founding her firm, Ms. Stetson served as vice president of client services for Right Management Consultants and as vice president of W.K. Gray and Associates, an executive search firm. She also held senior human resources management positions at Thomas Jefferson University.
Related: Larger Funds Bring Increased Competition for Private Equity Talent
Contributed by Jonah Charlton, Senior Editor; Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; and Stephen Sawicki, Managing Editor – Hunt Scanlon Media