Private equity (PE) is often interested in Canadian P&C brokerage acquisitions, but brokerages could also look at how some PE firms manage talent differently.
Successful PE firms increasingly recognize the importance of talent management, marking a shift from traditional approaches, says a blog from Harvard Business Review.
“The last few years, however, have seen real movement from lip service to action,” writes Ted Bililies, a partner and a managing director of AlixPartners, where he also serves as global head of the firm’s transformative leadership practice and a senior adviser on talent strategy.
“It’s by no means universal, but we are seeing enough change that it is possible to identify the elements of what I’ve begun called ‘PE Talent 2.0,’” writes Bililies, who is based in New York and has more than 30 years of experience offering advice about human capital to PE firms and portfolio companies.
In the Dec. 5 blog, Successful Private Equity Firms Manage Talent Differently, Bililies points to a number of behaviours that advanced PE firms do differently. The most relevant behaviours are listed below.
Explicit connections
The most forward-thinking firms incorporate human capital — the economic value of a worker’s experience and skills — in their buying strategy and deal planning, says Bililies. The change shows up in three ways: developing the deal thesis itself, incorporating assessments of executive talent early on, and explicitly discussing the culture of a company and its relationship to productivity and business results.
Though PE firms informally gauge leadership in selecting targets, it’s still rare to see deals that are premised on the quality of management and talent, Bililies says. But it’s happening more often, “particularly as private equity expands into industries where talent is an indisputably important asset.”
Traditional assessments often looked to traits such as tough-mindedness and a bias toward execution, but paid scant attention to transformational leadership skills like emotional intelligence, cognitive (strategic) flexibility, and an appetite for learning, Bililies writes.
Build, not just assess
Next-level PE firms are deploying programs to help leaders grow and become more valuable.
A growing number of PE firms bring senior portfolio company leaders — CEOs, CFOs, sometimes others — together once a year for workshops and shared learning. The most advanced do more — moving from once-a-year events to more frequent interactions.
Talking talent in board meetings is another strategy, Bililies notes.
Succession planning runs deep
Old-style PE operating management didn’t pay much attention to succession planning. However, some firms are now using assessments to evaluate people and help them become more valuable.
For example, one PE firm works with portfolio company leaders to create a raft of individual development plans — for portfolio company board members, C-suite executives, high potentials, and employees who occupy key positions — which are reviewed twice a year. Ongoing learning programs, like succession planning, are part of the trend.
Using data for talent
Top private equity firms are increasingly using data to secure investor support for talent investments. Employee engagement, attrition rates, morale and sentiment analysis, diversity and inclusion data — all of these provide insights into the strength of portfolio companies’ workforces and cultures, reveal risks or opportunities for improvement, and identify best practices to share across a portfolio.
“But they do more: Data change the conversation with financially-focused deal partners — at the time of acquisition, during the holding period, and as firms prepare an asset for sale,” Bililies says.
“These are leading practices, and I have not (yet) seen any PE firm that does them all consistently across funds and portfolio companies,” Bililies concludes. “But the pattern is clear and points in one direction; the art and science of management has become more important in the private equity industry.”
Feature image by iStock.com/LaylaBird
