Covid-19-related challenges, the rise of remote working and the growing diversity imperative have highlighted the importance of effective people management. We asked a selection of private equity talent and portfolio management specialists to share their perspectives on human capital as a value creation lever.
Merche del Valle is managing director and chief talent officer at Grain Management
Elizabeth Wallace is head of portfolio talent at Hg
Séverine de Wulf is managing director in the PAI Performance Group at PAI Partners
What role does employee reward and engagement play in creating value?
Merche del Valle: Engaged and motivated team members are what drives success in our portfolio companies, and our firm as a whole. That is why we structure our rewards to incentivise value creation, and reinforce our core organisational goals: efficient and proactive management of our portfolio companies; identifying, developing and retaining high-quality, diverse talent; and establishing a culture of doing the right things, for the right reasons, in the right way, at the right time.
Elizabeth Wallace: In a private equity context, the reward scheme is transparent – everyone knows what they are working towards and that is the growth of the business and, ultimately, a good result at exit. For many, this includes sharing financially in the success of that exit and this creates inclusion towards a common goal. This can be very powerful for personal accountability and ownership of a positive outcome.
Séverine de Wulf: Employee satisfaction is central to value creation, with research showing engaged management teams deliver superior performance. To realise this potential, it is key to recognise the intrinsic value of engagement initiatives goes beyond monetary rewards, as management teams need to feel connected to be fully engaged. This is why the PAI Performance Group, PAI’s senior operations team, has prioritised building a sense of community among our portfolio companies; to learn best practice from each of our businesses and to provide them with access to a global portfolio of cultures and initiatives to benefit their entire workforce.
How have approaches to human capital evolved?
MdV: The most important evolution has been the emergence of human capital as a core operating principle. We now place a much stronger emphasis on leadership assessment and development at our portfolio companies, in particular with the C-suite executives and board advisors we appoint. We are constantly seeking leaders – both internally and externally – who will help our portfolio companies nurture their in-house talent.
EW: Human capital management is increasingly seen as a core value creation lever. The approach has evolved to become more proactive in nature. This allows for better decision making in the talent acquisition process. Also, we are seeing a more deliberate approach to talent management and development as well as thoughtful cross pollination of talent across portfolio companies.
SdW: The investment community’s approach to human capital has undergone a transformation in recent years. There is an increasing awareness that the structured, cutting-edge management of human capital can be a key lever of long-term, sustainable value creation. It is also well understood that transitions and succession, for example during a change in ownership, need to be carefully managed. The importance of diversity as part of the recipe for successful corporate governance has also pushed the market to adopt a more active approach in managing human capital.
Do you expect the crisis to have a long-term impact on talent strategies?
MdV: We have learned this year that teams can adapt quickly to new working models, and that we do not necessarily lose efficiency if we are not physically together. While we hope to bring our teams back together soon, these lessons are here to stay. This means we will be able to consider leveraging talent across geographies and portfolio companies in a more flexible manner than before. This will need a strong focus on building and maintaining our culture, and that is a challenge we look forward to.
EW: Yes, we do and this is for the better in our view. The fact that everyone has experienced remote working first-hand, knowing the upsides and downsides means that the workplace of the future has to look different. There is a better education and greater empathy around balancing home and working life given what has happened. Also, the ability to work flexibly and remotely will attract a broader set of candidates, thus widening talent pools and allowing for greater diversity in hiring processes.
SdW: It is too early to draw long-term conclusions, but we are encouraged by the speed at which management teams have reacted, and the flexibility and resilience that our businesses have demonstrated in response to the crisis. The first phase of the pandemic required a focus on people and operations to ensure employee safety, followed by a phase of “maximum resilience” where leaders adopted measures to mitigate risk; now we have entered a phase where companies need to bring people back to work and provide stability.
How can GPs help foster diverse and inclusive cultures at portfolio companies?
MdV: One of our firm’s core competencies is ensuring every level of our organisation creates an environment that enables growth, listens and communicates clearly and effectively, and encourages a diverse, inclusive, high-performing environment where everyone can voice their opinion safely. That is one reason why earlier this year we joined Diligent Corporation’s Director Network, which helps post and fill board roles at leading private equity firms with diverse director candidates. From entry level to the board room, we know diversity of background and perspective leads to smart, differentiated investment decisions.
EW: Private equity as an industry is on a journey in terms of inclusion and diversity. This means that there needs to be education around these important topics. Getting the story right at the GP level first, then leading by example for the portfolio companies is a good start. We really should shift the conversation towards equality rather than inclusion. Of course, we know well that there is little point bringing diversity into the equation if there is a lack of equality.
SdW: The role of operating partners is to share best practice from decades of cumulative experience with management teams, to enable diverse and inclusive cultures to emerge within our portfolio. As it becomes widely understood that diversity leads to superior results over an investment’s life cycle, GPs need to fully integrate professional talent management into their investment thesis. Culture plays an important role in value creation; PAI’s origins date back to 1872, allowing us to share with our management teams a long and successful history of creating industry leaders, building on a culture of excellence.