Getting talent right: Is there a value creation opportunity in PE?

In an ever-growing, ever-changing, and uncertain climate where disruptive forces are around every corner, the challenge of hiring the best talent remains as front of mind for many businesses. However, this challenge can also be seen as an opportunity, particularly for Private Equity, where talent can be potentially leveraged as a key driver in gaining a greater portfolio advantage. 

The findings in our latest Annual PE Leadership Survey highlight the growing need to attract, retain and lead talent, but what areas should PEs focus on in bringing talent in as a driver for value creation? 

The toughest challenge: Winning and retaining future talent 

Interestingly, the initial findings from the survey suggest that the senior-level PE audience believes there has been little disruption to their business over the past year. 71% cited “not at all” to “moderately disrupted” when asked about disruption to their overall business. But when looking to the next 12-months, winning and retaining talent is very much a focus area of the business. 

67% of respondents cited ‘recruitment’ as the main challenge to their organisation over the next 12 months, with 58% retention. This outweighed all other concerns including market volatility, supply chain issues, and cybersecurity by large margins, thus talent movement plays heavily on the mind.

The hiring and retention of quality personnel were also deemed as critical success factors, and the greatest concern is ensuring top talent is in place, with 42% citing it’s their ‘greatest concern’. 

But how do ensure you keep and grow top-tier talent? Following the ‘great resignation’ and inflation impact, it’s currently a buyers’ market, and employees are empowered to make decisions on what is the best fit for them culturally, and a compensation package that suits them. 

By leading from the front and being more mission-led, organisations can have a clear direction on purpose and mission which is an attractive proposition for the current workforce, and the workforce of tomorrow. Additionally, by making a more concerted effort to understand why talent is exiting the business, further reinforcements can be made in keeping them.

Continuing with such initiatives as hybrid working also opens the opportunity to access a wider talent pool across geography and diversity, and can further support meeting ongoing DE&I initiatives in place. 

Human capital due diligence is vital, and of increasing importance 

Beyond compensation packages, it’s imperative that investment is being made in wellness and DE&I programmes. 77% of respondents were said to be concentrating investment in meeting human capital needs, with 54% hiring or planning to hire a chief/head of human resources/talent as part of the drive towards keeping and nurturing talent.

The changing dynamics of the marketplace can be accountable for more of a focus on human capital due diligence, and by ensuring that the correct set-up is in place and human capital is properly managed, companies are more attractive across all talent pools.

Prospective employees need a better understanding of the corporates’ values and a clearer direction on leadership. Now, more than ever, PE firms need to understand the human dimension in a target and bake a talent component into their investment thesis and post-day one plan. On the subject of leadership… 

Leadership effectiveness is the top lever for creating new value

PE-backed companies are winning the war for talent, perhaps owing in part to moves such as increased recruitment activity, improvement of compensation packages, or the willingness and ability to strengthen employee value propositions. 67% of respondents “gained” or “significantly gained” new talent, but leadership effectiveness is the biggest lever for creating new value – 61% of respondents cited leadership effectiveness as the #1 priority, outweighing organic growth (49%).

Companies need authentic, highly communicative leaders who can represent the strength of culture in an organisation, and make them more attractive. Having the right leadership talent in the right roles at the right time is imperative to the success of the business.

Authenticity breeds authentic leaders, and this component needs to be brought in at an early stage. From the study, 25% of respondents either ‘didn’t know’ or did not incentivise based on company values. There is a clear opportunity to reinforce the value of the company through leadership by enforcing mission-led objectives as part of remuneration.

Growing and retaining talent is top of the agenda for many PEs, by having the best talent allows for better leadership, clearer communication and ultimately unlocks new value for businesses.

The seventh edition of our Annual Private Equity (PE) Leadership Survey is now available.