For PE firms and their portfolio companies, a performance-driven culture is essential for maximizing returns. Caleb Edmundson, editor-in-chief of ExitUp, examines the critical role that HR plays in aligning individual and team objectives to support an organization’s overall vision. Nat Schiffer, president of The Christopher Group, joins in to discuss this shift in focus.
The Christopher Group (TCG) was founded 25 years ago with a vision to transform the HR executive search and business solutions space. Along the way, the firm has established itself as one of the nation’s premier recruiting boutiques.
While it has evolved into a multifaceted talent provider serving large corporations, it is the firm’s focus on middle-market companies, private equity firms, family-owned enterprises, and closely-held businesses that sets it apart. For these enterprises, offering comprehensive human capital solutions has given TCG a distinct edge.
“In the fast-paced world of private equity, where companies seek high returns on investments within limited timeframes,” said TCG president Nat Schiffer, “the role of human resources has undergone a significant transformation. No longer is HR an administrative people function; it has evolved into a strategic business partner that helps navigate complex talent landscapes with unique demands.”
According to Liz Urdang, CHRO at L Catterton: “You can impact the return on an investment significantly by acting quickly on talent. Our studies have shown that the more you drag your feet on talent, the bigger the price you’ll pay over time.”
In the highly competitive private equity landscape, the ability to attract and retain top talent is crucial for success. HR plays a pivotal role in this process, collaborating with portfolio companies to implement effective talent acquisition strategies.
Cultivating a Culture of Performance
“HR leaders employ cutting-edge techniques, such as data-driven talent analytics, to identify high-potential candidates and streamline the recruitment process,” said Mr. Schiffer.
“HR also fosters a performance-driven culture that is essential for achieving goals and maximizing returns by designing performance management systems that align individual and team objectives with an organization’s overall vision,” he said. HR leaders facilitate regular feedback and performance reviews, promote continuous learning and development, and reward exceptional contributions. “By cultivating a culture that values performance and recognizes achievements, HR helps drive the success of portfolio companies,” he added.
Managing Distributed Teams
The pandemic accelerated the shift towards remote work, transforming the way businesses operate. “HR professionals in the private equity sector have had to adapt quickly to manage distributed teams effectively,” said Mr. Schiffer. They leverage technology to facilitate seamless collaboration, communication, and employee engagement. Additionally, HR departments have embraced automation and artificial intelligence to streamline repetitive tasks, freeing up time for more strategic initiatives.
Caleb Edmundson takes a deep dive into the evolving role of HR across the private equity landscape with Mr. Schiffer, who says that HR will remain indispensable in driving growth, innovation, and profitability for years to come.
Nat, let’s take a look back. What was the role of HR in private equity 10 years ago and how have things changed?
In the past the role of HR almost entirely surrounded mundane duties such as overseeing payroll and ensuring regulatory compliance. While these responsibilities are incredibly important to any functional business, it wasn’t the flashiest sector to operate in. Today, the picture looks very different. HR has emerged as a pivotal contributor to strategic decision-making. HR professionals work intimately with leadership to harmonize talent strategies with overarching business goals, pinpointing essential skills vital for driving growth and executing on investment strategies with precision. HR leaders now routinely participate in boardroom deliberations, collaborate on talent acquisition plans and succession strategies, and cultivate a corporate culture conducive to innovation and superior performance.
Why is having an effective talent acquisition strategy so important in private equity?
The market for talent in PE is fiercely competitive and has become more so in recent years. This has increasingly necessitated a top tier blueprint for talent acquisition. The ability to lure and retain top-tier talent is paramount for prosperity and HR takes center stage in this endeavor by forming partnerships with portfolio companies to implement potent talent procurement strategies.
What does this look like from a practical perspective?
Today, HR teams utilize advanced methodologies, including data-driven talent analytics to identify high-potential candidates and streamline the recruitment process. Increasingly relevant is HR’s ability to recognize the importance of championing diversity and inclusion within portfolio companies. The empirical evidence demonstrates that diverse teams consistently outperform their homogenous counterparts.
You mentioned HR’s role in shaping an effective culture. What does this look like in PE?
In the private equity space, culture enables performance. Both within the firm and within portfolio companies, a culture entrenched in performance is the linchpin for optimizing returns. HR assumes a pivotal role in nurturing such a culture by crafting performance management systems that synchronize individual and collective objectives with the organization’s overarching vision. They facilitate performance evaluations, foster development, and reward exemplary contributions which propels PE firms and their portfolio companies towards achieving outsized returns.
How has the shift to hybrid work models affected this culture evolution?
The rapid shift towards remote work during the pandemic brought the importance of HR to center stage. Firms with superior HR leaders were better able to adapt to the profound transformation in business operations. HR professionals within the private equity sector swiftly pivoted to efficiently manage geographically dispersed teams. They harnessed technology to facilitate seamless collaboration, communication, and the fostering of robust employee engagement. After witnessing these successes, many firms gave their HR teams more leeway for adaptation and flexibility, including embracing automation and artificial intelligence and streamlining repetitive tasks to free up precious time for more strategic pursuits.
Nat, do you believe the renaissance of HR will continue?
Absolutely, this genie is not going back in the bottle. HR has transcended its former mantle as an administrative entity to emerge as an indispensable strategic partner in PE. By aligning talent strategies with business objectives, fostering a culture of performance, and embracing technological advancements, HR professionals have played a vital role in the success of private equity firms and their portfolio companies. As the industry’s evolution persists, I believe the indelible role of HR will continue to drive growth, innovation, and prosperity within this dynamic sector.
Caleb A. Edmundson is Editor-in-Chief of ExitUp, the investment blog from Hunt Scanlon Ventures designed for professionals across the human capital M&A sector. Caleb serves as an Associate for Hunt Scanlon Ventures, providing robust industry research to support the firm’s investment group. Connect with Caleb.