What’s the biggest issue facing today’s private equity firms and portfolio companies? You might think it’s the impending recession or record-high inflation.
However, a survey conducted by management consultant company AlixPartners has found otherwise — a significant portion of surveyed private equity firms and portfolio companies named recruiting and retaining talent as one of their biggest issues. Here’s what that means for the future of PE and portco leadership.
One of the key insights of the eighth annual Private Equity Leadership Survey was that leaders of both portcos and PE firms see hiring new talent and retaining that talent as a major issue.
You might be surprised to hear that executives see talent gaps as potential major issues. After all, the world of private equity firms is a lucrative, prestigious one.
As it turns out, the old-school model of the private equity firm may be responsible — at least in part — for the difficulty in holding onto talent.
Traditionally, private equity firms have promised significant payoffs after several years of work.
Founders purchase companies, saddle them with enormous debt, and then get the most out of their executives with incentive plans. Executives and other high-level employees stay with the firm, hoping their eventual reward will be worth it.
AlixPartners notes that in order to attract and keep talent going forward, firms are going to need to offer more than just that far-away payout.
Each firm will need to settle on its own employee offerings, but AlixPartners suggests that PE firms and portcos start to understand the importance of bringing the following to the workplace:
Essentially, if firms start treating their high-level employees more like valued individuals with their own career goals, those employees are much more likely to stick around.
The consulting company also recommends that existing firms plan ahead. Whether their current executives plan to have a long tenure or not, a focus on succession planning will ensure continuity of leadership. It also will save the company from having to scramble to replace an executive if one suddenly exits.
Lastly, AlixPartners also suggests that firms lean more into learning and development. At least when it comes to major roles, this goes hand-in-hand with succession planning. Well-developed employees perform better, and they’ll also appreciate the fact that the firm is investing in them.
Will these companies need to hurry to find quality talent in the coming years? The survey seems to suggest they will. The majority (but barely) of PE firms and portcos believe they have the right leadership in place:
This startling lack of confidence is worrying. Of the firms responding to the AlixPartners survey, 70% said that effective leadership was their best way to create value.
So how are PE firms and portcos going to address management concerns? Some may choose to retain current management but develop a more effective long-term strategy. Others may opt to phase out the management team.
Maybe you’re one of those fortunate companies with capable leadership. But if you have doubts about your management team, your course of action shouldn’t be to choose between keeping and firing your team. You might try taking these steps first:
Today’s financial landscape is a tough one for PE firms and portcos to navigate. If you want to maximize your company’s chances of success, you must ask a critical question: do current company leaders meet the company’s strategic needs?
When you take this step, assess the team as a whole. It’s not realistic to expect each individual person to meet every strategy goal. Instead, you want to look for a good mix. Many companies aim for balance: you might have a few leaders who are dedicated to cost-cutting and a few who are determined to create and reach long-term company goals.
At least at the executive level, your players make your team. You might think you can rest easy if you have a highly skilled employee in each major position. But to ensure long-term success, you need to create a detailed succession plan.
Most experts recommend choosing at least one promising successor to each major role. That doesn’t mean you pick a future executive and go back to what you were doing — take the time to teach that employee and mold them into a future leader.
Your leadership team members don’t all have to have the same style of leadership. However, they do need to be able to play off of one another’s strengths. Great leaders can be team builders, agents of change, or both. You need some of each to lead your company to success.
When shaping your company’s general style of leadership, don’t discount the importance of soft skills. A great leader does more than strategize and motivate. When your leadership team is made up of compassionate communicators, you might just find that strategy pays off in more ways than one.
It’s easy to see these survey results, take a look at the current economic climate, and despair. But company leaders should look at recruitment, retention, and other staffing issues as they’d look at anything else — as a challenge to be overcome.
When you take a close look at your own leadership and build a strategy, you’re paving your company’s way forward in an uncertain world.
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