Closing the Private Equity Talent Gap

Within private-equity-owned companies, the pace of growth can quickly outstretch the leadership capability of people in critical roles. With all eyes on the value-creation plan, portfolio company CEOs and private equity partners hurriedly fill the talent gaps so as not to slow progress. However, just hiring in new skills won’t provide the performance lift that investors are looking for. The key to staying on track is organizing the top team around the most pressing priorities.

The founders or management team of a newly acquired company have managed exponential growth to the point of investment, but they sometimes lack the skills and capabilities to sustain that growth at scale. We know from our experience that if the leadership capabilities of the top team are not assessed and addressed before cracks emerge, a lack of alignment between the board and management can surface, which has a serious negative effect on growth and productivity.

Spotting the gaps

In most companies, the biggest gap between the CEO and management team is clarity on decision-making. In our work, we find that decision-making power and authority are often clear in the mind of the CEO but not to anyone else. This has a major impact on whether the company can execute its strategy.

Given the huge wave of change that comes with private equity investment, it’s vital that decision-making responsibility is defined and roles and responsibilities are clearly assigned. Although the strategy and value-creation plan are clear, if there is a gap between strategy and execution, the top team cannot deliver.

Closing the gaps

When looking to close the gap, it’s useful to look at what high-performing teams do differently. Using RHR International’s model and research to organize the differentiators, they are:

• What—High-performing teams spend 20% more time aligning themselves around strategy and 12% more time communicating the strategy throughout the organization. High-performing teams are clear on the shared agenda, and they don’t make assumptions or fail to communicate to the business.
• How—High-performing teams have a collective ability to prioritize, with clearly defined roles for decision-making and metrics for success. These teams spend 13% more of their time planning for the future (setting direction, creating a vision, and clearly defining their strategy) and 14% more time reviewing performance against metrics, and then shifting resources accordingly.
• Who—High-performing teams focus on trust and cohesion. They are acutely aware of the culture and tone that the top team creates in the business—something that is frequently underestimated in private-equity-backed businesses. High-performing teams spend 28% more time engaging in dialogue around culture and barriers to execution compared to others.
• Why—Being aligned to purpose is increasing in importance. High-performing teams enable employees to connect to something bigger in terms of what the business is in service of for all its stakeholders. This provides an emotional stickiness beyond intellectual connection with strategy.

For founder CEOs and their top teams, it can be difficult to bring focus to these areas when their whole identity is wrapped up in their product and customers. Something we work on as coaches is helping senior leaders see their roles in terms of the legacy they will leave rather than absolute ownership of an idea. As is evident from the features of high-performing top teams, filling talent gaps in hypergrowth companies is often more about developing the skills and capabilities of the senior team rather than purely about hiring in new talent.

–Nick Twyman

To learn more about RHR’s private equity practice, reach out to David Morgenbesser.