2024 PEI Operating Partners Human Capital Forum – Panel Recap

Navigating Human Capital, Value Creation and the Board

The annual New York PEI Operating Partners Human Capital conference every March is always a great experience. Getting together with private equity talent professionals from across the country to discuss best practices and share expertise always gets me excited for the year ahead. This year, I convened a panel with Tracey Abbott, David Cohen, Renata Dinkelmann and Jack Scott to discuss delivering value creation to the board – below are four key takeaways from our conversation.

How human capital professionals can play in expanding board decisions

In the rise of human-driven technology companies like software-as-a-service (SaaS) and infrastructure-as-a-service (IaaS) companies, much of the product and company experience is delivered through people. This naturally creates more people-driven challenges. Putting a former Chief People Officer or CHRO on a board for companies like these can make a huge difference in how private equity-focused professionals see the role of properly training, engaging and retaining talent can take – and its ultimate impact on creating value in such a people-dependent business model. This benefits the board and the CEO as the CPO/CHRO will be able to advocate for the right next steps and a scalable approach to human capital; it’s more than just one annual talent review, but the longer-term strategy and outcomes.

The value of an independent board member

There is inherent value to having at least one independent board member who can help fill a skills or experience gap. Is there an industry where the board needs additional perspective? Is there a specific functional expertise that is needed? And, adding the human capital lens, many boards don’t have people who have successfully scaled initiatives that create value through human capital. The combination of differentiated experience and human capital can create a huge value-add for boards.

Be consistent in timing and metrics as you implement a CEO annual review

For every portfolio company, the chair of the board (or a committee from the board) is responsible for creating goals for the fiscal year. At the end of that fiscal year, they need to score that CEO against those goals – company and personal – that include qualitative competencies desired in their CEOs. This feedback determines the leader’s bonus payout for that year, putting accountability and rewards in place. Having a uniform process for all portfolio company CEOs is a newer practice – and one that helps both in terms of performance and outcomes but with managing leadership and portco trajectories.

Be a human capital partner – and a business partner

While there is a growing demand for human capital operating partners, there continues to be a need for people-centered professionals to also be able to read the balance sheet, understand the deal team’s needs and barriers to success, and counsel the talent/human capital piece in a way that impacts the business. Proving the value creation achieved by incorporating employee engagement and organization performance best practices (among others) will continue to build the influence of human capital in portfolio companies and investment teams.