Reflections on Value Creation via Human Capital
In early August, I had the pleasure of hosting a panel discussion as part of the Markets Group Private Equity Chicago Forum. The topic was “Value Creation via Human Capital – How Leading Funds Are Transforming Portfolio Companies.” Kudos and thank you to my panelists, Charles Corpening, Melissa Grim, Melissa Mounce, Steve Stubitz, and Chris Trendler, for sharing their wisdom and insights for underscoring the critical role human capital plays in generating ROI. Here are some of the key takeaways they shared:
- Emotional quotient (EQ): Technical skills matter, but high EQ is a critical, non-negotiable factor for portfolio company executives. Understanding how well an executive will read the room, respond to the needs of their team and organization, and show up during strenuous times is just as important to know as their ability to set strategy, make financial decisions, and create a scalable plan.
- Talent assessment: It’s important to apply the same rigor in assessing talent and capabilities as is applied to assessing financial information and business fundamentals. Financial results depend upon people, the decisions they make, and the ways they work with the board and each other. That’s why it’s essential to make sure executives possess the right talent and capabilities for the context in which they lead.
- Collaborate with management: You can assess talent without scaring the management team. Be transparent, upfront, and willing to share assessment results. Show that you are investing in them and their ongoing executive development. This process can actually be a positive experience that serves to accelerate and strengthen the partnership.
- Partner with the CEO: Talent additions or changes are inevitable during the hold period. A key to ensuring a smooth process and the right hires is to establish a strong partnership with the CEO upfront. Align on what talent and capabilities will be needed, and when, and ensure clarity on what “good” looks like (i.e., via a role scorecard).
- Firmwide diversity, equity, and inclusion (DEI): DEI isn’t a nice-to-have, but rather a business imperative that enables portfolio companies to create competitive advantage and achieve stronger outcomes. And it must start at the board level. Consider where you typically go to source board members. Is it a narrow pool of people who come from similar backgrounds (e.g., education, career, socioeconomic)? If so, you may be doing the portfolio company a disservice. Don’t be afraid to seek out alternative sources—even if they are unfamiliar.
The biggest takeaway from my time spent with the panelists is how important and impactful human capital can be in realizing the value creation plan. What strategies do you have in place with your companies and management teams?