The Top Three Talent Issues Facing Private Equity Firms on the Operator Side

I recently had the opportunity to sit down and chat with Joelle Marquis, one of my long-time mentors, current client, and a leading voice in private equity human capital. She is a Partner at Arsenal Capital, and her ideas in motion have helped the firm consistently achieve record returns.

SM: Joelle, thank you for taking the time to share your thoughts with me today. Arsenal has built an enviable talent platform in no small part thanks to your leadership in Human Capital. I’d like to hear your thoughts on how to address the primary talent challenges facing private equity firms today, particularly on the operator side of things.

JM: Thanks for having me. Diving right in, I would say the first challenge in the hiring process itself goes beyond the job specification that gets crafted for each role. Obviously, first you must be clear on what a successful profile looks like for the role. But, you also have to ensure complete buy in on that profile from any vested stakeholder who has an interest in that person’s success. That can be a challenge!

SM: How do you address that? Is it primarily about getting everyone’s input on the job specification and the ideal candidate?

JM: It’s not just about putting details on paper, rather, you must tease it out, using examples to walk stakeholders through what you believe to be the key characteristics, and to identify whom you are looking for.

Ask yourself, do you really know what you want? Are you engaging your stakeholders? Is the PE a stakeholder? If so, sit with your stakeholders, make sure there is alignment, do a litmus test of what you’re hearing. If they say, we want someone who has worked as a PE CFO before. Ask, what does that mean? Does it mean someone really good at helping guide the portfolio company through the exit process? And someone who can partner well with the PE? Or does it mean you want someone who understands what’s happening on the plant floor, who can convert that into metrics, and put systems in place to measure the performance; understanding how cutting cost adds value; and assessing how to create efficiencies that roll right to the bottom line? Those things are not necessarily going to be housed in the same individual. You might have one item on a competency list that says, prior PE CFO experience; but these two examples illustrate that that can mean different things in different contexts. It is imperative that you understand going into the search what it is that you are looking for. You should consider where you are on the maturity curve.  If you are early on in the process and the business needs some turnaround work, it is likely the latter; but if you are two years from exit, you probably want that exit person. These things could be embodied in one person, but more than likely they are not. So the context of your questions to your stakeholders is very important.

SM: It seems the nuances of context are always important, but as you point out, never more so than when dealing with people and expectations!

JM: The second challenge pertains to relationship building between the PE representative and the senior team. What does that relationship look like - is it trusting, open and transparent? Is there a true back and forth relationship where truth can be spoken? Is it a true partnership where you can talk about what’s happening, what’s coming up in the business? Is the PE adding value by their presence and relationship to the company? Is the company behaving in a way that they are taking an ownership mentality over the company? The answers are critical to the success of the organization.

SM: That makes sense; but how do you get to the truth of the matter?

JM: I believe the way to get at that is to sit and listen. To really listen to what’s happening in the relationship. High Emotional Intelligence (EQ) is very important in this context – primarily for the PE side. Also, adaptability is critical for the PE side. We have all different flavors of CEOs and all of them can be very successful. It’s the PE person who has to have a leadership style that is adaptable to be able to meet them where they are. High relational skills help ensure you are creating a culture of performance.

SM: It seems both sides have a lot of influence over the ultimate result. True partnership seems the best approach to great returns! Knowing you are a football fan, coming into the end zone, what would you say is the last talent issue facing PEs?

JM: Last but not least, one of the big issues in hiring and building high performance teams, is the absorption of each hire into the organization through onboarding; this goes for either the PE itself, or the portfolio company. I don’t mean just ordering the computer and making sure they know where the bathroom is. It starts with ensuring you have the success profile mapped out. Then it’s about understanding how and where the new incumbent has strengths and where their weaknesses are so you can capitalize on their strengths and not double down on their weaknesses. If there are 8 key competencies we are looking for, we never see people score a ten out of ten, there will be some competencies where they are weaker. It is critical to understand what those are so we can support them and fill in the gaps where needed.

Also I try to make sure all the stakeholders are invested in the person being set up for success. We use constant communication and coaching support, even though these are executives who have seen a lot and been in a lot of situations. I say, don’t take for granted that they know how to come into an organization most successfully. In terms of portfolio companies, if it is a senior executive, the PE has to be one of those stakeholders, particularly if it is the CEO, CFO, COO or head of HR.

As well, in terms of onboarding, we make sure people coming in understand the cultural components in the company; and that they are set up for success, not just in terms of goals and objectives, but regarding the cultural environment. Do they have a good understanding of whom the key players are and whom the key decision makers are? Do they understand how decisions they make will affect the company as a whole, do they have a big picture understanding? Ensuring they do is a critical component of their success, and in turn, the success of the organization.

SM: You have given us a lot to think about. I really appreciate your insight on the talent challenges facing PEs, and more importantly, your recommendations for how to address those challenges. Thank you for your time.