By Brian G. Clarke, Managing Partner, Executive Search – Kensington International, Inc.
The Five Pillars of HR – Supporting the High-Performing Platform/Portfolio Company
Over the course of our 25-plus years of recruiting and selecting Human Resources professionals for all types of organizations – PE-backed and otherwise – there have been, quite honestly, ebbs and flows in how the HR leader and HR organization overall have been viewed and utilized by CEOs, Senior Leadership Teams, Sponsors/Investors and Boards.
Today, the HR leader/function is enjoying a renaissance in many respects – returning to the table and the executive team as a result of a renewed and vigorous demand for talent. For PE in particular, the lens that is being applied to secure the right talent for the C-Suite and in key leadership roles in general has never been more laser-like. Achieving above-market investment returns requires high-functioning leadership.
With talent being a key element in ensuring the success of the enterprise, the HR organization, especially within the mid- and large-cap PE-backed organizations, can and has leveraged talent to actually increase its relevance overall. Talent (acquisition, development and management) has secured its spot as one of what we consider to be the Five Pillars of Excellence within HR that support a high-performing platform/portfolio company.
Pillar I – Talent – Acquisition, Development, and Management
As we outlined above, with talent overall having perhaps the highest impact on the success of the enterprise, it’s clear that managing a leadership team talent-pool transformation quickly and deliberately is critical. The HR leader should truly serve as a CTO: Chief Talent Officer. HR should drive all elements of the Talent Value Chain: due diligence prior to closing, assessment once the deal is done, acquisition of new leadership talent as gaps are identified, and restructuring to eliminate duplicate or unproductive positions once the strategy is set. The algorithm is quite simply: the right people/right place/right time.
The best HR leaders demonstrate experience with and a penchant for managing talent at the highest possible levels and with the greatest efficiency to meet the needs of the organization. In the PE world, time is of the essence. Taking too long to make talent changes and top talent additions can cause a platform company to underperform, both in terms of financial performance and investment time horizon.
Pillar II – Change Management/Large-Scale Transformation
If we think about the timeline involved with the march toward the liquidity event, this velocity typically requires the platform or portfolio company to make fairly rapid and sometimes dramatic changes to the business model overall; leadership, operations and commercial efforts all may need tweaking. This amount and type of change require an effective HR leader to clarify an organization’s vision/direction; understand and articulate the company’s “current state”; identify gaps; and ultimately devise and implement strategies, tactics, and a communication plan to move the organization forward. The HR leader must be effective in facilitating and developing a consensus for organizational change at all levels of the organization (the board included).
At the senior leadership level and throughout the company’s line and staff organizations, HR leaders must be able to clearly demonstrate facilitation of “constructive and transparent conversations” between stakeholders at all levels to articulate the need for change, as well as help devise processes to ensure that change is implemented effectively.
Pillar III – Operational Excellence
Rewards, including compensation, along with health and welfare plans, tend to be low-hanging fruit following acquisitions/integrations, but highly effective HR leaders at PE firms and their portfolio companies should be highly effective at identifying and executing on other cost-reducing activities, including the recognition of and wring-out synergies with roll-ups.
Outside of rewards, key processes – whether managed by individual leaders/managers or within a Center of Excellence (company size and sophistication-dependent) – should be managed efficiently and effectively. Best-in-class HR leaders and organizations simplify systems and processes and leverage new technologies to improve and increase efficiency of HR services. While not needing to be overly sophisticated, solid experience implementing efforts and processes to efficiently manage succession planning, rewards, performance management, learning management, recruitment/applicant tracking, and employee and labor relations is critical.
More-advanced HR leaders must clearly be able to build management systems and processes and demonstrate specific experience pushing HR Centers of Excellence and/or related functions to drive improvements across all HR processes using standardized methodologies, such as LEAN or Six Sigma.
Pillar IV – Leadership Teams/Business Engagement
We often use a line from the founder and former CEO of Save-A-Lot Foods who made the following comment many moons ago during a Chief Human Resources Officer (CHRO) search engagement kick-off: He stated, “In the end, I want a Vice President of Human Resources who could, if necessary, step in and act as an interim Head of Marketing if my Vice President of Marketing were to get hit by a bus.”
While perhaps a bit extreme, the point here is that the HR leader and his or her entire organization must possess the business acumen that will allow for a clear understanding of the markets that the business participates in, the state of the balance sheet, managing in a more cash-constrained environment, and the levers to pull to assist the organization in hitting key targets – most notably EBITDA.
HR leaders must be in the moment, not just about how HR is supporting the organization, but also in understanding and providing input into the organization and its performance on all fronts. This is not a “go along/get along” position, nor is it a traffic cop or janitor job. The HR leader must be able to engage as a business leader and participant first and an HR subject-matter expert second. This requires an “edge” to educate, influence, and sell.
Pillar V – Cost Effective/Value Creation Approach
Arguably, the single biggest attribute we home in on when looking at newcomers to PE (HR or otherwise) is a clear ability to translate that bigger company/bigger budget mentality to a “business case and capital-conscious orientation” needed in PE. The successful HR leader must apply economic judgment, fiscal responsibility, cost-out initiatives, critical-thinking skills, and that “sense of urgency” necessary to generate the highest returns/contributions.
Budget-wise, blank checks are a thing of the past here, as we all know, and the HR leader and his/her team need to demonstrate the ability to make prudent, effective decisions, with an eye toward eliminating waste, optimizing business systems and processes, and innovating overall.
Selecting HR leaders who clearly demonstrate these attributes will ensure they are at the table and that such leaders can deliver on the other four pillars.
Summary – Demonstrating Skills and Experience – A Blueprint For Success
Finding and securing HR leaders with the experience and competencies outlined above will mean you should now have the leader who will add value at the table far beyond just leading the HR organization. He or she will understand not only the critical elements around talent, but also all Five Pillars and, as a result, should excel at impacting the success of the business.
About the Author
Brian Clarke is a founding member and Managing Partner within Kensington International, Inc. In addition to managing Kensington International’s Search operations, Brian leads the HR Function Vertical for the firm and has conducted numerous CHRO search assignments across the manufacturing, consumer, infrastructure, and gas, oil, and chemical sectors. Brian has been named to BusinessWeek.com’s list of the World’s Most Influential Headhunters.
Founded in 1989, Kensington International expertly partners with its clients on each element of the Employment Life Cycle, from talent acquisition through retention/development and, as required, career transition. Kensington International ranks among the largest and most successful combined Search, Assessment, Leadership Development and Outplacement firms in the U.S. The firm serves clients that range from $25 million to $130 billion in size, works across all key industry sectors, and, in many instances, provides all of its services to a single client.