by Jessica Genereaux
The last two decades have seen a global shift in corporate ownership and business management. Since 1996, the number of publicly-traded firms in the U.S. has steadily declined to nearly 50 percent, with many of the firms transforming to privately-owned status. The roles of the investor and human resources director have also changed in PE firms, requiring a higher degree of business acumen.
Investors at larger PE firms have expanded their role to make sound assessments of companies before they invest. Using David Ulrich’s Leadership Capital Index (LCI), they can more accurately determine a firm’s investment value by evaluating how well the organization is run. The investor’s more specialized role has evolved into a new position, known as the leadership capital partner (LCP).
Just as LCPs are responsible for accurately determining the health of an organization to minimize the investment risk, HR directors require skills to serve as business partners in PE firms. Business skills are now more highly valued in HR directors over the employee caretaker skills of the past. Investors and HR directors must also work closely in recruiting the right staff who are on board with the Leadership Capital Index and the business transformation process.
The HR department itself should not be separate, but rather included in promoting the business strategy. In PE firms, an essential part of HR is knowing what LCPs do, and how astute evaluations contribute to the company’s success.
In the past, HR departments have been alienated from the company, divided by a wall of mistrust, with employees wondering, “Whose side are you on?” The trend toward inclusivity has gone beyond PE firms to mainstream organizations. Some companies are striving to humanize HR (imagine!) and turning to fun, casual team events to help build relationships between HR and other departments. HR is no longer seen as the guard for staff benefits, company policies, labor laws and pink slips.
The LCP in Action
For the PE firm, the business emphasis is on the successful transformation of a new acquisition from a public to private status. LCPs evaluate for talent, capability, and leadership to predict how well the change process will flow.
Because PE funds are acting more like firms, there is also more focus on having the right talent and leadership to ensure that their deal teams and support teams can function at the highest level. The new LCPs have more responsibilities than investors of the past.
LCP duties include:
- Working with human resources to ensure that the right partners are hired and once hired, receive proper incentives and support.
- Evaluating, using the Leadership Capital Index, to surgically examine companies for investment value, and conveying trusted data throughout the firm and to potential investors.
- Participating in more in fund-raising meetings with deal teams and investment partners.
LCP’s Role with Portfolio Companies
LCPs are also responsible for transforming the leadership, talent, and culture of their funds’ portfolio companies. The pressure is on to succeed. The value of their research and assessments is reflected in the successful transformation of the newly acquired firm. The costs are real if the transition does not go smoothly, such as changing a firm’s culture, management processes or talent.
While the LCP role is still relatively new, it is fast becoming recognized as an essential position for PE firms. The trend in making HR more inclusive transcends beyond the PE firm to companies who agree that HR should not be separate. All companies can benefit when business acumen is an integral part of the HR department.
HR is the first stop a potential new hire makes when considering a job. Staff can make a good impression if they convey knowledge and enthusiasm for the business strategy. Expressing a positive corporate culture at every level can also be a positive force in hiring the best talent.