At the recent PEI Operating Partners Human Capital Forum, I joined three industry leaders to unpack the shifting dynamics of human capital in private equity. The message for human capital partners was crystal clear: move with urgency, anchor decisions in data, and relentlessly pursue world-class leadership.
Data over opinion: lead with facts
In private equity, decision-making must be rooted in facts, not opinions. A CEO’s effectiveness should not be measured by gut instinct, but by objective data points. One highly effective method is conducting a value creation readiness survey where the top 100 leaders of a company assess key operational factors: structure, IT systems, team alignment, and execution capabilities.
These assessments can surface critical disconnects between leadership perception and company reality. In some cases, leadership teams may rate themselves highly, while the broader organization highlights significant struggles. This type of factual insight eliminates the risk of subjective bias and provides a clear case for change when necessary.
CEO performance: when to course correct
Every firm wrestles with the question: how long should a CEO be given to turn things around? The reality is that most CEOs who struggle in their first six months rarely transform into A-players later. If leadership gaps are evident early, swift action is often required.
That said, not all issues warrant immediate CEO replacement. If execution is the core problem, consider surrounding the CEO with the right expertise, whether through board composition adjustments, operational support, or strategic hires in key functional areas. If cultural misalignment is the root issue, tools like team alignment exercises can help identify deeper organizational challenges.
However, when it’s clear that leadership is the fundamental issue, proactively presenting alternative CEO options can break deal team inertia. Rather than stating, “We have a problem,” a more effective approach is, “Here are three strong candidates in the market. Let’s meet them and explore options.”
This shifts the conversation from uncertainty to solution-oriented action.
Influencing deal teams: persistence is key
Deal teams often resist early leadership changes due to fear of disruption, a lack of clear alternatives, or investment in the status quo. Human capital leaders must play the long game:
- Engage repeatedly: The first conversation may be met with resistance, the second with listening, and by the third, the team is opent o action.
- Build consensus: When multiple operating partners align on concerns, it's harder for deal teams to dismiss feedback.
- Frame the decision in terms of risk: Instead of debating opinions, pose a simple question: "How often has a CEO who struggled in the first six months turned things around?" If the honest answer is "Almost never," then the path forward becomes clear.
Becoming a luminary in human capital leadership
To drive change effectively, human capital partners must go beyond execution and establish themselves as strategic leaders. This requires:
- Deeply understand the deal thesis to ensure leadership strategies align with investment goals.
- Bringing a sense of urgency - being a dog with a bone when necessary and not letting leadership challenges fester.
- Leveraging networks to build a roster of top-tier leadership talent and advisors who can step in at the right moment.
Above all, great talent partners don’t just execute; they influence, strategize, and drive value creation. By focusing on objective insights, persistent engagement, and strategic alignment, they ensure that portfolio companies have the leadership needed to thrive.
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