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Private equity needs to apply Fortune 500 talent management techniques

The industry hasn’t outgrown many aspects of the entrepreneurial mindset when it comes to human capital, which often results in a tendency to rely on “gut instinct” in evaluating talent, and on qualitative rather than quantitative measurements.

By Angela Geffre, Sun Capital

Private equity is a highly entrepreneurial industry, focused on dealmaking and moving quickly to grow and improve businesses. But as the industry has evolved, it hasn’t outgrown many aspects of the entrepreneurial mindset when it comes to human capital. Often, this results in a tendency to rely on “gut instinct” in evaluating talent, and on qualitative rather than quantitative measurements. This is surprising as PE attracts many bright minds yet doesn’t always apply objective measures when evaluating talent.

Angela Geffre, Sun Capital

Private equity can learn from the Fortune 500 world, where I spent most of my career, from how best to recruit candidates that fit culturally with the organization and developing retention mechanisms, to getting underperformers to improve, better managing attrition, and using technology to professionalize HR processes.

Though the basic principles of good talent management hold true across industries, here are three areas where PE can learn from proven Fortune 500 HR practices.

Recruitment

Whether hiring an associate, identifying executive talent for a portfolio company, or recruiting operational staff, it’s best to start with a clear sense of what needs to be achieved in the role before determining what qualities the candidate needs. If it’s a portfolio company hire, can the candidate solve problems quickly? Are modeling and analytics the most important criteria for inbound associates or is intellectual curiosity or industry knowledge more important?

Starting with the specific criteria you’re seeking will ensure you ask more pointed questions that yield better information. If you’re thoughtful about the candidate’s duties and the qualities he/she needs, arming your team with that knowledge in advance will produce better feedback and substantially reduce failure risk. Most Fortune 500 companies are adept at identifying the qualities they’re looking for in candidates and encourage interviewers to dig deep. Private equity sometimes relies more on likeability, educational pedigree, and reference checks.

Reviews and Feedback

Given the ever-increasing competition for talent, it is critical that firms retain their highest performers, but measurable 360 feedback that gives employees a clear sense of how they can get to the next level remains a relatively new phenomenon in private equity. Open communication with staff about expectations, direct, constructive feedback from managers and measurable goals all have a role to play and technology solutions can make a big difference here.

Sun Capital has instituted a 360-degree employee engagement and evaluation program. In addition to the ability to provide confidential feedback combined into a group rating, we’re also able to evaluate talent based on qualities that characterize a good Sun Capital employee, such as “Is this person a joy to work with?” We can also give clearer answers to common questions such as “Am I going to get promoted?” and “What do I need to do differently to progress my career?” In addition, the platform has delivered insights by conducting confidential surveys on issues such as covid-19 and return-to-office policies, segmented by office location.

We’ve also worked hard with our team on techniques for providing better, more direct comments to peers, direct reports and managers. Most people have a natural resistance to delivering negative feedback but being specific about where employees could improve is the only sure path to helping them progress. For persistent underperformers, what’s a better and fairer outcome – retaining employees who are not going to progress or being clear that they don’t have a future at your organization?

Managing Attrition

Due partly to investments in technology, Fortune 500 companies also tend to be better than smaller organizations at projecting and managing attrition, often using sophisticated statistical analyses of survey data. Once they understand what leads to attrition, they can reduce it. It doesn’t need to be complicated. Most employees want to learn and grow, be recognized for their achievements, form strong bonds with colleagues, and enjoy their lives. If you know how your employees feel about these retention drivers and work to address issues, you have a much better chance of retaining people during the “great resignation” that businesses are experiencing.

Private equity firms and portfolio companies shouldn’t wait for resignations before acting. Maintaining a pipeline of candidates needs to be an ongoing process rather than an ad hoc initiative focused on plugging unanticipated gaps. This may require broadening the pool of candidates or setting reminders to connect with potential hires during down periods. Strong candidates should be treated like potential investors – know them well and stay in touch.

Conclusion

Though the private equity industry may not have the advantage of Fortune 500 talent management resources, by taking a few pages from the big company playbook they can put themselves and the industry in a better position to recruit, retain and attract talent in an extraordinarily competitive environment.

Angela Geffre is chief human resources officer at Sun Capital, a global private equity firm.