Assumptions about leadership behaviour in PE deals

Human capital represents the next frontier for PE firms looking to derive additional value from their portfolio in an increasingly competitive market and human capital management has become an important element of value creation plans.

However, our research reveals that to really maximise this opportunity, firms must shift from a focus on simply minimising risk, to one that goes beyond this; to a focus on maximising value through people.

This is a fundamental shift which will require some firms to challenge prevailing orthodoxies and fixed mind-sets regarding leadership performance, potential, and development.

Specifically, our research highlights the various unconscious biases which threaten to undermine human capital decision-making, if well-designed and rigorous processes aren’t applied. This relates not only to selection and assessment decisions, but decisions around leadership performance across the lifecycle of a deal. The fact that deal teams are financially but also emotionally invested increases the difficulty of remaining objective in human capital decision-making.

However, there is an opportunity to sharpen decision-making around leadership performance, by implementing well-designed selection and performance management processes which will enable deal and portfolio teams to make decisions about leadership performance more swiftly and confidently.

As increasing numbers of PE firms look to maximise value through the human capital, we predict that those who reap the most benefit will be those who begin to challenge prevailing assumptions within PE around how to manage human capital to achieve superior performance. With better use of leading indicators to proactively manage leadership performance, and wider adoption of targeted alignment and development initiatives to enhance leadership performance from day one, PE firms are able to shift from simply ‘managing’ the risks to truly maximising value from the human capital in their portfolio.