At the same time, PE and portfolio company management teams may need to be asking: What ESG metrics can be used to measure a company’s success? What are the reporting requirements? And who will implement and oversee ESG policy?
PE can also uncover new opportunities for value creation as ESG is embraced by more stakeholders. An ESG strategy also includes efforts to create purpose-driven businesses that can attract a broader base of talent and customers and create value by embedding sustainability in their business strategy, transformation program, reporting metrics and communications.
Talent recruitment and retention in private equity
The situation: Given the shortage of talent across the US and globally, private equity teams and portfolio companies may need to compete with the rest of the corporate world for the best people. In the wake of the COVID-19 pandemic, the struggle to attract and retain employees has become more difficult and costly. Unfortunately, many PEs don’t pay sufficient attention to this critical area, said Apollo’s Miller.
“Deal teams are more focused on filling a chair with someone they think is ‘good enough,’ vs. filling the chair with an A player — the gap between ‘good enough’ and an A player makes all the difference,” said Miller.
The solution: PE owners and management teams can recognize talent as a value creation lever by starting with a more systematic understanding of employees’ expectations and areas for improvement. They can conduct quantitative research, based on real-time compensation data analysis, employee interviews, social media scraping and other methods, to identify problem areas in the recruiting process and the reasons behind employee turnover.
Portfolio companies can also perform a strategic review of talent acquisition and onboarding to understand which candidates will bring the greatest value, what factors drive attrition by role, what hiring sources have the highest success rates and the cost-effectiveness of recruiting overall.
Insights gathered through these steps can help PE and management teams develop a strategy to mitigate attrition rates and transform the culture to attract, motivate and retain talent.
Organizations that adopt these approaches can see significant EBITDA upside from higher productivity and talent acquisition cost reduction.
The situation: Historically, mid-sized private equity-owned companies have resisted outsourcing for fear of service quality and a belief that outsourcing is more appropriate for larger enterprises. Going forward, PE-owned companies may need to look at outsourcing as a way to access cutting-edge technologies and capabilities that can lead to revenue growth opportunities, in addition to reducing costs. And outsourcing is no longer a tool only for large companies; outsource providers are targeting mid-sized companies, too.
For example, an area such as real estate management may not contribute to a company's top line, or functions, like cybersecurity, may require more up-to-date expertise than can be managed in-house. These examples illustrate why, over the next several years, more PE-backed middle-market companies are likely to leverage outsourcing.
The solution: Companies of all sizes may need to continually assess where outsourcing can create value for stakeholders. Areas that are not core value-creating activities and those where the company lags in technology or cost efficiency can be strategic outsourcing candidates. Outsourcing can be a critical tool to help companies accelerate growth, access capabilities and reduce costs.