What Does Talent Have to Do With Private Equity?

Rubenstein was spot on about one thing, though: mankind, or humans, have a lot to do with private equity. Humans source, negotiate, and close the deal. Humans turn on the lights, create the product, and perform the work. We humans make the money and then we spend it. Mankind, it turns out, touches every part of private equity. So, wouldn’t we want to make the very best decisions about people? Absolutely, but how? Let’s break it down.

The Tools of the Trade

If I’m going to make a significant investment in a business, I want to know as much as I can about the business beforehand, right? In addition to the due diligence that gets my head around the assets and liabilities, I’d really need to understand the people in the business, too. Who are the people that have contributed to the current state of the business, in the positive and the negative? And what is it about these people that brought the business to this point?

Interviews, surveys, and personality assessment tests are the tools that we use to get these answers.

• Interviews put us face to face with the people we want to know more about. Interviews contribute incredible context to the people/talent landscape of a business, but this kind of information is difficult to organize since it is conversational in nature.
• Surveys, on the other hand, ask a standard set of questions, whose answers can be dropped into a spreadsheet or report, and grouped by respondent.
• Personality Assessment Tests have a structure like a survey and returns data about people that describes them based on a psychometric framework. We don’t get the same richness of data that we get from interviews but the data that they generate can be easily organized and analyzed, not unlike financial data.

Executive Assessment aka What Are We Working With?

Executive Assessment is a process where an executive is evaluated against a set of standard criteria and often compared to other executives who have completed the same evaluation (a process known as benchmarking). This process usually involves interviews, surveys, and personality assessment tests facilitated by skilled talent professionals from an executive assessment firm. These professionals will often consult throughout the engagement to ensure a comprehensive evaluation but much of the testing still makes use of online assessments. The assessment process returns information like this (although most firms add their own special sauce that makes their approach unique):

• Executive Strengths describe how well someone makes decisions, communicates, motivates people, learns, directs, and empathizes.
• Executive Weaknesses, which is usually called something like “Opportunities” or “Challenges”, describe where the executive falls short of the same attributes as Executive Strengths above. Not every person is going to score high in every area - that’s just how aptitude tests work - but we can always use this data mix to make smart, informed decisions.
• Intelligence or Cognitive Ability describes how the executive analyzes, synthesizes, and produces information. Think of this as the executive’s raw mental horsepower.

These are very important if we want to make the best decisions about the most influential and accountable people in the organization. And since people are the golden thread tying the whole business together, we want to pay as much attention to this as possible.

What Can We Do with This People Data?

So, we’ve invested in a good executive assessment to understand what the capabilities are of the senior leadership in our portfolio company. We know what the leaders are made of and we have an idea about where they can take us. Well done, but what else can we do with this information?

• Baseline for Succession Planning - if we understand what kind of person or people got the business to this point, we can reasonably infer that a similar kind of person would keep the business going in a similar direction. Now, if that’s a direction we like, we can keep going that way, with confidence in our decision. If it’s not a direction we want to go in, this information gives us confidence to make important choices about people when the time is right.
• Goals for Executive Development - now that we know what our executive’s stronger and weaker attributes are, we know exactly where to target our developmental work. When we invest in our executive’s development, we make our best people even better. We can augment them with executive coaching, new skills, and even other skilled people when they fall short. Conversely, we can lean in and slam the throttle forward where they excel.
• Fortify Bench Strength - the best executive assessments allow us to administer the same online assessments to less senior people in the company, without the time and expense of the full executive assessment consultant treatment (and considerable expense of interviews). If we can have the same quantitative data about people at other levels of the organization, we really start to see the whole board for the first time. Special occasion efforts like succession planning become systematized, people can be deployed where they will excel, and we can get in front of team breakdowns before they waste time.