The private equity portfolio CHRO: A value creation driver

The chief human resources officer (CHRO) plays a critical role in any organization, but this is especially true in a private equity portfolio company. Private equity firms and portfolio CEOs are relying on CHROs more and more to help drive growth and execute on value creation plans. Here’s why:

Return on investment and value creation: The private equity portfolio CHRO provides a clear link to the PE firm’s ROI and value creation efforts. Portfolio companies are typically run more nimbly than large public companies, with fewer resources and in a leaner manner. Through workforce analytics and metrics, the CHRO provides the private equity firm with critical insight into the business. With so much of the value creation plan coming down to having the right people on the right bus, the CHRO is a key driver of the value creation plan within the business – helping the private equity firm realize the desired return on its investment.

Rapid growth: Some private equity portfolio companies are destined for rapid growth within a short timeframe, with organic growth being a large portion of that. What the portfolio company will look like in two or three years is likely quite different from what it looks like today, and the CHRO is instrumental in building the organizational infrastructure to meet the demands of that growth. Along with rapid growth comes rapid hiring, so talent acquisition is at the forefront of any PE portfolio company’s growth strategy. The CHRO must lead the organization through that growth by setting the talent strategy and identifying, attracting and retaining top talent in a competitive market.

Mergers & Acquisitions: Other PE value creation plans include a moderate to high amount of inorganic growth (M&A). When the portfolio company acquires another company, it also acquires the workforce if it can retain those team members. The CHRO plays a critical role in evaluating the bench strength of the potential acquisition’s workforce through the due diligence process, helping the leadership team and PE firm evaluate the investment opportunity through a human capital lens. When the portfolio company goes through with an acquisition, the CHRO is a key driver of the integration process, making sure the workforces are brought together as smoothly as possible. This includes everything from cultural integration to more tactical integrations such as compensation and benefits.