The Rise of the Portfolio CPO Breakfast

As we continue to navigate changing markets, the need to align the people agenda to the value creation plan of portfolio companies has never been more critical. Chief People Officers are increasingly indispensable as they act as a trusted advisor to the management team. They have had to become infectious disease control experts, authors of return-to-work and hybrid policies, and facilitators of race relations in the US amongst many other business and organisational challenges.

Today the right CPO will be key to the successful transformation of a company and its people to achieve the best returns for investors.

We recently convened Talent and Operating Partners in private equity firms in addition to CPOs in PE-backed companies to discuss our research and insights on the impact great CPOs can have, the profile of exceptional CPOs, as well as how to find and retain them. Our recent thought piece on the Rise of the Portfolio Company Chief People Officer can be found here. 

Change management experience

The dynamic PE environment requires equally agile CPOs who can pragmatically facilitate structural and cultural transformations at fast pace. Successful CPOs of portfolio companies help collectively drive and inspire their executive team towards change, as well as following a clear vision and understanding of what the future looks like. Our analysis highlighted the importance of previous change management experience, with 23% of portfolio company CPOs having had prior management consulting experience and 63% having performed previous CPO roles involving change management.

During our working session, we emphasised the need of hiring experienced CPOs at very early stages of the portfolio company’s development, contrary to the historical trend of appointing the CPO only at advanced levels of maturity.

Throughout the discussion it emerged that portfolio company CPOs with previous experiences in both management consulting roles as well as best-in-class HR organisations are frequently desired given their ability to be impactful in implementing large-scale sustainable change management programmes. Experience in consulting usually allows them to have autonomy to operate, whereas an exposure to large and well-established HR infrastructures provides them with a model to operate against.

The ability to flex from strategy to execution

Effective portfolio CPOs not only have to think strategically about long-term goals, but also to implement and deploy these strategies at an operational level. A lack of existing HR systems infrastructure in portfolio companies often demands that CPOs roll up their sleeves to ensure new systems are created that reinforce the overarching organisational people strategy.

During our working session, we recognised the most successful portfolio company CPOs as those that are equally stimulated by strategy setting as well as operational implementation. As HR capabilities across portfolio companies are usually lean, CPOs need to have high levels of detail orientation and at the same time will need to be ready to make important decisions with little or imperfect information. Hands-on attitude, fast decision making and a very close relationship with the CEO are the key ingredients for success in this role.

Exceptional business acumen and financial fluency

A commonality amongst impactful portfolio company CPOs is that they are extremely commercial. Strong portfolio company CPOs possess solid business acumen and financial understanding, as well as more typical HR leader competencies. Financial fluency is vital to ensure the effective partnerships between CEO, CFO and additional operating partners. Our data uncovered that one in five of the recorded CPOs had P&L experience, and one in four have previously been subject to interpreting financial results and their impact on business decisions.

During our working session we explored these themes and agreed that to work successfully in a private equity backed environment, having a good understanding of what a balance sheet looks like is the minimum requirement. A number of PE firms now make a financial fluency test an integral part of the recruitment process of CPOs (as well as most other executive committee appointments). This requirement stems from the need of hiring CPOs who can talk the language of the CEO, the CFO and the Board in order to take decisions aligned with the business priorities.

Throughout the discussion it was noted that HR leaders with experiences exclusively in large corporations are usually less exposed to business decisions and this generally does not translate well in private equity-related environments. A healthy mix of foundational HR plus a few years of close partnership with General Managers (or, even better, with some direct P&L experience) tend to fit best with the private equity domain and enhance the level of credibility of CPOs at executive leadership.

Data-centricity

Successful portfolio company CPOs are comfortable with interpreting and handling data that inform various business decisions. Such a data-orientated focus has been indicative of greater success within the PE-backed environment due to its fundamental emphasis on value creation. Our analysis of CPOs highlighted that 23% of portfolio company CPOs had prior management consulting experience, making them three times more likely to have this experience over listed company CPOs.

During our working session we identified the ability to influence at executive leadership level as one of the key features of the role of the portfolio company CPO. Themes that need to be brought to the attention of the management teams through the CPO usually vary across Organisational Design, Culture Building, Talent Attraction, Talent Retention and Learning and Development. As PE-backed environments usually encourage decision-making mainly through data, CPOs will be able to influence most effectively through structured talent data analyses.

Intuition and timely judgement

Most portfolio companies possess immature HR infrastructures and systems that require CPOs to apply intuition and judgement in situations where there is imperfect information. The nature of the PE business landscape demands that leaders can traverse through ambiguity, applying timely and pragmatic decisions that drive long-term value. Our analysis reinforced this, stating that portfolio company CPOs hold strong judgement skills, and that they are more prudent and diligent, whilst proving less distractable and impulsive.

During our working session we acknowledged that, ultimately, on top of all the aforementioned elements, the necessary ingredient to be successful in the role of portfolio company CPO is to build a close, impactful relationship with the CEO. Knowing where the CEO’s mind is at, foreseeing their business thinking and then deciding to influence just at the right time, are indicators of success in the role.

How to find the best portfolio company CPOs and how to retain them?

During our working session, this question generated a significant debate around the quality of the HR functions (and HR leaders) globally and the preparedness of organisations to invest in their evolution. It was recognised that, historically, HR has been generally seen as an administrative and non-strategic function for the majority of organisations. Over the course of the last decade, and especially accelerated by the pandemic, the attention to HR and people themes has increased exponentially and almost all organisations have included ‘talent’ as one of their key strategic priorities.

This has generated huge demand for high-calibre CPOs to take the lead and initiate large-scale change and transformation programmes to modernise and upscale unsophisticated HR functions.

It was noted, however, that this change is happening at different paces across different markets. Looking at Europe, Anglo-Saxon, Scandinavian and Northern European countries seem to have invested more in making this change happen faster, whereas Southern European countries are still catching up.

A number of our attendees, particularly sitting portfolio company CPOs, identified compensation levels of CPOs as the key differentiator in attracting high-calibre CPOs. Companies willing to make the investment of offering CPOs compensation schemes equal or, at the very least, comparable to the other executive team members, will be perceived as progressive and prepared to invest on their people. Companies that are instead not willing to commit to such investment will only perpetually prolong the idea of the HR function as an exclusively administrative attribute of a company’s structure.