The pandemic and the growing social justice movement have spurred significant change across societal, regulatory and investment landscapes. The private equity world is taking notice.
Pandemic shutdowns have caused us all to slow down and spend time reflecting on life. Cries of systemic inequalities and looming environmental crisis have been amplified and are now on the radars of key stakeholders. The investment community and regulatory bodies are signaling it is time for change on these fronts and are implementing more impactful policies.
The new private equity portfolio CEO must be battle tested with the grit and agility to lead through unpredictable events, balanced with the empathy and authenticity to transform the workplace culture. Their toolbox must have depth in managing around Environmental, Social & Governance (ESG), Diversity Equity & Inclusion (DEI), and digital transformation.
These days, CEO prospects and board directors with experience in ESG are in high demand. More investors and customers are demanding values alignment and want ESG considerations incorporated into their diligence and decision processes. Today’s operating company CEO must understand the nuances of ESG, as well as know how to make sustainable decisions that will best position the business for the future.
We have seen instances where some pension funds and family offices will not invest in PE funds unless they’ve signed the Principals of Responsible Investment.
DEI is arguably one of the most pressing aspects of ESG companies are prioritizing right now as investors, who are paying attention to the lack of gender parity and racial diversity on boards and in the C-suite, are demanding change.
We’re seeing the PE world becoming more intentional about diversity recruiting, especially at the board and CEO level. At the same time, portfolio CEOs are more accountable for showing significant progress on DEI initiatives: They must be able to engage and inspire people, build cultures that attract and retain diverse talent at all levels of the company, as well as deliver return on investment.
Currently we are assisting a PE-backed portfolio company client identify a new board director. This company is an industry where certain states require diverse representation on the board, so we’re working to find someone who meets those guidelines.
Coming out of the Covid pandemic, companies are heavily relying on technology to optimize processes and improve customer experience. The PE world in particular is hyper focused on digital transformation. Firms are fixated on showing that their portfolio companies are tech enabled to better support their investment theses. The well-rounded CEO must have both vision and fluency in technology to drive growth.
The past 20 months have brought numerous changes for private equity, particularly in how they recruit and vet portfolio CEOs. Going forward, leaders must bring experience and passion to create a business where purpose, innovation, and technology all intercept.