How private equity shapes company culture

Tune into episode two of our podcast to hear Business Doctor Clare Harrall, People Director Joe Regan and Apiary Capital partner Dan Adler delve deeper into the world of private equity. They cover strategies that incentivise and support sustainable leadership teams, along with lived examples that lay the groundwork for successful exits.

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Transcript

00:00:00 Clare 

Welcome back to the Business Doctor Podcast. It's Clare Harrall here. In this second part of our private equity discussion, we're diving into the strategies that galvanise robust leadership team for successful exits. 

00:00:12 Clare 

We're also shining a light on the role of responsible private equity in modelling company culture and wellbeing. Buckle up as we dive into the conversation with Dan and Joe. 

00:00:23 Clare 

Joe, could you share your strategies for incentivising and supporting a sustainable leadership team, helping build that foundation for a successful exit? 

00:00:32 Joe 

Uh, yes, certainly. So, one of the crucial areas to examine is the company's employer value proposition and particularly around what unique aspects from the culture, what your USP points in terms of, how you can nurture and maintain existing talent, but also boost your company's appeal to attract new talent. 

00:00:53 Joe 

And that's both vital for new hires and for potential acquisitions, without forgetting about long term incentive plans, which play a significant role. 

00:01:03 Joe 

Having these in place ensures that when investment does roll in, a committed leadership team is ready to stay the course and seeing the transaction through and beyond. 

00:01:12 Joe 

Both looking at salary benchmarking for internal and external is another strategic move to ensure companies remain competitive within the market. 

00:01:22 Joe 

As Dan previously mentioned [in part one of this podcast series], talent management is also a significant role to play. Our recent successes from some of our financial services clients have involved implementing a performance and potential matrix, and the matrix that we developed with them helps to assess the health of the company's talent, but also 

00:01:41 Joe 

comes up with personalised interventions that can aid in retaining and nurturing that talent. 

00:01:47 Joe 

And particularly around one size doesn't fit all, and having personalised interventions does help. A significant advantage of using the nine grid box box model 

00:01:58 Joe 

is they also highlights the risks to the organisation and helps to weed out any poor performers who might jeopardise the transaction and the company's long term sustainability. 

00:02:08 Clare 

And I guess a question for both of you, really, what sort of examples do you have of those bespoke incentive plans for management teams in private equity based businesses? 

00:02:19 Dan 

OK, so I 

00:02:21 Dan 

Think I the most important thing to say here is again, the beauty about the privacy solution is it should be and can be tailor made to the individual situation. In simplest form though, what we're looking to do 

00:02:40 Dan 

is create not only the softer career aspirations and desire to build a larger company over the journey, but there's the financial incentives as well and that of course is linked to performance in building shareholder value through equity. 

00:02:55 Dan 

OK. 

00:02:56 Dan 

And then the decision to make with the senior team is how to use that equity to create incentive. Do you want to create an incentive that's narrow and for a small group of people, or do you want to create 

00:03:09 Dan 

something that can be 

00:03:10 Dan 

spread more widely across a larger section of business? There is no right or wrong way. 

00:03:16 Dan 

You have to listen to 

00:03:17 Dan 

your management team and understand: 

00:03:18 Dan 

what would they recommend would work best for their team? 

00:03:22 Dan 

You know there 

00:03:23 Dan 

are at one extreme. I work with the business and create media industry where the recommendation of the CEO was that actually staff came to work, because they just like the work and they liked the the clients. They didn't need the financial incentive. I equally work with the healthcare 

00:03:38 Dan 

business, where it was led by an ex-military CEO who really did walk his troops through the business plan and the equity incentive went all the way down to the receptionist. So every time we turned up for a board meeting, 

00:03:50 Dan 

the receptionist knew what we were there for and the fact that it was successful exit created a trickle down feel good effect from top to bottom of the business. But the great thing is, if PE is done well with the right partner, we can create a great incentive and career plan for the entire business. 

00:04:10 Clare 

Joe, did you want to add anything? 

00:04:13 Joe 

To echo all of that, I think is the one size doesn't fit all in terms of interventions. 

00:04:20 Joe 

And I think that in terms of managing talent, you might have some people that have got amazing performance but don't have the potential to move on and progress further. And I think it's about making sure that your 

00:04:33 Joe 

talent incentives or bespoke packages recognise that you might have valued experts that have got high performance but low potential. And then you'll also have people that have got high performance and high potential, and then it's about looking at career frameworks and it's about a career journey for them and what incentives 

00:04:54 Joe 

you can put in place to help develop them, so whether that's around coaching, mentoring, it's about progression for those types of interventions. 

00:05:05 Clare 

Dan, how does private equity ensure the preservation of successful business's unique success factors? 

00:05:13 Dan 

Well, there's 

00:05:14 Dan 

several layers to answering that. I think what's really important is making sure we are empowering the business and if we are coming in, we're coming in to help deliver and continue to deliver on the growth within the business. And you know we 

00:05:33 Dan 

call ourselves a buy and build investor, and that breaks down into supporting further acquisition and but also building the business and supporting that organic growth. 

00:05:42 Dan 

So it's really important that we continue to see the organic growth and we help empower that. And that might mean investing further in the business in building out the team at the senior level, at the more junior level that might be relevant as well. 

00:05:57 Dan 

But I think what's really important is, you know we're always looking to understand when we appraise a business. 

00:06:03 Dan 

What is the USP? What's the special source in this company?  What makes it stand out? Why is it at the growth today? And the important thing is to make sure 

00:06:12 Dan 

those people who delivered that, are able to do that in an unfettered way. I think it's also important to say it feels different when private actually come on board. 

00:06:22 Dan 

And I'm obviously an advocate of PE, because I think PE done well can be a very empowering thing 

00:06:28 Dan 

for a business. 

00:06:30 Dan 

And for the right management team. This is where I come back to cultural fit. And importantly for that management 

00:06:37 Dan 

Team to do their homework on the prospective PE better as well, and ask the questions about what does that group of guys like in supporting growth, how do they behave when we hit challenges? 

00:06:49 Dan 

Because that's really important. You know, we all grown-ups. Challenges happen in businesses, but most importantly what we're looking for 

00:06:57 Dan 

are are no surprises. We don't like good surprises 

00:07:00 Dan 

and we don't like bad surprises, and I that goes two ways. So, we like to be very open with our management teams as well. 

00:07:06 Dan 

And I think if we have a very open, two-way dialogue all the way through the preliminary diligence phase of doing a deal and the lifetime of that, and then we've got a healthy relationship. That's important. And we have a healthy partnership where we can talk to each other. 

00:07:21 Dan 

And we can react positively to opportunities as they come across, and we can also react sensibly when there are challenges to 

00:07:29 Dan 

overcome as well. 

00:07:30 Clare 

How do you ensure people feel positive about private equity involvement and remain confident moving forward? 

00:07:36 Dan 

I think that's a really good point, because 

00:07:41 Dan 

I understand that for some people and businesses, it can feel quite nerve wracking when private 

00:07:47 Dan 

equity get involved. 

00:07:48 Dan 

What does that really mean? And I think it's 

00:07:50 Dan 

important that we 

00:07:51 Dan 

convey our message to the people in the business that we are there as a growth partner. 

00:07:55 Dan 

We we are there to 

00:07:57 Dan 

support and develop growth. And hopefully the involvement of the private investor is seen by a team as an endorsement of the quality of the business that they have got, and helping them take the business to the next level and the next stage of 

00:08:12 Dan 

the company's journey. 

00:08:13 Clare 

Joe, have you got anything to add to that? 

00:08:16 Joe 

Yeah, I guess probably as an ex-Chief People Officer, I think the importance of 

00:08:23 Joe 

continually reviewing your engagement levels within the organisation is really important as that private equity and that relationship develops. I think that there's a real risk of burnout in terms of management teams and I think that there's an opportunity in terms of really going for the resilient 

00:08:42 Joe 

training, topping up the energy levels and how to maintain that energy throughout that period of time. 

00:08:49 Joe 

I think there's also real value added in terms of regular talent health checks, in terms of where people are at in terms of their performance and their potential. 

00:08:59 Joe 

I think there's also about, as a good Chief People officer, you'll be looking at reviewing your succession plans to make sure that you're mitigating any risks 

00:09:08 Joe 

As you move forward. And I think there's also a bit about linking back to the core values and behaviours and making sure that you're sticking to 

00:09:20 Joe 

what you're good at in terms of as a culture. So I think that they're the watch outs, if you like, from a HR perspective around maintaining that culture and that unique selling point that they had at the beginning. 

00:09:33 Clare 

With a people centric business, does the ESG element vary based on the differing personal objectives of cost generation? 

00:09:41 Dan 

I think that's a 

00:09:43 Dan 

fair comment, but I think ultimately when you're backing entrepreneurial founder LED companies, it's important that they continue to be at the vanguard of within their industry modern and forward thinking and well run and well run from a risk management perspective as well. 

00:10:00 Dan 

So you're actually, you know, there are some people who are more cynical about the 

00:10:05 Dan 

ESG agenda but you only 

00:10:07 Dan 

have to look around you. It is of increasing importance and it's something that we need to address. 

00:10:12 Dan 

And it's really important as part of the growth within the company and its positioning within its industry, it's something that they manage and they manage well. 

00:10:24 Clare 

It's really a differentiator, isn't it? 

00:10:26 Dan 

I think so. I think so. And you just can't ignore it and 

00:10:30 Dan 

nor should you ignore it. 

00:10:32 Clare 

So as we conclude, Dan and Joe, could you each share your top three 

00:10:36 Clare 

takeaways from this discussion? 

00:10:37 Clare 

Maybe Dan, you could go first. 

00:10:40 Dan 

Yeah. With pleasure. 

00:10:41 Dan 

My top takeaways would be for people on my side of the table in private equity, never forget that the people are the most important asset in the business 

00:10:51 Dan 

you're looking to support. For management teams, my top takeaway would be if you are talking to a number of private equity 

00:11:01 Dan 

backers, it's about cultural fit and are those the people that I can work well with for the next 

00:11:07 Dan 

few years of my life? 

00:11:08 Dan 

And for both parties, I'd say you are entering into a partnership, so you need to understand and appreciate that you have understood each other's aspirations perfectly well and you 

00:11:21 Dan 

are prepared to 

00:11:21 Dan 

work on a basis where you can communicate with no surprises and you have an open 

00:11:26 Dan 

and fluid dialogue. 

00:11:29 Joe 

For any organisation, the top three things that I would take away is around prioritising employee retention, because businesses interested in investment and expansion have to focus on retaining their existing teams, which is crucial for stability and continuity following a transaction. 

00:11:49 Joe 

So for me, the second one 

00:11:52 Joe 

is around acknowledging and overcoming the challenges that are going to be coming ahead. I think recognising the potential hurdles before they happen is crucial and there's obviously going to be some bumps in the road that are going to require resilience and determination from the team to overcome these issues. And then I think for me, the third one is around 

00:12:12 Joe 

fostering long term incentives. It's essential to consider how to reward and incentivize employees for long term commitment and having a long term investment strategy will encourage individuals to stay the course within the organisation and be prepared for the journey ahead. 

00:12:30 Clare 

And so that brings us to the end of our private equity discussion. I'm Clare Harrall, thanking you for journeying with us on this two-part series. 

00:12:38 Clare 

For more gems of business wisdom, don't hesitate to visit our website and tune into our other podcasts. We're here to keep the conversation going, so until our next chat, stay successful.