Navigating the ‘new normal’ in private equity firms

Hi, everyone, you’re listening to the Alternative Series podcast by IQ-EQ. I'm Jack Standen, Director of Funds at IQ-EQ and your host for today. I'm pleased to welcome Charles Peck and Mark Maynard, Managing Directors and co-founders of March Consultants. Mark and Charles established March to help companies make better talent decisions now and for the future. Their innovative offering includes thorough and efficient data leads and search process, a comprehensive testing capability and an inbuilt C-suite acceleration program. Their mission is to ensure all candidates are placed and set up for success to ensure their maximum impact for their clients. We're here to discuss with Charles and Mark the evolution of the private equity CFO and navigating the new normal in these current times. Now let's dive into the first question. This one's for you, Mark. When it comes to sustaining productivity and engagement, what were some of the key concerns expressed?

In the early days of the first lockdown, productivity for private equity in UK was very high, particularly with the need to triage portfolio companies leading to very high volumes of activity. In addition, people were spending longer at their screens, as they are no longer commuting as a result there was a massive uptake in productivity. The CFOs that we spoke to shared concerns around how sustainable was this level of output. Burnout has been a real worry as has mental health, especially as people haven't been able to take holiday in a normal way this year and apart from productivity, engagement is another key concern. There is a major challenge of communication and collaboration beyond the finance team, especially when we are no longer in the office together. When we came out of lockdown in September, these concerns remained as we saw either hybrid work practices or working from home full time.

Fantastic, and a second question for you Charles. In the pre COVID times we might have described the industry is having a traditional work culture. How are CFOs adapting to the new normal with more dynamic working practices and also what are some of the key changes identified so far and how can these be overcome?

Thanks Jack. Private equity was historically a very traditional industry with little opportunity for flexible working or working from home. Through the course of the last six months, we have been speaking to and engaging with private equity CFOs through various conversations and through event round tables we ran. The key challenges that came out of that range from people struggling to adapt to this sort of new way of working, very technology led using Teams and Zoom, etcetera. The challenges that came out of that were very much missing on non-verbal cues because you couldn't see someone's body language and also a lot of people struggling with more informal conversations you might have in an office environment, around getting a coffee, where you can solve problems without really knowing that you're solving them. The other thing that has been quite apparent is the relationship between leaders and their team, especially in the more junior members of staff that have issues that we've heard about is of recent graduates who don't really have the experience to fix a problem themselves, but obviously equally doesn't want to bother their busy manager. So whilst they felt it was a not a big issue, actually some big topics have been dropped because of those types of thought processes and also there are obviously a lot of new joiners in the current climate, surprisingly, so individuals who've either been appointed prior to crisis, but were working through their notice or who even joined through crisis, those individuals have really struggled because they don't know the people they're working with as well as others in the firm. I guess they don't as a consequence feel fully connected to the business, so those are some of the issues that we've been hearing about management, etcetera. The other thing I think Mark mentioned this in the last question was work-life balance and trying to find the right work-life balance in this new way of working. Individuals don't have the ability to commute to work anymore, don’t get that headspace when they're not working and there has been a real increase in working productivity because individuals have been working into the night hunched over their laptop because the main issue with homework is it doesn't provide automatic boundaries or having someone you work with say that that's enough, you need to go home now. Beyond people issues, we also had lots of discussions about how you run a private equity business in a remote way, the sort of the topics that we've discussed, how do you undertake due diligence in an effective manner if you can't do it in person and also another major topic within private equity is AGMs and how'd you do them remotely? Again, historically, they've always been an in-person event and I think firms have had to adapt to sort of work in a slightly different way. Out of all these, I guess, challenges, we have seen some positive movements forwards where CFOs are taking this opportunity to think differently about leveraging technology and data. They’ve obviously had to adapt to new technologies such as Zoom and Teams and how to collaborate and communicate better on these new tools. Actually, there has been an opportunity for CFOs to replace manual processes with automation and to try and solve the real time reporting issue that CFOs have been thinking about for a number of years now and actually the crisis has given them the opportunity to perhaps move forward with those projects with more vigour, because there's been an appreciation that technology has a very important place to play within private equity and how can we automate manual processes to make the firm operate in a more efficient way. Interestingly, the thing we've seen most in terms of our experience of dealing with our clients in private equity is questions around HR and people starting to recognize the benefits of an in-house HR capability, because they are having to find creative ways to engage with the workforce who as we've discussed are not necessarily accustomed to working remotely. So therefore, trying to drive a culture through the firm has been a challenge and the firms that have done really well are firms who have got an HR firm, or HR person in place, and therefore have had that skillset that other firms who are used to having HR off the side of their desk, for example, the CFOs have not had the time to focus on those topics. Mark, I think you had a couple of comments you wanted to make on some of the things we've seen as a positive as well. .

Totally. These are some of the lessons in best practices that we heard from the CFOs and beyond. One of those is upskilling teams on how to work remotely in particular, such as chairing meetings in essence to ensure fair contribution across the different personality types, so people aren't forgotten. Number two is challenging the status quo - is there anything can be stopped to make space for more strategic thinking as in the early days we were busy as usual and in crisis management, which is taking over, strategic thinking just got dropped. We're really now starting to see firms pick that back up, which is encouraging, but definitely needs more time for that. Thirdly, really importantly, for engagement, we are to encourage longer term thinking and take advantage of the fact that in any crisis like this, it brings with it great opportunity for reinvention and innovation and as Charlie said, a lot of the CFOs we're talking to now, are all looking towards technology solutions to automate processes and to give better analytics to the Board and to their clients. Employees mindsets are shifting really really fast and shift faster than company mindsets. We need to make an innovation a priority right now and get cross-functional working groups together for problem solving as we've been working in our silos too much.So people aren't forgotten challenging the status quo is that anything can be stopped to make space for more strategic thinking as in the early days in a business as usual and , uh, in a crisis management, which is taking over and strategic thinking. And we're really now starting to see firms pick that back up, which is encouraging, but definitely needs more time for that. Um, thirdly really importantly, for engagement, we to encourage longer term thinking and take advantage of the fact that in any crisis like this, it brings with it great opportunity for reinvention and innovation. And as Charlie said, you know, a lot of this we're talking to you now all looking towards technology solutions to automate processes and to give better analytics to the board and to their clients. Employees, mind sets are shifting really, really fast and shift faster than company mindsets. We need to make an innovation and a priority right now and get cross-functional working groups together for problem solving as we've been to , we've been working in our silos too much

So if we stick with the topic of the new normal and looking at what that new normal means and just having a split workforce for the foreseeable future, how can the company's culture be adapted with this change and how can the company's values be leveraged to play a role against this challenging backdrop. Now, Mark if I can pose this one to you?

Thanks I appreciate it. As we know, culture is a key point of difference for private equity firms and we've seen a big shift from presenteeism as a driver of culture to appreciation that a strong culture can continue without a workforce being entirely in the office. The myth that working from home is slacking off has been broken down quickly during lockdown and great things have emerged from lockdown itself, such as empathy. We've seen each other on the Zoom and Teams in our homes, often with kids knocking around or pets jumping on owners’ laps and this has given us a really interesting insight to each other's lives that we wouldn't have otherwise seen. Teams in private equity have worked really hard to maintain the company culture with virtual social events. We’ve seen guest speakers, we've seen after work drinks, we have seen quizzes, etcetera, and more people could join in. And we've heard a lot about open, honest and regular communication and deep listening to individual needs, but in essence, the values of the company are not linked to office space and especially in a crisis are what everyone unites around. They're a guide to the most important behaviours and beliefs, and provide direction, even in challenging times. I reckon, highlighting examples of where individuals are demonstrating the company values in this new way of working is really important.

And what is the impact for this new program on leadership? What are some of the best practices that can be employed?

During lockdown we’ve heard terms repeated like route efficiency, command and control and historically these have always been the default leadership styles in any crisis. What we're seeing now is the challenge for leaders is how to come out of that way of working quickly and develop a subtler approach to leading their teams. They need to co-create new protocols with their teams, working out how best to work together in the new norm. The leaders need to seek feedback about what is working well and what isn't, and be a little bit more open with their teams and ask themselves questions - how do they rate the quality of their remote relationships? Because not most of the people we’ve spoken to have not been used to working in this way. What we've seen is the trends of people using empowerment with clearly defined expectations and striking the balance of the right amounts of communication, also looking at how the leaders can be a little bit more human, if you like. I think what's clear in this current crisis is no one really has all the answers and people who can show a little bit of vulnerability can really promote loyalty within their team. What we've also seen is thinking about adopting more coach like leadership styles so that employees can find the answers themselves, which in turn builds self-confidence for individuals who aren't side by side with their leaders in the office on a day-to-day basis. I think the other thing that we’ve also seen is the new way of communicating remotely on Teams or on Zoom, as we mentioned, is very different and we touched on this before in these non-verbal cues. So I think any leader needs to be really clear and conscious of the importance of language and tone of voice, because what we've seen is there really is a lot more scrutiny in this new way of working and how you speak or how you carry yourself on video can really create a lot of problems in your teams. So just to be very conscious of that is something else that we've been talking and advising people about as well.

Thanks, Charles. My final question for you, Mark, what are the likely impacts on adaptive hiring, onboarding and retention, and what are the best strategies going forward for PE firms?

Thanks Jack. As expected hiring the first part of this year, as Covid hit, has been directly impacted with existing mandates taking longer to complete and new mandates being delayed until there's more certainty around what the future holds and we reckon that will continue for probably until Easter time as we are still in lockdown. However, we are seeing light at the end of the tunnel, and we're starting to see actually a bit of a pickup over the last, I think since September. Roles in the senior leadership team, where getting the right team fit, has been challenging, especially when they can't meet in person, particularly the office stage of the process. A lot of people we've spoken to, whilst not totally closed to external opportunities, are a little more reticent to engage as they struggle with the concept of moving in the current climate, but that is starting to change as they look at their career options for the next year or two and beyond. Retention is definitely one of the trickier aspects for us to monitor at the moment. There's not many of the CFOs we spoke who had actually lost staff yet. However, there is a big concern among many of them that if they try to force employees back to the office too soon, they will start to lose staff. In addition, keeping team members fully engaged with the strategic aims of the firm in the current climate is challenging and firms who are enhancing their internal communications have seen greater engagement than those who revert to command and control. Whilst the current climate is challenging, a lot of firms we’ve spoken to have actually never been busier, some have actually had record fundraisers and things are going well, which is leading them to consider strategic upgrades as we approach 2021.

That brings us to the end of our questions. It's been a very interesting podcast with Mark and Charles. I'd like to give thanks to both of them for their time. I'm sure there's been some very interesting insights provided for many of our clients that will be listening.

Yeah. Thank you, Jack. We really appreciate the invite and coming on today's podcast is actually the first that we've done and we've really enjoyed ourselves. So thank you very much.