Archive for May, 2017

The Uncomfortable PE Investor

Friday, May 19th, 2017

Whoever taught a young investor how to create great relationships? The thought dawned on me leaving a meeting with two forty-something European mid-market private equity investors. One was open, welcoming, used self-disclosure and possessed a mindset that actively encouraged reciprocal exchange of ideas, names and insights. The other, hid behind a corporate ethos of privacy, rarely showed interest in reciprocity and maintained a mindset that he knew everyone worth knowing. The former is a top performing fund manager running a $500M fund with over 6 closed deals in the public domain this past 18 months, the latter recently closed his first $200M fund with zero visible public success. If you were a limited partner or an entrepreneur, wouldn’t you have expected the exact opposite traits given the track record and profile?

Private equity is first and foremost a relationship business. Relationships based on trust and value. Developed by creating a seductive rapport (personal chemistry, powerful intellect, effective use of language) with entrepreneurs, limited partners and advisers. Manifest by converting that seductive rapport into deals closed, value created and profitable exits that create a “win-win” situation for the firm’s key constituents. Yet it seems a great many leaders in European private equity firms are totally complacent about their fund managers’ relationship building skills and behaviours, believing that financial acumen and capital alone will lure outstanding entrepreneurs with outstanding businesses. That is crap but hey, they’ll wait for 10 years to find the errors of their ways. In which time, the Fund Manager will have collected his monthly check, been promoted twice and sit smugly admiring his or her personal bank statement.

© James Berkeley 2017. All Rights Reserved.

 

Fake News: HR

Tuesday, May 2nd, 2017

A KPMG co-promoted piece, in an otherwise interesting London business magazine, The Informer, carries a sub-title, “Meet the game changers having real influence on business strategy”. It references the creation of the Chief Human Resource Officer title, and its’ rising importance “as the person who enables the business strategy alongside the other “C” roles.” It cites as hard evidence, two people in a Harvard Business Review article, Mary Barra (CEO of General Motors, lasted 18 months in HR part of a 25+ year career) and Anne Mulcahy (past CEO of Xerox, lead the HR function part of her early management development). Prizes, if you can name any others, who came close to that position or truly “enabled” business strategy in an organisation you worked for or advised? I can give you 500 CEO examples, who spent most of their career in sales, marketing, finance or operational management responsibilities.

Then it states that the proportion of HR functions in FTSE 100 businesses led today by a career HR person has risen from 69% to 80%, “demonstrating relevant experience is vital in the current climate”. Since when has deep experience in a silo function been critical in a complex and ambiguous environment? Shouldn’t critical people decisions and accountability be in the hands of the line mangers directly responsible for implementing an organisation’s strategy? I have met and advised hundreds of HR leaders in some of the world’s finest businesses. I can count on two hands the number of individuals, who were outstanding.

This sort of article does consultants a disfavour because a large, respected consulting brand doesn’t ask the tough questions about clients, who pay it billions of dollars. It trumpets weak evidence and it suggests an alternative that is largely without merit.

© James Berkeley 2017. All Rights Reserved.