Idea in Brief

The Problem

Investing in leadership is often a long-term, resource-intensive endeavor, so it’s not surprising that private equity—a notoriously short-term, cost-conscious sector—has often overlooked talent development.

Why That Needs to Change

Longer holding periods and higher carrying costs are increasing the pressure on PE firms to drive higher operating returns from portfolio companies. That will require more-effective leaders.

The Solution

PE firms should hire and empower human capital partners, create and execute a talent playbook, assess talent more systematically during dealmaking, and encourage portfolio companies to make leadership development a higher priority.

Private equity firms have historically paid little attention to the art and science of leadership. Yes, PE investors recognize that they need strong executives overseeing the companies they acquire. They examine target-company leadership when considering an acquisition, and they often install new top-level leaders, particularly in the CEO and CFO roles. They give portfolio company leaders tough targets and rich financial incentives to align the interests of management and investors. But that’s about it.
A version of this article appeared in the November–December 2023 issue of Harvard Business Review.
Read more on Finance and investing or related topics Private equity, Leadership development, Leadership qualities, Talent management and Hiring and recruitment