How can a HR Director drive value in a PE-backed business?

In a private equity-backed business, value creation is rarely achieved through financial engineering alone. Analysis cited by McKinsey found that leverage and multiple expansion accounted for 59% of returns from private equity buyout deals completed between 2010 and 2022. In today’s market, value creation increasingly depends on operational improvement, revenue growth and disciplined execution.

This puts leadership and human capital at the centre of the investment thesis. For the HR Director, CHRO or Chief People Officer, the opportunity is to translate the value creation plan into stronger leadership capability, organisational performance and measurable commercial outcomes.

In global PE-backed businesses, that requires consistent standards across markets, balanced with local insight into culture, regulation, talent availability and working practices. The right people strategy can help a portfolio company scale with confidence, strengthen enterprise value and prepare for an eventual exit.

Align the people strategy to the value creation plan

Every PE-backed business has an agenda. It may be to accelerate growth, professionalise operations, integrate acquisitions, improve margins, enter new markets or prepare for exit. For international portfolio companies, this may involve expansion into new territories, building regional leadership teams or bringing together operations across jurisdictions.

The HR Director’s first task is to understand the value creation plan in commercial terms. This means asking:

• What must be true in 12, 24 and 36 months for the investment to succeed?
• Which markets offer the strongest opportunity, and do we have the talent to capture it?
• Which leadership and organisational capabilities are limiting performance?
• Where does the operating model create unnecessary cost, complexity or slow decision-making?
• Does the leadership team have the capacity, financial acumen and international experience to deliver?

The strongest HR Directors align the people strategy to these priorities. In an international buy-and-build business, this may mean prioritising integration capability, succession planning, change management, cultural fit and retention of critical local talent. Deloitte research found voluntary attrition can increase by more than 30% during M&A transactions, creating a material risk to value creation if talent retention is not actively managed.

Where margin improvement is the priority, workforce planning, performance management and operational efficiency may take precedence. The goal is not an HR plan that sits alongside the investment agenda, but a people strategy embedded within it.

Build the leadership team and pipeline

Private equity places an intense spotlight on leadership. A management team that performed well in a stable, domestic, founder-led or listed business may not automatically thrive in a high-accountability portfolio environment.

HR can add value by helping the board, operating partners and investor group answer a difficult question: do we have the right leaders for the next stage of the journey? McKinsey’s CEO Alpha research found that top-performing CEOs generated annual shareholder returns around 9% higher than industry peers, demonstrating the direct impact of leadership quality.

This requires rigorous executive assessment. Technical expertise matters, but it is rarely enough. Leaders need commercial judgement, resilience, pace, adaptability and the confidence to make decisions with imperfect information. They must also lead across cultures, build trust in different markets and respond to local realities without compromising the wider strategy.

Appointments at CEO, CFO, CHRO and functional leadership level are particularly significant. An executive mis-hire can delay value creation programmes, increase execution risk, slow EBITDA growth and reduce exit value. By contrast, leaders with transformation, international growth and value creation experience can build momentum quickly.

For HR Directors, this means becoming a strategic partner on executive talent. It is about shaping the brief, challenging assumptions, assessing future potential and ensuring that appointments reflect where the business is going, rather than where it has been.

A robust talent strategy must also consider the leadership pipeline below the executive team. Effective succession planning reduces key-person risk, lowers recruitment costs and gives investors confidence in the sustainability of future earnings.

Make talent a commercial priority

Human capital is one of the most influential, yet least consistently measured, sources of enterprise value. Gallup’s global research shows that organisations in the top quartile for employee engagement achieve 23% higher profitability than those in the bottom quartile. Managers account for approximately 70% of the variance in team engagement, reinforcing leadership quality as a major value driver.

During due diligence, a PE firm will assess financial performance, market opportunity and operational risk. However, the strength of the leadership team, depth of the leadership pipeline and ability to attract and retain high-performing talent can be equally important to the investment thesis.

For Chief Human Resources Officers and Chief People Officers, this creates a clear mandate. They must ensure the business has a talent acquisition strategy that meets immediate requirements while building long-term capability.

This includes making critical hires quickly, particularly when entering a new market, integrating an acquisition or delivering a transformation programme. It also means providing onboarding that enables senior appointments to understand the investment agenda, build credibility and contribute at pace.

The best HR leadership teams look beyond vacancy filling. They map the capabilities required to deliver the value creation plan, understand external talent markets and identify where executive search can access leaders with the right sector, geographic and transformation experience.

Build an organisation that can execute at pace

Speed is a competitive advantage in PE-backed businesses. Yet organisations can be slowed by unclear accountability, duplicated regional structures, complex governance and inconsistent management capability.

HR can create a more agile organisation by clarifying decision rights, simplifying structures and ensuring critical roles are clearly defined and resourced. This is not restructuring for its own sake. It is about creating an operating model that enables the business to execute its strategy with focus and urgency.

One of the most overlooked sources of value erosion is slow decision-making. Businesses rarely underperform because every decision is wrong. More often, momentum is lost because decisions are delayed, ownership is unclear and opportunities pass before action is taken.

The key is to determine what should be led globally and what should remain local. Consistent leadership standards, talent assessment and performance expectations can strengthen execution, while local leaders need sufficient autonomy to respond to their customers, competitors and workforce dynamics.

High-performing portfolio companies are often characterised by clear priorities, accountable leaders and straightforward KPIs. When critical roles are filled by the right people and accountability is understood, the organisation is better positioned to deliver the value creation plan.

Use performance management to prevent value leakage

In a PE environment, performance management cannot be an annual administrative exercise. It must create a direct line of sight between individual contribution, team performance and business value.

The HR Director should ensure objectives are linked to the strategic plan and incentives encourage the right decisions. For senior leaders, this may include equity participation and long-term incentive arrangements that reinforce a shared commitment to the exit outcome. Across the wider organisation, reward, recognition and progression should support growth, operational efficiency and collaboration.

For international businesses, global consistency must be balanced with local relevance. Reward structures, benefits and incentive plans should be commercially aligned while recognising the legal, cultural and market factors that shape employee expectations in each location.

Common value leaks include:

• Retaining leaders whose capabilities no longer match the next stage of growth
• Failing to integrate acquisitions quickly and effectively
• Allowing accountability to become unclear across regions or functions
• Losing critical talent during periods of change
• Measuring activity rather than outcomes
• Underinvesting in succession planning and leadership development

The most effective HR Directors identify these risks early and help management address them before they affect financial performance, employee engagement or investor confidence.

Culture is central to this work. During a private equity transaction, employees may worry about job security, organisational change or a perceived move towards short-term decision-making. HR must communicate the rationale for change honestly, protect the qualities that make the organisation successful and be clear about what needs to evolve.

Employee relations are particularly important during transformation. HR teams must understand how change is landing across the business, listen to local concerns and equip leaders to communicate credibly. Well-designed retention strategies can protect vital knowledge, minimise disruption and preserve momentum when it matters most.

Bring evidence into the boardroom

To be seen as a strategic partner, HR Directors must speak the language of enterprise value. Traditional engagement and overall attrition measures remain useful, but investors increasingly expect insight into the people factors that affect growth, profitability and execution risk.

Alongside time to productivity, leadership bench strength and succession coverage, leading HR teams are using targeted people and workforce metrics. The most relevant measures will vary by investment thesis, sector, geography and stage of the value creation plan:

• Regretted attrition in value-critical roles
• Leadership quality and readiness across business units
• Critical role vacancy risk
• Retention rates following acquisitions
• High-performer density in strategic functions
• Revenue per employee
• EBITDA per employee
• Internal succession readiness for executive positions
• Leadership diversity across international markets

These measures show where capability gaps exist, where risks may emerge and where investment could generate the greatest return. They also provide greater visibility into whether the organisation can scale through acquisition, international expansion or transformation.

The purpose is not to create more reporting. It is to connect people decisions with commercial outcomes. When HR can demonstrate how leadership capability, organisational effectiveness and talent retention contribute to earnings growth and enterprise value, the function becomes a genuine strategic adviser to the board and investor group.

Prepare the people agenda for exit

As a portfolio company approaches exit, the quality of the leadership team comes under increased scrutiny from potential buyers. Financial performance matters, but acquirers also want confidence that growth can be sustained beyond the current ownership cycle.

HR can play a critical role in preparing for exit. This includes ensuring succession plans are in place for key leadership positions, retaining critical talent, reviewing incentives and demonstrating that the organisation can operate without excessive dependence on any one individual.

Buyers frequently assess leadership depth, organisational scalability and management capability during due diligence. A business with a strong leadership pipeline, clear accountability and a stable culture can present a more compelling investment case than one reliant on a small number of key executives.

The most effective HR Directors build exit readiness throughout the investment lifecycle, ensuring the organisation can sustain performance under future ownership as well as current ownership.

The opportunity for HR leadership

The PE-backed environment is demanding. It requires HR Directors to operate with pace, confidence and commercial acuity, often while leading significant organisational change across multiple markets. Yet it also offers a rare opportunity to drive value in a visible and measurable way.

The HR Director who can connect talent decisions to enterprise value, build internationally capable leadership and create an organisation that moves with intent will be far more than a functional leader. They will be an essential partner in the investment journey. In private equity, value is ultimately created by people making better decisions, executing faster and staying focused on what matters. The most effective HR leaders ensure the business has the leadership, capability and culture to do exactly that, wherever in the world it operates.

Speak to our experts

Building a leadership team that can deliver value in a PE-backed, international business requires more than a strong recruitment process. It requires a clear understanding of the investment agenda, operating environment and leadership capabilities needed for the next stage of growth.

If you are assessing your executive team, planning international expansion or looking to appoint transformational HR leadership, get in touch with one of our consultants to discuss how we can support your business.