Why PE firms are placing greater emphasis on employee engagement

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ECI partner and people & culture lead, Rich Pearce, spoke to Private Equity International’s Vicky Meek recently about how private equity firms are placing greater emphasis on employee ownership, engagement and wellbeing, and how far-reaching the initiatives might become.

Following a BCG report that found median staff turnover was lower in companies where employee engagement was higher, clearly impacting costs as well as productivity, Rich commented: “We’ve been focussed on people and culture for a long time because we recognise that having good and motivated employees in our portfolio companies drives commercial performance. Our internal analysis has demonstrated that portfolio companies with higher employee engagement scores achieve higher EBITDA growth during our ownership. There’s a correlation between good culture and good performance.”

Vicky suggested that given the financial implications are perhaps one of the reasons PE firms are reporting an intensified focus on human capital among buyers for their portfolio companies, Rich outlined: “Buyers are increasingly looking at what employee engagement scores are, what training programmes the company offers, which HR accreditations the business has, how appraisals are conducted, whether it is tracking DE&I and what it is doing to improve this, and whether it can hire people quickly. Investment memoranda used to have, say, a single slide on people issues, today it’s more like 10 to 15”

When Vicky also questioned how the industry is approaching the issue of paying more attention to employees in portfolio companies than has historically been the case, and how some firms see people and talent sitting within broader value-creation frameworks, Rich pointed out that ECI sees people and culture as distinct from – but related to – ESG initiatives.

He explained that: “ECI has three areas of focus – hiring good people, keeping them and helping them be better at what they do. That sounds straightforward, but it isn’t, and we sometimes have to remind management teams why this is important. A critical part of this is having a fit-for-purpose and scalable HR capability within companies, and we’ve developed a people and culture tool kit to help investee businesses implement this.”

You can read the full Private Equity International article here and find out more about how employee initiatives are driving value across the PE landscape.

About the author

Rich Pearce

"I work in ECI’s Commercial Team to support our management teams in unlocking growth opportunities by offering hands on support as they need it. I also lead our People function which involves driving the people agenda across the portfolio and managing much of the HR-related functions internally here at ECI."

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