Private Equity Confronts the Pandemic - Leadership Matters

In mid-March 2020, the COVID-19 pandemic blindsided private equity, along with the remainder of American business. Overnight, deal making and long-term strategy took a backseat to operational tactics and short-term crisis management. Pushed aside were discussions of stock deals, asset deals, carve-outs and integration and in their place was a new lexicon emphasizing CDC guidelines, shelter-in-place orders, safety plan, PPE, and Families First Coronavirus Act. 

LEADERSHIP ATTACKED THE PANDEMIC WITHOUT A PLAYBOOK AND WITHOUT THE DEDICATED RESOURCES TO LEAD SUCH AN EFFORT EITHER AT THE FIRM OR AT THE PORTFOLIO COMPANIES.

Working without a Playbook

Daily communication between deal makers, investment bankers and attorneys was replaced with 24/7 communication with operating partners, chief executives and HR leaders. Corporate attorneys took a back seat to employment and tax counsel. Everyone became singularly focused on quickly interpreting often conflicting guidance from a variety of federal and state agencies. Both “essential and non-essential businesses” as defined by the local health departments, sought to quickly understand how to comply with applicable regulations/guidance, secure the business and preserve the workforce.  Leadership attacked the pandemic without a playbook and as is common in a lean, private equity structure, without dedicated resources either at the firm or at the portfolio companies.

Regulations and Organizational Change

Why were some private equity-backed businesses more successful than others during this crisis? Businesses don’t operate in isolation and many have faced troubling and often insurmountable disruption within their industries resulting in severe threats to the business, steep recovery or worse. Others have found silver linings for their businesses during the pandemic and have experienced additional opportunities resulting in growth. While the impact of these external environmental factors cannot be overlooked, there is one fundamental question relating to the internal leadership of the business that offers insight. How did the senior leadership of the business react and ultimately respond to pandemic-related regulatory requirements/guidance and the resulting organizational changes that quickly became necessary?

HOW CHIEF EXECUTIVES HAVE RESPONDED TO THE IMPACT OF THE COVID-19 PANDEMIC ON THEIR COMPANIES IS A WINDOW INTO THEIR LEADERSHIP COMPETENCIES AND THEIR ABILITIES TO EFFECTIVELY HANDLE ANY CRISIS FACING THE BUSINESS.

15 Top Leadership Behaviors

From my work over the last nine months supporting private equity firms and their portfolio company executives, I have witnessed a myriad of leadership behavior. The most effective leaders during this pandemic have been those who: 

  • established themselves at the onset as the leader of the crisis response team and instituted daily meetings with cross-functional representatives as opposed to delegating this leadership to others; 

  • actively listened to those advising them, both internally and externally;

  • demonstrated agility in quickly adapting to evolving regulations and guidance;

  • candidly and proactively communicated with all stakeholders, unafraid to admit they did not know all of the answers or did not have certainty of outcome;

  • fostered a comprehensive feedback loop to stay abreast of everything going on in the business; 

  • promulgated a culture reaffirming safety as a priority, despite the economic costs, as opposed to taking shortcuts to minimally comply;

  • creatively and quickly sourced items such as PPE, masks, no-touch thermometers and sanitizer;

  • focused on ways to adjust to new workplace requirements as opposed to pushing back at every juncture;

  • adapted the traditional workplace to incorporate new requirements such as remote work, travel bans, virtual meetings, employee and visitor screening, social distancing, mask-wearing, shutdown of common areas, frequent sanitation, quarantining/isolation, and leaves of absence due to COVID-related illness or childcare needs;

  • frequently communicated to  employees that 1) we are in this together 2) we care about you and your family 3) we will keep you informed and 4) we will be as open with you as we can be as developments happen;

  • emphasized employee accountability for their actions at work and outside of work in order to keep the workplace and each other safe;

  • demonstrated true empathy for employees and the unique challenges COVID presented beyond the workplace;

  • thanked employees for their continued loyalty to the company and in the most generous of cases, rewarded them for that loyalty; 

  • adopted a cautious, yet confident approach to phased re-opening; and 

  • executed necessary and often difficult business decisions, with both financials and the workforce in mind.

Effectiveness Judged

How chief executives responded to COVID-19 is a window into their leadership competencies and their crisis management skills. At the end of the day, chief executives will be judged by their performance against their financial metrics. While effective leadership alone cannot guarantee success, I believe leaders who have exhibited most, if not all of the behaviors listed above, have created a work environment ripe for meeting or exceeding their metrics. These leaders have fostered a culture of agility, resilience, informed decision-making, collaboration and transparency. A natural byproduct of such effective leadership will also be a dedicated and engaged workforce that will be the cornerstone of the company’s continued success.

Nan Zieleniec