Talent Diligence In Private Equity

In every PE deal, the numbers get scrutinized to the decimal. The people running toward them usually don't — until the CEO turns over, the hot CRO hire blows up a working team, or the succession plan turns out to be a blank page.

Jackson, Scott Morris, and returning guest Rihanna Barr answer listener questions from PE operators and portfolio company CEOs on talent diligence, leadership pipeline risk, and what happens when succession planning is treated as a compliance exercise instead of a business tool.

What You'll Learn

• Why 71% of PE exit value now rides on operational execution — and what that means for talent diligence before a deal closes.
• The success-criteria trap behind hot CRO and revenue leader hires — and why the wrong roadmap guarantees a blowup.
• What the best PE sponsors actually do differently to set first-time portfolio company CEOs up to win.
• Why succession planning sits on a shelf — and what talent portfolio optimization does instead.
• How to distinguish a promotion-ready leader from a high performer who's just great in their current role.

Key Quotes

• "The number always gets diligenced. The people running toward that number usually don't."
• "Changing culture without changing the decision-makers is possible. Also, me growing a full head of hair is possible."
• "Succession planning has no forcing function. We do the exercise, put it on the shelf."

Sources for Statistics Cited

• 71% of exit value from revenue growth in 2024 PE exits — Bain Global PE Report 2026
• DPI at modern-era low — Bain Global PE Report 2026
• Average hold period ~7 years (up from 5–6) — Bain Global PE Report 2026
• Two-thirds of CEOs replaced months 6–48, attr. "Epson Fuller study" — Source not verified; comparable ranges in AlixPartners 2025 PE Survey
• ~90% of employees can't articulate company strategy (no attribution cited) — Nearest verified: 95%, Kaplan & Norton, HBR

SEO Summary

PE firms diligence every number and skip the people. Jackson Lynch, Scott Morris & Rihanna Barr on talent diligence, CEO succession, and leadership pipeline risk. (159 chars)

succession planning podcast, CHRO, talent strategy, private equity talent, leadership development, talent diligence, CEO succession, talent acquisition, organizational design, talent density, human capital strategy, leadership pipeline, PE portfolio

Transcript

You know, in private equity, the number always gets diligenced, but the people running toward that number usually don't. Until the CEO turns over, the hot revenue hire blows up a working team, or the succession plan turns out to be a blank page. The questions that you sent us are all about that gap. What firms do before the deal and not after the crisis.

Hey there, senior leader, and welcome to the Talent Sherpa Podcast, where senior leaders come to rethink how human capital really works. I'm your host, Jackson Lynch, and I am joined today by my co-host Scott Morris. He's a former CHRO with all the scar tissue to prove it, a man who was trying to learn how to fly until his instructor got tired of hearing "pull up, terrain," and the founder of Propulsion AI. Today we also have a third person in the room — you remember her from a couple of weeks ago. She's the reason this format works. Rihanna Barr is a two-time chief people officer who now runs Pinnacle Peak HR as a fractional CHRO and executive coach. She was with us two weeks ago, and we are delighted to have her back.

Because today's another listener question episode, and she's, as I said, back by popular demand. On her only appearance with us, we debuted at number six in the management podcast Apple Rankings in Australia. Is that a coincidence? Or are we not willing to risk it? Rihanna, welcome to the Talent Sherpa Podcast.

Thanks, Jackson. Happy to be back. And thank you, listeners.

All right. So before we get into these questions, I just have a quick reminder. I may have rewritten your questions for brevity, clarity, or just because I wanted to mess with Jackson or Scott — we'll see. Kidding. So we're going to start at the deal because that's where the talent conversation either happens or it doesn't.

Our first question is from David out of San Francisco. "I've sat in two deal reviews this year where talent doesn't come up until the last 20 minutes. Both of these companies have since replaced their CEO. At what point does the PE industry admit that talent diligence is not optional? And what does a firm do to actually get this right?" Scott, what does that look like?

Well, we make a product that helps with that. But let me take what I think are two parts of that question — at what point does the industry admit there's a problem, and what does it look like when they get it right? Bain tells us that 71% of exit value now comes from operational efficiencies. Leverage and margin arbitrage and financial engineering aren't doing it anymore. The gains have to come out of the workforce. But here's another fact: DPI distributions of paid-in capital is at its lowest point in about six or seven years, which means there's plenty of investment capital out there, but we're not growing the businesses fast enough to turn around and sell them. Bain also tells us the average hold period's gone from five to seven years, which is exactly the point at which IRR starts to stagnate. So I think private equity can't ignore it anymore. This is the point at which they're going to have to start looking at other levers, including the workforce. When a CEO gets it right, when the workforce becomes the focus — you've obviously got growth more significantly, you've got first-year returns that perform on model. And that's the test I would hold up.

This is actually one of the reasons I started building this company 10 years ago — to address this very thing. Because what normally happens is you select a CEO, either because they're brand new to the organization you've brought in or they're a carryover from the acquisition, and you build everything around that. At least many, if not most, PE firms will hire the CEO and defer all of the talent decisions below the CEO to the CEO, which is great as long as the CEO performs. But the data says it's not a sure thing. There was an Epson Fuller study that came out quite some time ago — the numbers haven't really changed materially — that found something like two-thirds of all CEOs are replaced somewhere between month six and month 48. If you think about the implication to hold periods, that two-year delay in making another change at the CEO level looks very close to that two-year delay in hold period. One of the things that really strong private equity firms have started to do, with a lot of rigor, is not only hire the CEO, but have very deep involvement in the selection of the senior team — using all the diagnostic work available today on how to not only build the technical specialists but create enterprise cohesion around the mission. More and more, I think that work is going to be pulled into the portfolio company as part of the diligence. The Bain 2026 operating review says companies should start adding the talent operating partner to do that work. That's a necessary next step — but I think it's insufficient. That's where the elevation of the CHRO in private equity really starts to take root.

Our next question comes from Confidential — so mysterious. "I'm a first-time CEO at a PE-backed company. I'm 18 months into a three- to five-year hold and learning the sponsor relationship in real time. It's pretty clear not every firm operates the same way. What do the best PE firms actually do differently to set their CEOs up to win?"

If I were them, I would also be confidential with that kind of question — so I totally get it. I think the best sponsors define success before the deal closes, all around the value creation thesis, and then tie it specifically to what it means for the leaders. And then it takes another step and talks about the pivotal decisions that are necessary in that first six to twelve months, because that's where the roadmap is literally laid down. It's a make-or-break element. It's why it's so important to build your C-suite team and your pivotal roles in that time period — if you delay it, you're delaying the compounding effects of making those changes if necessary. You have to be really clear about what the CEO owns versus what the sponsor drives and what the reporting cadence actually matters for. I've seen CEOs across multiple private equity companies have a completely different reporting and board approach. A lot of it has to do with who's on the board and what the CEO prefers, but defining that cadence around the things that actually matter is really important. What happens when you have shifting goalposts is it usually means you weren't specific on the mandate — it was a very generic conversation. "We want to grow revenue." The real conversation is two or three levels below that. And you've got to focus on that structure, not just the directional and aspirational.

That's great. Now let's get into one specific place where the relationship can break down.

Amy from Los Angeles says: "You hear a lot about CROs and revenue leadership being the hot hire right now in PE portfolios. But I've watched three companies blow up a perfectly good leadership team chasing a revenue leader who couldn't integrate. Is this just the shiny new object, or is there something real going on here?" Scott, what do you think?

Amy's question is really specific to the CRO, but I think the point underneath it is a lot broader — and super impactful. Before any hire gets made, there has to be a really thoughtful analysis of how the role is going to deliver value. In the revenue case, it feels obvious — you just need to grow revenue. But that's not always it. You need to grow profitable revenue, and you need to grow the team that's able to deliver predictable revenue. Even at that one-tier-down analysis, that's a different command of what you're looking for. The best hiring techniques — we had Lou Adler on, and I learned a lot in that episode — one of the things Lou was saying is you have to be really specific about what the factors are that connect to success, and then you can hire. I don't think it really matters whether it's a CRO or any other hire, Amy. The blowup, without knowing the details, might be related to the fact that you just didn't connect success factors to what you were looking for. That means you got a bad roadmap, and a bad roadmap usually means a bad hire.

I've actually lived through at least two blowups — and maybe a couple of other dumpster fires as well. To your point, it's all about the context. A revenue leader in one context that could be a superstar might be average in another and actually work against the vision of what you're trying to do in a third. For me, it's all about making sure you're clear about the context and asking what specifically about the revenue motion needs to change. Be clear about the kind of experiences you can forecast would be successful in your context. Between sales folks and marketing folks, you have a wide variety of process discipline. You have to really think about: do I need a specific process discipline? Because you can pull a very successful chief revenue officer or head of marketing out of one environment and find they're a complete misfit to the organization you're trying to build with the disciplines you're making sure everyone adheres to.

I think that's spot on. Our next question comes from Kevin in Miami: "We just ran a search for a portfolio company CEO and lost our top two candidates to companies where PE sponsors had a better reputation for how they treat their leaders. We've never had to compete on culture before. How much has the candidate market actually shifted? And is this permanent?" Jackson, what do you think?

I don't know — Kevin, I think that's a really interesting question. One of the things I've seen in my time dealing with and supporting private equity is there are varying conditions of employment. It really is tied to what kind of company portfolio you're trying to build. Is this a short hold — insert capital, let it grow rapidly, turn it over to somebody with deeper pockets? Those quick flips can be unbelievably profitable. The challenge comes when that quick flip doesn't, and now you're in a three-, four-, five-year hold when you expected to exit in 18 to 24 months. I've lived through that environment, and it gets really, really difficult. I've also worked with companies — TPG is one of the great ones — that take a look at what the entire organization needs to be successful and how to, through their operations team, step in and try to help unblock what's blocking them. Those are two completely different experiences. By reputation, you have a pretty good idea who is who. And if you're a CEO with a proven track record in an environment where private equity is churning through CEOs, it's not surprising that you have the ability to pick where you want to work. Culture is as important to execute in the next 10 years as it's ever been — and that leads to better financial outcomes too. Rihanna, you've played in the space. What have you seen?

I have, and it's an interesting question. I really would agree with what you're saying. Culture's here to stay. Different companies have reputations, and what may work for one candidate in your culture may not work for the next, and vice versa from the company's perspective. You need to be really thoughtful as you're making your selection.

Let me add just one thing quickly, and it harkens back to Amy's question. I hear the same dynamic underneath: if you're really clear about the kind of CEO you need for the type of work you're trying to do with the company — whether that's longer hold and development, or shorter hold — then the person you put in that role isn't going to perceive you as treating them poorly if you have a match there. But if you haven't defined that, that's when you have the potential for mismatch.

Yeah, I think that's right. And that actually connects to my favorite idea ever — you guys probably wish I'd never gone to accounting school. But I think you need to audit your current portfolio CEOs and get a sense: if you're a talented operating partner, are they getting a clear mandate? Are they getting clear feedback? Are they getting support when necessary? Or is it "the meetings won't continue until morale improves"? Both are out there. First step is to admit you have a problem, then you can start working through it. Information's available out there.

Jackson, you know what I think is implicit in your point? CEOs are people too, and they are no different from every rank-and-file employee that works in a company. You know what they need? They need clarity. If you deliver them clarity and the support to go out and do what you've asked them to do, the rest of it — the environmental factors — I think probably subordinate to that.

Yeah. And think about who you have the CEO candidates talking to. There are always people on your team that are better ambassadors to what you're trying to build than others. That really matters too. In most portfolio companies, you have a choice from a variety of firm resources on who you have people talk to. That matters because — as you said, Scott — people are people. I think there was a song about that in the '90s.

Well, thanks, Kevin, for the question — clearly sparked the conversation. We appreciate it.

The next question is from Thomas in Seattle: "We were acquired by a mid-market PE firm and we've started doing formal talent assessments post-close. The data's useful. What I'm less clear on is what happens next. Specifically, who owns CEO succession and how do we structure the accountability without it becoming another thing nobody actually drives?" Scott, what are your thoughts?

First of all, Thomas, if you are the CEO, you've been given a huge gift — the fact that there was an investment in that kind of assessment. But my simple answer is the CEO has to own it. The CEO is accountable for the growth of that particular portfolio company. So I think the best thing you do with that data is grab onto it and utilize it. Think principally about where your blind spots are. If that assessment didn't come with an executive coach, it's the opportunity to ask for one — somebody who can sit outside and hold the mirror up. Do what a basketball coach does: they're not on the court, they're sitting on the side saying, "Move your elbow in about three inches" — and then you move your elbow and get a different result. If you're the CEO, grab onto that. That's how you actually drive it rather than letting it become a binder that goes on a shelf.

One thing that makes succession planning in private equity different is the time horizon. A lot of times you have a process that, especially if you have a public company or a high-infrastructure HR leader coming in, creates a succession planning methodology that works great if you're trying to build over the next 30 years — and matters not if you're trying to build over the next 18 months before a flip or three years away from a transaction. One of the things that becomes really important is making sure, again in context: what are you solving for over what time horizon? I agree it's the CEO's role. That said, boards and private equity have an increased governance role than they've historically applied. By and large, we turn things over to the CEO — the CEO runs the rest, we take care of the CEO, and that is fine unless you have a problem with the CEO, which tends to happen in the majority of hold times. So you've got to come back to: how do I match the human capital infrastructure to what matters to this business, in this context, on this timeline? The real answer: if I'm on the board, I want to go down to all of the pivotal roles in the top two layers of the organization. Because in order to get out of the business what you need to get out of it over the time period you expect to have, you can't leave that to chance. And that's a huge opportunity as we move forward.

On that topic — going down the next couple of layers — Andre from Atlanta writes in and says his C-suite succession is solid. Congratulations, Andre. But last quarter, the CEO asked about that next layer — the VP and director pipeline — and he felt like he didn't have anything credible to share. What should he be tracking? What do those next steps look like?

I'm not a big believer in succession planning below the C-suite. Before anyone goes, "Oh my God, what are you talking about" — I believe in talent portfolio optimization. You figure out what roles have an outsized influence on your business, you evaluate who you have in those seats relative to the outcomes necessary to be successful, and then for those roles you should always have an understanding of who would move in and a balls-and-strikes assessment as to whether you're going to need to go outside. That's where high-altitude CHROs start knowing the people from the industry they'd be able to pull in and begin nurturing those relationships. Succession planning, in my experience, tends to have no forcing function. We do the exercise, we put it on the shelf, and we may pull it off if we have cause to use it — or we may not. Talent portfolio optimization says: how do I get the best people in the roles that matter? And how do I have a balls-and-strikes, no-BS way of looking at who's going to step into these roles — because I've already identified them as the 5% that matter most. I wouldn't look across the entire couple of layers down. Looking at director and VP layers is a lot of work with no forcing function and a high opportunity cost. I'd look at the roles that matter, make sure I have a really good game plan — whether internal or external — for those roles. And I would spend the time you would have spent on all the directors and VPs instead making sure that every role has an outcome tied to it and you can explain in very clear language why this role exists. That, to me, has a higher ROI than succession planning.

I hate succession planning in the same way, and for the same reason. I think it's an interesting exercise and then it goes on the shelf and we don't do anything. But I heard that question differently — because the end of it was: "What should I have been tracking?" I think there are three things, Andre. When you're looking at your leadership level, focus on: who truly understands how the business makes money — not just their subject matter, but the bigger picture; who is delivering clarity to their employees about what they need; and who is translating strategy. Some weird number — and I know I'm going to get this wrong and I don't have an attribution for the source — but it's something like 90% of employees can't tell you what their core strategy is. It's because executive teams do a horrible job most of the time of translating strategy into something that actually makes sense on the front line. So I would look for those three things: Do you know how the business makes money? Are you delivering clarity to your people? And can you translate the strategy in a way that your people really understand how they map into the business?

So moving into what happens when your talent gets tapped too soon. Melissa from Charlotte says: "We promoted three VPs from director six months ago. Two of them are struggling. We can't figure out why — but they were the best directors. What are we not seeing when we evaluate promotion readiness?" Scott?

The part I recall vividly connected to this question — Jackson and I did an episode on this — is that being great at your current job is not the qualifier for the next job. The next job has its own requirements. If you don't understand what those requirements are, you're not going to be able to assess the talent going into them. I also think we've got to stop using title promotion as a substitute for dollar promotion. Pay people fairly, do a market study, understand what equitable pay is and pay them fairly. Don't try to compensate for low pay with titles — that's a mistake I see a lot of companies make. Because then you get people with big titles who aren't truly ready to shoulder the accountability that comes with those titles.

Jackson, do you have anything tangible we can give Melissa?

The solutions order is the path. Identify the five to seven outcomes — in a top-grading methodology, use their scorecard. If you want to go all the way back to, I think, our first guest episode, we went in depth on that with Chris Merceau. Figure out those five to seven outcomes: if they do these things and only these things, they would be considered an A player in that role. A player is not tied to the person — it's tied to the role. Then evaluate the people you're considering for those roles and make the hard call if the answer is none of them are ready. So if you're 0 for three, what that tells me is you were probably too focused on the individual and their performance in a prior role rather than the criteria of success in the new one.

Jackson, Laura from Austin writes in and says: "You've talked about culture as decision residue — the idea that culture isn't what you say, it's the pattern of what you reward, tolerate, and punish. I buy that. So my question is: if a PE firm acquires a company with a toxic culture, and the decisions that created that culture and the decision-makers are still there — same people, nothing's changed — how do you actually change it? Or do you change the people first?"

Changing the culture without changing the decision-makers is possible. Also, me growing a full head of hair is possible, and my salt-and-pepper beard turning more pepper than salt is also possible. All three are unbelievably unlikely. When you have a toxic pattern running at the senior level, it is amplified through the rest of the organization. It's what they reward, tolerate, punish. And if they're still being rewarded, the pattern has no reason to change. I would start at the very, very top and make sure the decisions being made are supportive of the culture you want — and that requires a decision audit, not a survey, not a sentiment. You also have to be really clear about the timelines and the outcomes, because the business reality runs smack into your cultural reality. It would be great if you could wipe out the entire C-suite at one time, but the sequence of the solutions order in that world makes a lot of difference too. Start at the top. Scott and I always fight about putting everything on the CEO — but this is one where, even if you have people making decisions that drive dysfunction throughout the organization, at a minimum, the CEO has to set the standard for the way they want those decisions audited. If you do that, and then you make the changes at the top, I think that's the only reasonable path. You might get lucky, but it's pretty unlikely.

I want to double-click on something because I want to make sure people don't misunderstand. "Decision residue" — I understand it conceptually, but it doesn't work as well for me as a very clear understanding of how you're expected to behave. That is culture. So if you want people to behave in a certain way — for example, if you want people to innovate, to come up with new ideas — but every time somebody brings a new idea up in a meeting, everyone immediately goes to why the idea isn't going to work, what are you telling people? You're conditioning them: don't bring up new ideas, because everybody's going to tell you why they won't work. So if you want to change that, you have to change the incentive structure. You have to change what you're conditioning so that people understand clearly how they're supposed to behave. I think that's a good first move. You may have to replace the people, but you start with: what signals are we sending? And there's only one place to look first — that is the CEO and the executive team. Are we sending signals that condition the behaviors and make it clear how we want people to behave in this new world? If not, that's the first place. Then watch for a reaction. You're going to get to some leaders that you just can't change. Those are the ones you have to replace.

Scott, let me push back on that — I think we're trying to get to the same place, and this might be a semantic difference. When you know how you want people to behave, that is in fact the outcome of decisions, because you can say it and reinforce it, right?

I don't dispute it.

Yeah, so I think you and I are going to land in the same place. I think the decision residue is one step earlier in the process. And it's okay if we have a different way of going about it, because you're probably right. But I fundamentally believe that you can say anything you want, and you can set clarity around how you want people to behave, but the activity of decisions is what either makes it stick or it doesn't.

Yeah, yeah. You and I are usually not that far apart on these things. My only point is: the outcome you want is clarity about how you're expected to behave. Decision residue, decisions that you make — those are means to get to that end.

And I think this is probably a good place to wrap it up — because this is, in fact, your Talent Sherpa summary.

Yeah, because as Scott always says, the best talent strategy is to put up a motivational poster and hope for the best.

All right, rapid fire summary. Two points. One: if you're a CEO, grab onto the data. Don't wait for the succession plan. You've got the ability to focus on the workforce, you've got the ability to focus on your blind spots, and that's what's going to lead you to faster and better growth. Two: because we had a lot of hiring questions — focus on the success criteria. Use the top-grading method. Make sure you've defined the key success factors for the particular role before you start thinking about hiring any role. Whether you're an operating partner thinking about CEO succession, or a CEO thinking about that one key hire — that's my summary for this week. Rihanna, you had all the questions. How do you think we did?

You guys did fantastic. Thank you so much. I think that's spot on. I would say that great leadership isn't built by waiting until everything is clear. It's built by taking the next thoughtful decision, learning from it, and then continuing to grow. So thanks for joining us. And thanks to everyone who sent in amazing questions — we really enjoyed the conversation. Well, that's what we have for today. But we do have more questions in the queue. So let's do it again. If you want to ask a question, please text in, send us fan mail, or even better, leave the question with a five-star review wherever you get your shows. Thanks so much for listening.

Yeah, totally — that would be awesome. We should do this again. And again, thanks to everyone for joining us, especially you, Rihanna. This is exactly how this show and this kind of episode is supposed to work. And thanks to everyone who's listening. Please go find Rihanna at Pinnacle Peak HR and let her know you heard about her on our podcast.

Agreed. Rihanna, thank you so much. Second time — you know, third time is going to be even better. We appreciate you.

Truly my pleasure. Thank you both.

Yeah, and everyone, thanks so much for tuning into the Talent Sherpa Podcast, where senior leaders come to rethink how human capital really works. This is, as we talked about, so much fun to do with and for all of y'all.

Hey, just one thing before everybody goes — take a moment right now and hit the like button on the episode, or even better, subscribe to the podcast. Our numbers are growing. When we started this, we had no idea anyone was going to listen to us, but we're obviously growing, and you can help that — not only by helping us, but helping your fellow leaders in business by subscribing. It helps spread the word to other senior leaders. Take a moment right now: Apple Podcasts, Spotify, YouTube — we're on all of them. It would help us if you'd leave a review. It helps us a lot if you subscribe.

Yeah, unless it's not a five-star review, at which point forget we said anything.

No, we'll take a two-star review. We don't want them, but those help us grow too.

I don't know if that helps us grow, brother, but I do want to talk about Scott's company — because that is a five-star company. It's called Propulsion AI. It's workforce intelligence for private equity. Their AI teammates help surface workforce risk before the close, and even more important, from my view, they help leadership teams drive execution after. They help you translate strategy into individual accountability and coach managers to define roles by outcomes and give every employee a clear line of sight as to what actually matters. I've been able to look behind the scenes and see what's being built there, and it is really, really good stuff. All done through artificial intelligence. You can learn more at the very cleverly named getpropulsion.ai.

And you know what? If you are a CHRO that's new to your role, or aspiring, or preparing to step into a new role — Jackson has built all of the tools that are going to help you operate at the altitude that new role demands. Remember, the head of HR role is not like the other HR roles. You need tools in order to do it. Personal coaching, the CHRO Ascent Academy, even his best-selling Substack — everything that you need is at mytalentsherpa.com.

Thank you, Scott. And thank you, Rihanna. And thanks to everyone who's listening. Until next time, keep raising the bar. Focus on clarity at the very beginning, and keep on climbing.