Interim chief human resources officers are becoming a more and more popular request in the world of private equity.
In fact, BluWave saw more than four times the number of interim CHRO projects in 2022 compared to 2021.
That’s no surprise, considering how effective an effective interim CHRO can be with crisis management, navigating mergers and acquisitions, setting up a human resources department from scratch and more.
“It’s a functional area that’s been historically overlooked,” BluWave Consulting Manager Keenan Kolinsky says. “Private equity hasn’t viewed it as a critical function to drive value historically. But like we’ve seen over the last two years private equity is increasingly viewing human capital and HR as a value-creation driver.”
We’ll walk you through the benefits of an interim CHRO, what to look for when hiring and how to go through the entire process so you select the right one for your portfolio or private company.
Table of Contents
I. Benefits of Hiring an Interim CHRO
In 2022, human capital accounted for 72 percent of all private equity activity – a 14-percent year-over-year increase, according to the Q4 2022 BluWave private equity insights.
With so many important projects tied to talent, most companies can’t afford to be without a head of people for weeks, let alone months on end. That’s why an interim chief human resources officer can be a great option to bridge the gap.
“An interim CHRO is a seasoned executive that can come in, bring best practices to a growing middle-market company and help build a best-in-class HR function,” BluWave Consulting Manager Scott Bellinger says. “This can range from talent acquisition, employee retention, benefits, employee handbooks and more.”
A. Post-Merger Integrations
Integrating two teams into a single, well-functioning organization can be a challenge. That’s when an experienced talent executive can make the transition much smoother.
“No other functional interim executive is going to be able to effectively advise on the org design and sizing components associated with integrating businesses,” Kolinsky says.
An interim CHRO can also provide the leadership and guidance needed to handle a crisis. These may include:
- A high-profile employee termination
- A significant reduction in workforce
- Facing bankruptcy
- Employee misconduct
- Cybersecurity attacks
- Hostile takeovers
C. Create Structure
An interim CHRO can provide an unbiased view of your company’s HR practices, identify areas for improvement and recommend changes. This can be particularly valuable if your HR department has been struggling to keep up with the demands of a rapidly growing company.
“A lot of CEOs or founders have never known what good looks like as it relates to CHROs,” Bellinger says. “It’s important to make sure you have a great talent pipeline, great employees and that you’re training them properly. This allows the CEO to focus on commercial and operational initiatives and leave the other stuff to the CEO.”
The right person will also help companies that don’t have an existing structure implement a proper HR infrastructure.
“Most traditionally founder-led businesses don’t have PE-grade infrastructure in place for the company to prepare for growth,” BluWave Strategic Account Executive Hannah Welsh says. “In many circumstances, interim CHROs can be brought in to lay the groundwork for the right people processes.”
II. Candidate Criteria
These are some of the main factors to consider when hiring an interim CHRO:
A. Industry Experience
You want someone who’s familiar with the nuances of your industry and the specific challenges and your company might face.
“For example, you wouldn’t want to bring a tech-based executive into a manufacturing company,” Welsh says. “They both have different processes that need to be implemented.”
We most commonly see companies in the manufacturing, business services and healthcare industry hiring interim CHROs. They can be an asset for any company that needs HR guidance, though.
Case Study: Interim CHRO Urgently Needed For Software Portco
B. Leadership Skills
An interim CHRO should have strong leadership skills and be able to manage and motivate your human resources team.
This means clearly communicating not only within their own group, but also across departments.
When working for a portfolio company, the PE firm may also expect regular reports from the talent lead, almost acting as a second manager along with the CEO.
“To work effectively, they should also be a part of the executive team. They should be a thought partner, because human capital helps the business grow,” Welsh says.
Human capital resources accounted for half of 2022 initiatives – up 2 percent from the previous year – within the Value Creation portion of the BluWave Activity Index.
C. Problem-Solving Abilities
They should also have a track record of quickly identifying and solving complex HR challenges.
“You’re used to integrating companies. You’re used to hiring quickly. You’re used to speed,” Bellinger says of the ideal candidate.
Some HR-related issues a company may face include:
- High employee turnover
- Lack of organizational structure
- Lack of diversity
- Employee health and well-being
- Managing relationships
D. Cultural Fit
The ideal candidate should also fit in well with your company. Whether your team is laid back or more buttoned up, your head of HR needs to be able to relate to them.
“I would want to make sure I was very explicit in making sure I understand exactly what the roles and responsibilities are,” Bellinger says. “Make sure it’s something they can accomplish. If the interim CHRO is not very explicit in exactly what they want to get done, the PE firm is going to have a very short fuse.”
As you might have gathered from the other criteria, this position is anything but predictable. Select someone who can roll with the punches.
This includes the ability to quickly adapt to a company’s culture and management style, as well as handle unexpected situations such as a crisis or change in leadership. They must also be able to pivot their approach when necessary to remain aligned with the organization’s objectives.
Some examples may include leading a downsizing while minimizing negative impact on morale, or being able to shift focus to DEI initiatives in response to social and political changes.
III. Interim vs Full-Time
One of the main advantages of hiring an interim CHRO is flexibility. They can be brought in on a short-term basis to address specific needs, and then let go when they have been met.
This can be more cost-effective than hiring a permanent CHRO, or if your company is in flux and the future is uncertain.
You may end up hiring that same interim executive full-time, but by starting them on a temporary basis, you can “try before you buy.”
On the other hand, a permanent CHRO can provide continuity and stability for your company’s HR department. A long-term hire will also have more time to develop a deep understanding of your culture, processes and employees.
IV. How to Find the Right Interim CHRO for Your Company
The “right” interim CHRO is going to be different for each company. It will depend on some of things mentioned above, such as culture, industry and other specific needs.
Let’s Talk: Set Up a Scoping Call
After identifying the criteria for the role you want to fill, cross-checking candidates with past work experience and references can narrow the field.
Fortunately, BluWave’s highly vetted network has already done that for you. We only admit experienced talent that has passed a rigorous pre-interview process and received positive references from the world’s leading PE firms.
When you contact us for a scoping call, we provide two or three PE-grade interim CHRO candidates, hand-picked for your exact situation, within a single business day. By jumping directly to the interview process, you’ll save weeks, if not months of searching.
“Our vetting process clearly surfaces whether a candidate will be a great resource for a company, and if not, we won’t waste their time with an introduction,” Welsh says.
Case Study: Immediate HR Diligence Provider Needed
V. The Hiring Process
Once you meet the candidate (or two or three) that’s best suited for your vacancy, it’s time for various members of your team to speak with them. This will give you a 360-degree perspective on their skillset.
You should also have a clear understanding of their availability and expected compensation. If everything lines up, it’s time to draft an engagement letter outlining expectations, pay and timeline. (When you work with BluWave, we take care of all this for you.)
Once you hire the right person, the next step is to onboard them effectively. Due to the selection process, they should already have a clear idea of expectations from day one, as well as the resources at their disposal.
“They’ve got to get up to speed very quickly,” Kolinsky says. “They need to explore what they have. What people, processes and technologies exist in this functional area, and how it can be improved and optimized.”
Hiring an interim CHRO can provide a range of benefits, but it is important to choose someone who fits within your company culture and has the right skills for your situation.
For the second consecutive quarter, interim leadership was the No. 2 value creation category in private equity. (No. 1 – specialized recruiters – is also a human capital resource.)
Our BluWave-grade pool of interim CHRO candidates is on standby. Connect with our research and operations team to walk us through your specific project, and we’ll connect you in less than 24 hours with only the most tailor-made candidates.