Smooch Repovich Rosenberg, founder and CEO of Los Angeles-based SmoochUnplugged, says that PE firms are selling themselves, and their investors, short by dismissing environmental, social, and governance considerations. “These companies who think that ESG isn’t here to stay are kidding themselves,” she says.
June 14, 2023 – Despite growing support for environmental, social, and governance (ESG) investing, many private equity firms have dismissed the concept. In a report last summer, McKinsey & Company cited four main criticisms of ESG – that it distracts from companies’ ultimate mission of creating profits, that it’s not feasible, that it’s not adequately measurable, and that even when ESG can be measured there is no meaningful relationship with financial performance. “In the wake of the war in Ukraine and the ensuing human tragedy, as well as the cumulative geopolitical, economic, and societal effects, critics have argued that the importance of ESG has peaked,” said the consulting firm. “Attention, they contend, will shift increasingly to the more foundational elements of a Maslow-type hierarchy of public- and private-sector needs, and in the future, today’s preoccupation with ESG may be remembered as merely a fad and go the way of similar acronyms that have been used in the past. Others have argued that ESG represents an odd and unstable combination of elements and that attention should be only focused on environmental sustainability.”
Raise the subject with Smooch Repovich Rosenberg, however, and you will get a much different response: Private equity firms, she insists, would be wise to spend more time learning about and considering the place that ESG might have in their future, she says, rather than dismissing it out of hand. “PE firms should be having a better line of sight on ESG,” she said in a recent interview. “I do think that it is not going to go away and I think that the more they can prepare portfolio companies to have that as part of their thinking and decision-making process, the better.”
Ms. Repovich Rosenberg, the founder and CEO of Los Angeles-based SmoochUnplugged LLC, remembers a comparable situation two decades ago when members of the audience at an investor relations officers conference chuckled at her suggestion that Wall Street was falling short in talking to companies about human capital strategy. “And I said, ‘You may not think that’s important, but at the end of the day it’s a topic that the investment community wants content about, and I guarantee you, none of you understand what your company’s human capital strategy is.’ Fast forward 20 years, and even before today, and you’ll find that Wall Street and the right investors want to know, ‘What is your human capital strategy?’ ESG falls into a similar category. You have to get your arms around it, even if it’s just the basics, and then plan accordingly, year by year, how you’re going to frame that.”
Knowledge is Power
To make her point, Ms. Repovich Rosenberg says that doubters need look no further than the data points in the marketplace about carbon footprint, the increase in the number of auto manufacturers that are making EV vehicles in California, and that by 2035, gas powered cars will no longer be sold in that state. “These companies who think that ESG isn’t going to be here to stay are kidding themselves,” she said.
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Ms. Repovich Rosenberg, a pioneering executive recruiter, conducts searches for investor relations officers and chief communication officers for private equity and corporate clients, and provides strategic advisory services as well. “Knowledge is power,” she says. “You have to look at the pros and the cons of ESG. For some companies, depending upon the industry, ESG is going to be a more important part of the conversation than others. So companies need to start researching. We advocate that companies put ESG councils together, meaning a variety of different executives from throughout the organization, to begin the discussion.”
“The immediate resistance is always, ‘Well it’s not in the budget,’ or ‘It’s going to cost too much.’ But doing the research and understanding how ESG can be woven in to your company’s strategic thinking and behaviors doesn’t have to be done overnight,” she said. “You can have a three to five year plan. But I guarantee you that the investment community will be expecting public companies to have answers.”
Ms. Repovich Rosenberg says she has long held an intellectual fascination with the capital markets, which is largely what prompted her to launch a search firm focusing on the investor relations functional niche, long before the investment community became so critical to management teams’ internal dialogues and also long before investor relations even became a bonafide profession. “It really started with my first job at a global company in the 1980s,” she said. “I was working for a global communications consultancy. I was in the consumer marketing area. And they had these learning sessions where they would have a presentation on a case history about some client work. And the very first one focused on the hostile takeover attempt by T. Boone Pickens of Unocal Corp. And I was just fascinated with it and in a moment fell in love with the intrigue, if you will, of investor relations and hostile takeovers in that dimension of business. That’s really what sparked my interest in the work that I continued to do.”
Intellectual Intrigue
In many ways, Ms. Repovich Rosenberg says, the world of private equity is another dimension of intellectual intrigue and challenge. “It’s a place where I feel our firm adds tremendous value not just to the PE firms, but also to their portfolio companies as they consider the path to the public markets,” she said. “And directly with the portfolio companies as well, not only as human capital advisors, but resources to help educate professionals who have never been a part of a public company to help understand the type of knowledge and partnership they need in an investor relations officer, but also with the very executive search consultants they use relative to structuring those management teams.”
Private equity has seen a major shift in recent years, she says, dispensing in large part with the old fashioned Rolodex and “I know somebody” approach to finding talent. “I won’t say it’s expired, but the landscape of talent has changed,” she said. “And as new executives enter into these roles that a PE firm wants to recruit into, the more senior PE executives aren’t always going to have a line of sight on the new up and coming fresh talent. And I think that validates even more the need to retain specialized recruiters to do their search, because the old fashioned way of doing search, or filling roles, isn’t necessarily working as well for them as working with a specialty recruiter.”
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Even for a veteran recruiter like herself, Ms. Repovich Rosenberg says, it can be a challenge to stay acquainted with all the rising talent in her specialties. “But that’s a commitment that we’ve always had for three decades,” she said. “So we dedicate time each week to proactively reaching out to up and coming talent, to talent who perhaps we don’t know yet. I don’t know that I know every investor relations officer in the world, but it’s my lifelong quest to know them.”
“You have to stay on top of the ever-evolving generations of talent, because in investor relations people evolve out of IR into CFO roles, into heads of corporate strategy, etc.,” she said. “There’s constant motion within the field of IR talent. And I think the same thing over the past decade has been happening when it comes to CFOs, general management, and executives in other senior-level positions inside companies.”
The Rise of the Talent Manager
One role that has evolved within private equity itself is that of the talent manager, a position that Ms. Repovich Rosenberg says she would not be averse to trying herself. “Talent managers or as I like to call them, human capital stewards, have truly become an integral part of a PE firm’s success, whether it’s recruiting top talent within their own corporate ranks, or helping their portfolio companies make smart decisions about recruiting the talent that will amplify those portfolio companies success,” she said. “Human capital stewards have finally reached a pivotal position within the decision-making ranks.”
“This is fantastic, because if you think about portfolio companies, those management teams oftentimes have a different set of skill-sets than what a PE firm long-term may need,” said Ms. Repovich Rosenberg. “When a PE firm buys a company, or they have a significant stake in a company and they have significant level of influence, those executives may have private company experience, they may be great at what they do, but they might not be the right people to pivot that company to aim for the public markets, to spin into being a public company. So I think that in and of itself, having a human capital steward who can help these portfolio company management teams and the PE executives who are the stewards of the portfolio companies identify and select the right search firms, and set forth the right criteria for those hires, I think that is one of the smartest decisions that PE firms have made in the last decade. And there’s an increasing number of people in those positions if you compare it today to 10 to 15 years ago.”
In the end, it all comes down to private equity firms’ ultimate embrace of talent to drive their investment thesis, whatever the role in question may be. “There’s been a recognition on the part of the PE firms that in order to get the value they want out of their portfolio companies, they need to invest beyond the traditional ways,” said Ms. Repovich Rosenberg. “And human capital, no matter what industry you’re in, is always going to be the single most important dimension of a company, no matter how large or how small. If you don’t have the right talent, the right leadership, the right intellect to make smart decisions, you’re never going to have the valuation that you want in a company, whether the company remains private and you sell it to somebody else, or the company spins to the public markets.”
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Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; and Stephen Sawicki, Managing Editor – Hunt Scanlon Media
