You Don’t Need a New HRD. You Need to Understand Why the Last One Failed.

There is a pattern in PE-backed businesses that repeats with a consistency that should, by now, be generating more curiosity than it does. A portfolio company acquires or inherits an HR director. Within twelve to eighteen months, the operating partner or the CEO has concluded that the HRD is not up to the job. A replacement is recruited. The replacement lasts a similar period. The conclusion is drawn that finding good HR leadership is difficult.

The alternative conclusion, that the role is structurally designed to fail, is almost never considered.

This is worth investigating, because the cost of cycling through HR directors is not merely the recruitment fees and the settlement agreements. It is the absence of a functional people strategy during the periods of transition, the erosion of workforce confidence that comes with visibly unstable leadership, and the compounding effect of people problems that are never properly addressed because the person responsible for addressing them keeps changing.

The Mandate Problem

When a PE-backed business recruits an HR director, the brief almost always contains a fundamental contradiction. The explicit mandate is strategic: build the people function, develop the leadership team, create the talent pipeline, and drive the cultural change that the value creation plan requires. The implicit mandate is operational: fix the contracts, sort out the grievances, manage the restructuring, process the payroll, handle the tribunal, and make the HR compliance problems go away. These are exactly the issues an HR MOT identifies and prioritises before they overwhelm the incoming HRD.

The strategic mandate is what gets discussed in the interview. The operational mandate is what consumes the first six months. By the time the immediate fires are under control, the operating partner is frustrated that the strategic agenda has not progressed, the HRD is frustrated that the strategic agenda was never genuinely resourced, and the relationship begins its predictable deterioration.

This is not a talent problem. It is a scoping problem. The role as briefed requires two fundamentally different skill sets, typically held by two fundamentally different types of professional, and the business has hired one person and expected them to be both.

The HRD who excels at strategic people leadership, board-level advisory, and organisational development is rarely the person who wants to spend their first year rewriting employment contracts and managing a TUPE consultation. The HRD who is energised by the operational challenge and has the employment law fluency to manage it is rarely the one who will transform the people strategy in year two. Expecting the same person to do both is not ambitious. It is confused.

The Reporting Line Problem

In most PE-backed businesses, the HR director reports to the CEO or the CFO. In theory, this gives them a seat at the leadership table. In practice, it places them in a structurally subordinate position to the people they are supposed to be advising on people decisions.

When the HRD reports to the CEO, the CEO controls the HR agenda. If the CEO’s instinct on a people issue is wrong, the HRD is in the position of having to challenge their own line manager. Some do this effectively. Most find, over time, that the path of least resistance is to adapt their advice to what the CEO wants to hear rather than what the CEO needs to hear. The strategic value of the role erodes accordingly.

When the HRD reports to the CFO, the problem is compounded. The HR function becomes, structurally, a sub-function of finance. The CFO’s incentives are cost-focused. The HRD’s agenda is filtered through a financial lens before it reaches the board. Investment proposals in people development, talent acquisition, and cultural change are assessed by someone whose primary metric is margin improvement. The proposals that survive this filter are the ones that can demonstrate short-term financial return. The ones that cannot, which include most of the strategic people investments that determine long-term business performance, quietly die.

The operating partner, meanwhile, receives a filtered view of the people landscape. They hear from the CEO, who has a perspective shaped by their own leadership style and priorities. They may hear from the HRD directly, but typically only in board meetings where the format favours reporting over candid assessment. The independent view of the people reality that the operating partner needs to make informed decisions about the portfolio company is structurally difficult to obtain from within the existing reporting lines.

The Success Metric Problem

How do you measure an HR director’s performance in a PE-backed business? This question is asked less often than it should be, and when it is asked, the answers reveal the problem.

The most common metrics are operational: time to fill open roles, absence rates, tribunal outcomes, policy compliance. These metrics measure whether the HR function is functioning. They do not measure whether it is adding value.

The metrics that would measure value, retention of the people identified as critical to the value creation plan, quality of hire assessed against twelve-month performance, management capability improvement measured through structured assessment, cultural alignment with the operating model the business is trying to build, are rarely defined, rarely tracked, and rarely used as the basis for evaluating the HRD’s contribution.

The result is an HRD who is measured on the operational dimension of their role but expected to deliver on the strategic dimension. When they deliver operationally but fail strategically, they are assessed as underperforming. When they deliver strategically but neglect the operational fundamentals, they are assessed as out of touch. The evaluation framework makes success structurally improbable because it is measuring the wrong things, or rather, it is measuring the easy things and ignoring the important ones.

The Alternative Model

The solution is not to find a better HR director. It is to reconfigure the people leadership model so that it is structurally capable of delivering what the business and the value creation plan actually require.

This typically means separating the operational and strategic dimensions of the role. The operational dimension, employment law compliance, policy management, employee relations casework, and HR administration, can be handled by a competent HR manager, supplemented where necessary by external specialist support for complex issues. This does not require a board-level appointment. It requires a capable, experienced professional with the right operational skills and the right external partnerships.

The strategic dimension, leadership assessment, organisational design, talent strategy, cultural development, and board-level people advisory, requires a different type of engagement. In many PE-backed mid-market businesses, this does not need to be a full-time role. It needs to be a relationship with a senior adviser who understands the PE operating model, who has the experience and the independence to provide candid assessment, and who operates outside the reporting lines that constrain an internal HRD. Esbee’s management consultancy and training capabilities provide exactly this kind of senior, independent people advisory alongside practical capability development.

This is not a novel model. It is the model that most PE firms already use for financial advisory (operating partners supplement the portfolio company CFO, not replace them) and for legal advisory (external counsel supplements the in-house legal function). The only reason it is not standard practice for people advisory is the persistent and incorrect assumption that “people stuff” is somehow less complex, less consequential, and less deserving of specialist external support than financial or legal matters.

The model that most PE firms already use for financial and legal advisory — specialist external support supplementing in-house capability — is the model the people function needs.

The Cost of Getting It Wrong, Again

Return to the pattern: an HRD is hired, fails or is perceived to fail within eighteen months, and is replaced. The cycle repeats.

Each iteration carries a direct cost: recruitment fees of £25,000 to £35,000, settlement agreements of £40,000 to £80,000, and an onboarding period of three to six months during which the new HRD is learning the business rather than changing it.

But the real cost is the cumulative gap in people strategy. During the eighteen months the first HRD was in post, the strategic agenda did not progress. During the three to six months of transition, it was abandoned entirely. During the first six months of the new HRD’s tenure, it was paused while they conducted their own diagnostic. Total elapsed time without an effective people strategy: approximately two and a half to three years, which in a four to five year hold period is most of the time available.

The value creation plan assumed a functioning people strategy from year one. The reality is that the people strategy was never functioning, not because the individuals were wrong, but because the role was structurally incapable of delivering what was asked of it.

The Uncomfortable Conclusion

If you are on your second HR director in a portfolio company, the problem is probably not the HR directors. It is the role.

A role that combines strategic and operational mandates without adequate resourcing for either, that sits in a reporting line that constrains its independence, that is measured on operational metrics but expected to deliver strategic outcomes, and that places a single individual in the position of having to be simultaneously a board-level adviser and an employment law practitioner, is a role that is designed to produce the outcome you are experiencing.

The question is not who to hire next. The question is whether the model itself needs to change. And the answer, based on the pattern that repeats across the PE mid-market with remarkable consistency, is that it does.

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If your portfolio company’s people leadership model is not delivering what the value creation plan requires, or if you want to understand what a more effective model would look like, talk to us. Our HR services and management consultancy teams work with PE-backed businesses on exactly this challenge.