At Townsend Search Group, our team has experienced a marked uptick in searches for human resources (HR) executives this year. We are not alone. Research indicates that HR roles rank among the most sought-after positions in the country. A recent analysis of LinkedIn data found that five of the 25 fastest-growing roles across the U.S. were within HR.

In 2023, our team filled several newly created HR positions. All were for companies sponsored by private equity (PE) that were pursuing expansion through mergers and acquisitions. In many cases, these businesses were hiring for a C-suite-level HR role for the first time.

Whereas HR was once seen as a necessary overhead, it is now considered a value creator. With that renewed focus comes a need to consider the qualities that make an effective HR leader — and what that means for the executive search process.

Evolving Perceptions of HR

People generally associate HR with managing personnel issues, enforcing workplace policies, and ensuring compliance with broader regulations. In reality, the role extends far beyond these administrative responsibilities.

To maintain a competitive edge, businesses must build a culture that is attractive to new candidates and those already within the organization. Doing so means implementing a comprehensive program of training and development, establishing impactful recruitment and retention tactics, and providing plenty of opportunities for employees to advance.

Since the pandemic — and its ensuing hiring struggles — companies have come to appreciate the need for a robust HR function. Businesses are now keenly aware of the cost of failing to prioritize recruitment and retention. And more than ever, experts recognize the role of human talent management in enabling high-performing organizations to thrive.

In short, it is becoming increasingly clear that when a business invests in its workforce, it invests in its bottom line. As a result, companies are seeking out executives who can design human capital strategies that align with overarching business goals.

Finding the Right Perspective

For C-suite executives within a PE environment, the goal is to empower a company to scale faster than it could have done alone. In the context of HR, that includes introducing best-in-class processes across all human capital functions — among them recruitment, retention, performance management, training and development, and internal communications.

An HR executive in this setting will need a particular background and range of expertise to succeed. When HR professionals build careers in large, multinational corporations, they typically become specialists in one area of HR. For PE-backed companies, however, we recommend looking for candidates who have previously worked at middle-market organizations that have scaled. These leaders are more likely to have the confidence to take a big-picture approach and lead all aspects of HR.

Previous experience with acquisitions can also give new leaders the perspective they need to help a company stabilize after a merger by fostering a sense of shared culture throughout the organization.

An Emphasis on EQ

Most importantly, HR leaders — like chief financial officers (CFOs) and chief executive officers (CEOs) — must have high social and emotional intelligence, particularly within PE. A merger can provoke significant short-term unrest within the acquired company. To steer a business beyond this point, those in the C-suite must be able to manage people’s emotions and communicate effectively.

Even outside of PE, there is a growing emphasis on “soft skills” such as communication and emotional intelligence. In LinkedIn’s 2019 Global Talent Trends Report, 91% of talent leaders said soft skills were a leading trend in workplace transformation. In addition, 89% said that when a hire did not work out, it was usually due to a lack of soft skills.

Similarly, a survey by McKinsey showed that the number of companies that prioritized developing interpersonal skills and empathy in employees almost doubled in 2020. The bottom line? Soft skills are seen as pivotal drivers of employee success, and there is no area where they matter more than in HR.

How Human Capital Fuels Revenue

Companies are coming to understand that employee experience is not just a perk. It drives revenue — and businesses that overlook the importance of allocating resources toward human capital lose out on profits and productivity. The data agrees.

In 2020, Gallup analyzed 456 studies conducted across 276 organizations. Gallup researchers used the data from these studies to map the relationship between employee engagement and organizational performance. They found that employee engagement overwhelmingly correlated with various positive performance outcomes, including customer loyalty, productivity and profitability. Furthermore, companies with engaged workforces tended to have higher earnings per share.

Simply put, making somewhere a satisfying, engaging place to work directly contributes to a business’s success. Achieving this requires dedicated HR talent. So does recruitment — especially in a tight labor market. HR leaders are increasingly being called on to design new pipelines that will attract candidates from nontraditional backgrounds. These range from partnering with technical colleges to implementing on-the-job training programs — strategies that take expertise to operationalize.

As awareness of and appreciation for the HR function rises, so will the appetite for intelligent, competent, empathetic leaders. Companies that wish to position themselves for success in the next five years should look, first and foremost, to their HR departments. By investing in this area now, businesses can create a workplace environment that fuels progress for the long term.