Urgency vs. Empathy: A Private-Equity Challenge

Posted on 1st November 2017

Welcome to the Business Empathy Forum and thank you for your visit. In this post I continue my occasional series on empathy in specific business sectors. I focus here on the private-equity sector, and particularly on a leadership debate that has begun to emerge in the pages of the Harvard Business Review (HBR).

Must Empathy Disappear When Pressure Rises?

By way of background, private-equity investments typically imply high pressure on company managers, since the goal is usually to prepare a portfolio company for an initial public offering (IPO) or turn around a troubled company so it can be re-sold at an attractive profit. Regardless of the circumstances, large investments and severe time constraints ensure considerable pressure for executives leading these efforts. Two recent articles in HBR have laid out contrasting arguments about the appropriate role of empathy in these scenarios.

A June 2016 article argues that intense pressures mean that urgency must take precedence over empathy: “PE firms operate with strict timetables for when a company should be improved and the investment recouped through sale or IPO. (The typical goal is five years.) This ticking clock means that a portfolio company CEO can expect close oversight and faces heightened expectations about the speed with which cost cuts or revenue growth will take place… While this doesn’t mean that a CEO shouldn’t listen to customers or show concern for employees, it does require moving decisively and without regrets. One PE executive said, ‘I am not down on empathy, but [often] empathy needs to take a back seat to urgency. Some highly empathetic leaders are not able to make the tough personnel decisions that need to be made.’”

In contrast, an article from September 2016 argues that a better balance is called for in private-equity leadership, with a strong sense of urgency augmented by empathy: “The best leaders, including those at PE-owned companies, recognize that urgency and empathy are not mutually exclusive. A CEO who leads with great urgency and zero empathy will produce followers who are afraid to get it wrong and thus become overly cautious and hesitant. Meanwhile, urgency delivered with empathy greatly increases the odds that critical work gets done on time and according to expectations. PE firms need CEOs who know how to use empathy to generate a highly positive sense of urgency, thereby generating greater momentum toward strategic and financial goals.”

I almost always advocate for balance in these situations, but I also recognize the valid points made in the June article. Rather than take a position on which side of the argument is ‘correct’, I will just point out that this illustrates the tradeoffs that leaders are often asked to make in their work, and that empathy or the lack thereof is often a key consideration.

Good luck, and until next time…