How Private Equity Can Truly Further the Key Tenets of DEI
It's no secret[1] that the private equity industry has a ways to go when it comes to diversity. As an immigrant and a person of color, I've experienced the need for industry improvement first-hand. While there are no easy solutions, I believe part of the answer involves thinking more three-dimensionally. This will not only ensure that PE firms are more diverse, but that those values are brought to portfolio companies, vendors and other partners the firm may work with.
To be sure, private investment firms in general have made an effort to address DEI, but more change is urgently needed and most people just don’t know how to do it. It’s concerning because this is a long-term problem that requires a long-term vision in an industry used to fast results. And if immediate impact is not achieved, it is easy to become complacent. After the initial surge in awareness of the last three years, today, it seems most diversity pledges are no longer top of mind, with some companies in the private equity industry and beyond even laying off DEI focused teams.[2]
The PE industry in particular employs over 12 million people[3] and this number only continues to grow—making it one of the largest employers in the United States. As the industry expands in numbers and impact, it’s incredibly important to make sure the mark we leave as a group is one that other sectors can model.
That’s why I’d like to suggest a more actionable and substantive framework to approaching DEI. We should avoid looking for easy solutions, because there are none. For private equity firms, I believe there are at least three core angles they should consider approaching to comprehensively integrate diversity, equity and inclusion into their organizations’ philosophy.
The first angle to consider is diversity at the company-level. It’s impossible to weave in DEI as a private investment firm without first “walking the walk.” Organizations should make it a point to work with their specialized human resources functions to integrate DEI practices - not only in their recruitment strategies, but in company resources available to current employees, in firm-led conversations and via internal and public-facing company communications channels. Diverse leaders also have a key role to play here. When you were beginning your career, what resources did you wish you had that may have helped you to succeed? What is your idea of an inclusive company culture? All of this is crucial, and the answers should help company management chart a course towards a stronger DEI philosophy and practice.
Second, PE firms need to integrate DEI practices into their work with portfolio companies. What should that work look like? How can private equity firm leaders properly integrate themselves into the culture of their portfolio companies? Private equity should be inherently additive, and DEI is a core area that private equity firms should emphasize as important to the growth of their portfolio companies. When you have a company that represents all groups equally, you can ultimately better serve key customers and markets across every community - and throughout the country. When conveyed and implemented correctly, it’s a message that can get portfolio company leaders excited. To enact change, PE firms should provide consulting services, similar to what they use at their firms, that can provide portfolio companies with the proper tools to institute appropriate DEI policies and effective resources needed to succeed.
Finally, firms and their portfolio companies should remember that any vendor they partner with has the potential to reflect both positively and negatively on their own company. Companies should properly evaluate the importance of diversity at a potential vendor or partner. Vendors want to grow and if they see it is to their benefit to change policies in order to further align with their own DEI goals and to source additional business, they will. PE firms and their portfolio companies have a key opportunity to institute real change. Vendors should be advised to take a diverse, community approach to hiring and business sourcing, as that can be directly impactful to increasing diversity and inclusivity in our industry.
The private equity industry has a staggering amount of influence in our country, and we need to change the narrative that private equity is inherently extractive. With diversity as a common goal, I believe this three-step prescription is the roadmap private equity firms should follow to truly make their mark as impact investors and DEI reformers. The investment community has a real opportunity to institute change - it’s our responsibility to make sure we take action.
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Nick Jean-Baptiste is Founder and Managing Partner of Jacmel Growth Partners
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[1] https://www.mckinsey.com/industries/private-equity-and-principal-investors/our-insights/the-state-of-diversity-in-us-private-equity
[2] https://fortune.com/2023/02/10/companies-cutting-diversity-jobs-regret-layoffs/
[3] https://www.investmentcouncil.org/economicimpact/
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The views expressed in this article are those of the author and do not necessarily reflect the views of AlphaWeek or its publisher, The Sortino Group
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