How the Private Equity Industry Can Move the Needle Further on DEI Initiatives
The research is overwhelming: Diversity is not only the right thing to do; it’s good for business—especially in the private equity industry-at firms and at their portfolio companies. Case in point: In 2020, Carlyle revealed data showing that average earnings growth of private equity-backed portfolio companies with diverse boards was 12% higher than non-diverse companies.
In the past several years, firms have made solid progress on diversity—the fact that entry-level roles are nearing gender parity is one example. But there’s still a long way to go. A 2021 report by Ernst & Young found that at private equity firms, women occupy just 20% of mid-level roles and 10% of senior roles. Among the top 10% of firms, just 38% exhibit ethnic and racial diversity.
In the wake of anti-DEI sentiment following the Supreme Court’s decision on affirmative action, the private equity industry needs to head confidently in the opposite direction with renewed emphasis on diversity. To achieve this, firms should focus on the following four areas:
- Recruit
It’s essential to make a visible and authentic commitment to DEI, one that’s articulated both verbally and in the written word. Make this commitment tangible by investing generously in terms of time, money, and workplace resources. The DEI message should come directly from the top and be communicated by people in trusted positions—as well as diverse people in senior roles who speak openly about the process they went through to get there. Additionally:
- Set quantifiable goals and establish a clear hiring strategy to reach them. Ensure your diversity-focused recruitment is happening at all functions and levels to help you maintain an active pipeline. Prioritize adding diverse legal teams and outside counsel.
- Start your investments early by holding workshops for junior talent (in college or first years of practice). Educate these groups on developing strong careers, this will you to build a strong, stable talent pipeline as well as a positive brand for your company.
- Create accountability by reviewing your DEI recruitment strategy semi-annually. Look at the hard numbers, what you’ve achieved in relation to your goals, and where you’ve fallen short. Then, tweak and refine.
- Prioritize diverse recruiting at portfolio companies, too. The data show that diversity within portfolio companies also leads to company growth, in turn driving higher returns for PE firms and their investors. However, beyond similarly good for business, developing a successful framework at one portfolio company can help the entire group by allowing them to implement the same effective processes and ultimately, recruit more diverse talent. PE firms should take advantage of the ripple effect their structure allows them to create.
- Retain
If you already have diverse talent, are you taking the right steps to hold onto them? Don’t just view diversity as a metric, but as an opportunity to create a stronger workforce and develop a competitive edge. Consider creating mentorship and sponsorship programs, diversity-focused ERGs, and other initiatives to foster an inclusive culture.
Follow-through is important, too. To make sure your DEI initiatives are implemented effectively, designate your leadership to run them and allocate funding purposefully to fuel their success. Put together well-defined business plans to track and improve your efforts along the way.
- Refresh
Implement a process to systemically track your DEI metrics. Don’t let these metrics grow stale over time; refresh them regularly to make sure your recruiting and retention strategies keep pace. Examine your attrition and promotion rates to better understand how you’re retaining your diverse talent. Get direct, honest feedback from employees by sending out internal surveys and asking pointed questions during exit interviews.
- Report
Hold your organization accountable by reporting your DEI results. Increasingly, today’s investors expect this kind of transparency. Include the data in annual reports to allow an internal view for employees as well as external visibility. Keep in mind that investors who are interested in this kind of data will not be making an investment without it.
Improving DEI is a long-term commitment. It’s a core, deeply rooted value that firms need to embrace fully and consistently reevaluate and retool. While the private equity industry has made progress in terms of DEI, there’s additional work to be done—and the road ahead will not get any easier. We encourage firms to get serious about not only recruiting and retaining diverse talent, but setting clear and specific goals around how they’ll do so.
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Allison Rosner is a Director in New York and Elena Bajada is a Managing Director in London at Major, Lindsey & Africa
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