Gender equity as a business imperative for private equity

Despite the challenges, there is much the private equity industry can do to improve gender diversity

May 02, 2022

Key Takeaways

Private equity firms have reasons to pursue gender equity. Research shows diverse teams deliver better ROI.

Firms must take measures such as establishing mentor programs, diversity goals for hiring, and flexible workplace policies.

Advancing women into leadership, board, and sourcing positions is vital to improving gender equity in the long term.

ESG advisory Private equity Management consulting
Creating goals and measuring progress are critical to holding a business and people accountable.
Kerensa Butler, Partner, RSM

In recent decades, great strides have been made in improving gender equity in the workplace. However, significant disparities persist in private equity, which continues to be a male-dominated business. 

Kerensa Butler, partner and Southeast private equity leader at RSM US LLP, spoke with Private Equity International to discuss the importance of supporting gender diversity and the measures she's seen as effective in addressing the issue.

What is holding private equity back when it comes to achieving gender equity?

Until recently, there was no significant mandate to address underrepresented populations in our industry, with gender inequity being at the forefront of the issue. General partners answer to their investors, and only in the past few years have limited partners started to ask for gender-focused investing or gender-smart investments. Now LPs are focusing on a fund’s efforts around diversity, equity, and inclusion, requiring private equity firms to take action toward doing the right thing.

Another issue is the fast-paced, transactional nature of our business, which makes work-life balance challenging, particularly for working parents. Historically, private equity firms have not had policies supporting flexible work arrangements. Adding to the problem, many firms are running high-profile companies with very few people, limiting their capacity to build a truly inclusive culture.

Finally, there are not many role models for women in private equity, making it difficult for young female professionals to see themselves rise as leaders within their firms. As the world changes and we get more women and other underrepresented populations in leadership, they will become the sponsors to achieve more equity.

Private equity firms are working hard to create a sustained effort where diversity is an everyday focus. They are making changes and creating programs, striving to move from awareness to sustained progress relative to DE&I.

Why should managers prioritize increasing gender diversity at senior levels?

Research suggests diverse teams deliver better returns on investment. Gender-balanced teams bring more perspectives to the table, resulting in varied insights to help companies avoid problems and increase their valuation. Managers should commit to building a diverse and inclusive industry. It comes down to values. If a firm believes in investing in a company and securing its future, then investing in its people goes hand in hand.

At RSM, we adhere to our values of integrity, teamwork, respect, excellence, and stewardship. We believe that doing right by our people makes us all happier, creates better results, and enables the firm to attract and retain more top talent.

What sort of actions can managers take to address this? What have you seen working?

Leaders must be vocal about their intentions. The private equity firm needs to say it is committed to DE&I values and is aware there is work to do, and then move forward with embedding meaningful change into the culture.

I have seen private equity firms do everything from setting goals for their firm and portfolio companies to investing in specific types of diverse entities. They might have goals for achieving a certain level of diversity on the board, their investment committee, or the boards of their portfolio companies. Likewise, for hiring, they might require that each new class of associates be split 50-50 based on gender.

There are other measures firms are introducing, such as recognizing that if you go into a meeting and find everyone around the table looks the same, you will probably not get the results you want. Some firms have a policy that every meeting should comprise an odd number of participants and have diverse people in the majority.

Firms can also set up mentoring programs. The key to supporting future leaders is to ensure each up-and-comer is assigned a senior sponsor trained in effective mentorship.

Another key ingredient is to create more workplace flexibility. During the pandemic, we have seen a lot of mothers pushed out because work-life balance became impossible. It is time for new workplace policies that do not force people to choose between family and career.

How important are data measurement, tracking, and targets to achieving progress in this area?

People often say that what you don’t measure doesn’t change. Creating goals and measuring progress is critical to holding a business and people accountable.

With investments, key performance indicators need to be agreed upon at the portfolio level to track metrics such as the number of diverse new hires, the number of diverse retained hires, and the percentage of women on boards.

We can also compare valuations achieved by diverse investment committees to those by nondiverse committees, which many private equity firms are now doing. Plus, LPs are asking for specific KPIs, so managers must be able to report on more metrics relative to DE&I efforts.

How might firms better consider gender diversity when investing, as part of their ESG agendas?

The rise of environmental, social, and corporate governance continues to gain traction in private equity, again largely due to investor demand. Beyond the evidence that having a strong ESG proposition can produce strong returns, there is a general mindset shift happening in support of investments that make the world a better place.

DE&I is considered a social component of ESG, which is also where gender diversity investing fits in. The concept is to make a difference from the perspective of women and other underrepresented populations by opening up access to startup capital and producing goods and services designed for women and minorities—without sacrificing investment returns.

For private equity funds considering this avenue, the easiest thing to do is invest in female-led businesses. Finding such investment opportunities requires expanding your networks and increasing diversity in your business development and sourcing teams. Across the board, managers need to be elevating and celebrating women and advancing them into leadership roles.

It is essential to assemble gender-balanced leadership teams with goals for board and senior management diversity and to consider replicating this model at every business level. These goals will differ by sector. For example, traditionally male-dominated industries may focus on attracting female talent through scholarships or apprenticeship programs. However, levers can typically be used, and KPIs are a great way to measure and track progress.

There is a fight for capital, and LPs are focused on this issue because they have a responsibility to ask. LPs can set the tone by prioritizing DE&I considerations before making investing decisions.

At RSM, we are seeing a push for ESG policy development, and reporting of financial and nonfinancial issues is apparent in ongoing portfolio management, as well as in mergers and acquisitions due diligence for both buy-side and sell-side transactions.

In response, we continue to invest in our robust set of ESG solutions, from gap assessments to evaluation methodology, while leveraging capabilities from across the firm.

RSM contributors

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