As I wrote in “The New Decade Calls for Greater Firm Diversity,” private equity firms that have created an inclusive culture consider it a strength and competitive advantage. Few middle-market firms are too small to embark on and benefit from a diversified team. In speaking to one lower middle-market managing partner, I learned his firm has achieved age, gender and ethnic diversity across its four investment professionals and has benefited from what he described as “the different perspectives that the diversity provides.”
Firms do appear to have strong interest in broadening the composition of their workforce. Recruiters I spoke with said they are often asked to provide a diverse slate of candidates—in many cases, by firms without any diversity among their investment professionals. Unfortunately, at this stage, putting forth diverse candidates is not always feasible, especially at more senior levels. Multiple industry recruiters and others told me such candidates are often just “hard to find.”
For firms that are starting their diversity initiatives from scratch or are in the “early innings,” be warned: Building and retaining a diverse team takes leadership prioritization, time and tenacity. A study that I co-conducted in 2016 surveyed more than 450 corporate women and found that nearly half of leaders do not make diversity a strategic priority. It’s no wonder that corporate diversity initiatives worldwide have largely struggled.
FEW MIDDLE-MARKET FIRMS ARE TOO SMALL TO EMBARK ON AND BENEFIT FROM A DIVERSIFIED TEAM.
Leaders across the private equity industry can achieve success by embracing several key tenets:
Success starts with senior leadership: Successful diversity initiatives require clear and unwavering commitment from the CEO or firm managing partners. The strategy, and importance of the initiative, must be clearly communicated throughout the organization. Senior leaders have to own the diversity strategy, not just delegate it to those handling human resources. Once the initiative is launched, one of the most critical factors determining success or failure comes down to senior leadership: leaders must “walk the talk.”
Cultural change is hard but necessary: Successfully adding diversity most often requires an organization to change its culture—the set of shared attitudes, values, goals and practices that characterize an institution or organization. My conversations with successful “first movers” indicated each had created an inclusive culture. That requires not only building a diverse team, but creating a culture characterized by inclusivity (everyone feels they’re part of the group) and equity (their opinions are valued, heard and considered).
Cultural change can be challenging and does not happen overnight, but a shift in culture must happen before a firm can achieve meaningful diversity. Without a shift in culture, the turnover rate of your diverse additions is likely to be higher than the norm.
A cultural transition should involve a number of steps, beginning with leaders explaining the “why” of the diversity initiative and the roles in the effort, including what’s in it for those involved. Next, conduct a cultural assessment, engagement survey or focus group to establish a baseline for the diversity initiative. Be ready for potential resistance at the start.
The first step in behavioral change is awareness. An important element of the transition is training that addresses unconscious bias, microaggressions and microinvalidations.
The organization should also revisit its policies and protocols, including parental leave, revise hiring and promotion protocols, establish remote office capabilities and allow flexible schedules. The firm’s value statement must reflect an inclusive environment and those values should be vigorously communicated through bulletin boards, meetings and in day-to-day discussions. Inclusivity should extend to investment committee discussions and decision making to ensure all opinions are heard.
It is essential that the entire leadership team leads by example consistently and enforces adherence to the revised firm values and behavioral norms. Change the people who clearly demonstrate over time that they don’t want to change.
Think “outside the box” when recruiting: The proactive middle-market investors I spoke with often referred to tapping into “unconventional” candidates. Avante Capital Partners’ modus operandi is to “bring in the skill set you need, but not necessarily the traditional background or experience you are used to seeing,” says Avante Founder and Chairman Jeri Harman.
Several people I spoke with mentioned organizations such as SEO and Toigo as valuable resources in finding diverse candidates. Some investors have tapped into local universities and communities when seeking a more diverse pool of interns.
One firm I spoke with has incorporated education in its recruiting strategy. As part of its diversity initiatives, Antares Capital annually hosts freshmen and sophomore college women for a one-day session to provide insights on the career opportunities in finance and what one can expect entering the field. “The payback is not likely going to ‘ring the bell,’ but we think educating women on a career in finance is an important element in increasing diversity,” Antares CEO David Brackett told me.
“THE PAYBACK IS NOT LIKELY GOING TO ‘RING THE BELL,’ BUT WE THINK EDUCATING WOMEN ON A CAREER IN FINANCE IS AN IMPORTANT ELEMENT IN INCREASING DIVERSITY,”
CEO, Antares Capital
Plan for success: The first step in setting up these (and in fact, all of your) investment professionals for success is a robust onboarding process, which I discussed in my article “Creating a High-Performance Culture.”
Sponsorship needs to be part of the culture and expected of senior leaders. Whether sponsorship is formal or informal, leaders should highlight employees’ key accomplishments, promote their success with other leaders, and make introductions to advance their career.
Your firm’s size will play a role in determining whether you establish a formal mentoring program or encourage employees to find and build a mutually beneficial mentorship with a senior leader within the firm and potentially also other mentors in the industry. Cornell University Research has shown the power of mentorship as part of a diversity initiative: dramatic improvement in promotion and retention of minorities and senior women and more minority representation at the management level.
Intentionality pays off: As Carlyle Group has demonstrated, the probability of success increases exponentially with concrete goals, outlined tactics and accountability. To get started, firms should:
- Document their firm’s baseline diversity, by category
- Define what success looks like—Year 1 and beyond
- Align specific diversity goals and tactics with firm strategy
- Cascade diversity goals to individual goals
- Tie leader and manager compensation, in part, to documented diversity efforts
- Track progress against diversity and inclusion goals
- Reassess culture and employee engagement periodically, including inclusion-related questions
- Conduct “stay interviews” to understand why employees remain with the firm or why they would consider leaving
You will know you have achieved an inclusive culture when your existing diversity not only stays but refers other exceptional diverse candidates and recommends your firm as a great place to work and thrive.
Read the first installment of our two-part series on diversity and inclusion, “The New Decade Calls for Greater Firm Diversity.”
Elise Chowdhry, MBA and SHRM-SCP, is the managing principal of Optimum Advisors LLC, a management consulting firm focused exclusively on helping middle-market firms and companies optimize leadership and team potential, create high-performance cultures and achieve organizational goals.