How private equity leaders can tackle gender inequality

It's time for the private equity industry to address diversity. Here are five ways leaders can drive gender equality.

Every year, almost like clockwork, a study is released, or a media outlet produces a story about how few women there are in private equity (PE). Then the industry sincerely discusses the need to do better. Then time passes. Then another study comes out, showing little to no progress. Tick tock.

Gender inequality in private equity

Prequin’s latest study (pdf), from October 2017, showed that in private equity, women make up only 17.9% of all employees. And that includes marketing and investor relations functions. Look at investment positions, and the percentage of women falls to 14%. Narrow it down to senior employees, and it’s even lower, at 9% versus 24% for junior employees. For context, in the broader realm of finance – which doesn’t have a reputation for diversity itself – 25% of senior employees in 2016 were female, according to the Financial Times.

It’s about time the PE industry addressed diversity issues more seriously, and the start of 2018 offers a golden opportunity. After a divisive 2017, the World Economic Forum, with an all-female list of co-chairs that any PE firm would be happy to hire, made “Creating a Shared Future in a Fractured World” the theme of its 2018 meeting. To the many PE deal-makers who attended the annual meeting, the challenge: make a resolution that in 2018, it’s time to fully include women in your firm’s future. It’s time for “Women. Fast forward.”

Recognizing the problem

We know in great detail what the problem is. Due to the industry’s origins – born out of male-dominated 1980’s Wall Street – it inherited a distinct culture carrying many conscious and unconscious biases, which have resulted in a lack of diversity in the present PE industry.

This history works against efforts to drive change now, even though studies show that more diverse firms do better. Indeed, companies with at least 30% female leaders can add as much as 6% to their net margins. Inherited unconscious bias impacts recruitment in the industry, and the inertia of corporate culture creates an environment that fails to support women.

Existing efforts to promote gender equality

The industry has been trying for some time to address this problem. Many of the biggest firms now have heads of diversity and inclusion and more family-friendly programs (including KKR’s offer to fly children and caregivers on business trips). And Blackstone hosted an inaugural Diverse Leaders Program in 2016. I’d argue there is more to be done.

There’s still a long way to go

That’s all laudable. But such efforts can be sporadic and short-term, and the money that funds them is often the first to go in an economic downturn.

To tackle such a complex problem, the solution must be equally multifaceted, systematic and long-term; consisting of multiple strategies:

1. Address the culture

Suzanne Passalacqua, co-founder and Managing Director at 5Lights LLC, put it well when she wrote for PE HUB, “There are two issues to solve: accepting flexibility in work schedules; and welcoming diversity in a range of approaches, ways of listening, assimilating and thinking.”

Flexibility in work (and travel) schedules is one of the easier places to start, and will help retain not just women, but anyone trying to balance work with personal life. Welcoming diversity in a range of approaches is another matter, entailing a fundamental shift in how executives think and dovetailing with unconscious bias.

Passalacqua’s advice is not to mistake “kindness and humility for weakness.” Or, to think about it in another way: executives need to be more open and honest with their staff about what is wrong and what needs changing.

2. Address unconscious bias – from both men and women

There are a variety of well-established tactics to open people’s eyes to their own prejudices and reduce the firm-wide effects of bias.

• There’s blind resume review and unconscious bias training (as simple as asking people to sort a deck of cards by color, and then by suit, and to think about the results).
• There’s also the idea of creating a support network for women, whether that is a coaching relationship or a network of peers, where they can compare notes and support one another.
• And there’s reverse mentoring, where the idea is to have leaders learn what life is like for a more junior employee.
• Performance management can also be made more equitable by providing more frequent feedback, setting less subjective goals and broadening the group of reviewers to include peers, subordinates and even clients.

3. Better metrics

In this goal-conscious industry, responsibilities and incentives for all levels within an organization should be tied to firm-wide diversity goals. The key here, according to the World Economic Forum, is to start with simple and shorter-term goals and set progressively more advanced and longer-term targets as time passes.

For instance, at first you might grade employees not just on number of deals brought to the investment committee, but on improved diversity in business relationships. Put in place diversity training, and sponsorships within the firm for female employees, and pay more attention to promoting work/life balance.

For the longer-term, measure your results over three to five years, analyze in exit interviews why women leave, create a professional development track for women and work with other firms to set industry metrics.

4. Lead from the top

In all of the above, it is critical that the top executives at the most well-known firms lead the way. The heads of firms should explicitly, genuinely and publicly state that adding women to their leadership ranks is a priority, as Stephen Schwarzman did at a recent Wall Street Journal conference.

They should add more women to their boards, and then work with the boards to establish criteria for achieving their diversity goals. With succession currently a hot topic at the large PE firms, new leadership could make a mark by targeting increased diversity from the beginning of their tenures.

5. Make a pledge for parity

Despite the negative Preqin numbers, there are signs of real progress, from the programs big firms have put in place, to the $6.4 billion that women-led firms raised through late November 2017 – a record, according to Real Deals. But the industry remains well short of closing the gender gap. To complete the transition to “positive equity” and fully address inclusive growth, more must be done. This is one resolution PE firms will want to keep.