Private equity GCs share strategies on the road to making diversity a reality

The events that gripped much of the nation earlier this year regarding racial justice and inequality led organizations around the country to critically reassess their cultures and the systemic impediments for underrepresented groups. The private equity industry was no exception to this self examination. Debevoise & Plimpton recently hosted a virtual roundtable for private equity general counsel to exchange observations and strategies on meeting today’s higher standards for diversity, equity and inclusion. Panelists included:

• Joann Harris, Partner and Chief Compliance Officer, TPG Global
• Harsha Marti, Managing Director, Deputy General Counsel, Warburg Pincus
• Jack Pitts, Managing Director, Blackstone Alternative Asset Management, The Blackstone Group
• Ryan Toteja, Principal and Head of Global Fund Formation, The Carlyle Group

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The key takeaways included the following:

The fight against injustice is a fight against inertia. The disruption from the pandemic notwithstanding, the past decade has been a good one for private equity. But financial success can blunt the drive for change necessary to tackle DE&I over the long haul. Firms need to remember that a strong bottom line doesn’t mean that there aren’t systemic issues within firms that need to be addressed.

Establish a DE&I infrastructure. DE&I challenges are experienced on a personal level but addressing them requires an institutional response. To approach DE&I systematically, certain firms have established councils with members representing different departments and levels and subcommittees focusing on either functional elements (e.g., external engagement) or underrepresented groups (e.g., LBGTQ+, veterans). Firm-wide councils also reinforce the idea that DE&I is a matter for the firm as a whole rather than a task for the legal and compliance department.

Don’t drop the ball on development. Hiring diverse candidates is only the first step—they then need to be developed to reach leadership ranks. Failure to do this consistently is why many institutions become less diverse the higher up the org chart you go. Our panel pointed to two powerful strategies to keep development on track. First, make sure that diverse employees not only have mentors, but also sponsors who can act as advocates when personnel decisions are being made. Second, look for unconscious bias in how tasks are allocated. Do some people routinely get opportunities to shine while others are stuck with the grunt work?

Small affirmations can have a big impact. Casual acknowledgement by a team leader of a junior person’s contribution in a meeting—“Jenna made a good point”—or letting a junior person run a client call fosters opportunity and sends a powerful message. And let your service providers, including outside counsel, know that you welcome them developing their own diverse talent in their meetings with you.

Don’t pull punches on feedback. There can be a tendency to handle diverse employees with kid gloves. But glossing over weaknesses allows shortcomings to go unaddressed and festers into real impediments to advancement—making the pipeline excuse a self-fulfilling prophecy.

Invest in measuring success. Setting DE&I goals means little without meaningful metrics to establish baselines and measure progress. But obtaining this information is no small task; firms need to be prepared to make the effort necessary to identify data that are needed and then to establish mechanisms to obtain such data in a usable and consistent form.

Expect your DE&I agenda to change. Ongoing conversation within PE firms regarding impediments to diversity, equity and inclusion will deepen understanding, but will also uncover new layers of issues to be addressed. The path to creating a more equitable workplace is not linear.

Look outside your walls. In their DE&I efforts, firms need to examine both their own organizations and the entities with which they interact, including vendors, portfolio companies and the colleges or professional schools from where they recruit. Make conscious choices and have expectations of the institutions with whom you partner. Portfolio company board seats are particularly visible signs of a PE firm’s success in promoting DE&I; one panelist reports their firm has set a goal of having 30 percent of board seats held by diverse directors by 2023—and to do so by recruiting as many first-time directors as possible, rather than relying on the same short roster of over-boarded diverse directors.

Prepare to be evaluated on DE&I metrics. Firms are receiving DE&I questionnaires from their stakeholders, including their limited partners, and the SEC has begun gathering diversity data from PE firms on a voluntary basis. Firms are responding by incorporating DE&I efforts and success stories in how they position themselves. Prepare to tell your DE&I story, and ensure that you have a story to tell regarding concrete initiatives and future goals.

The Private Equity Report Fall 2020, Vol 20, No 3