Events ramify in surprising and profound ways, the death of George Floyd on a Minneapolis street in May 2020 highlighted and accelerated the discussion of diversity, equity and inclusion (DEI) issues in conference rooms and corner offices of private equity firms across the country. The need for transparent reporting of environmental, social, and governance (ESG) progress, including DEI, the “S” in ESG, has reinforced the need for progress.
Much work needs to be done. A recent Mercer Consulting study reported that 36% of workers in entry level positions are diverse. As you move up to executive ranks, only 15% of positions are held by diverse employees, demonstrating a critical gap in growth of minorities.
The consideration of DEI also has important business implications. Grant Thornton Managing Director Angela Nalwa noted that diversity does have a positive impact on cash flow. According to Boston Consulting Group, companies with diverse workforces reported 19% more revenues than their less diverse counterparts.
Grant Thornton recently gathered CFOs from private equity firms and other interested executives to talk about how their firms have approached this topic. They described the actions they have taken, the data they have gathered, the stakeholders they have engaged, and the objectives they have defined.
In addition, the group discussed the impact of another salient recent trend—work from home—on their workplaces and their DEI efforts.
Recruiting and training: important initial steps
It’s a sign of the emerging centrality of the DEI discussion that it has expanded from Human Capital professionals to CFOs. Most firms are taking tentative first steps. These include forming volunteer committees—and, in one case, six subcommittees—which, for now, are focused on recruiting, retention, training, information gathering, and communication with key stakeholders. Firms doing business internationally are attempting to globalize their efforts.
To change hiring practices, firms are reaching out to recruiters, many of whom have DEI leads, and college placement offices. They are also going directly to LinkedIn to find promising candidates.
Once candidates have been identified, firms are working to raise awareness of unconscious biases and address those biases. By using techniques such as blind interviews. One participant was surprised at the effect of simply removing names from resumes.
Firms have focused on such unconscious bias in their training. In addition, they are moving toward shorter, more focused training modules which employees can do on their own schedule. Especially among busy executives who resist multiple hours of scheduled training, this approach is improving engagement.
A data dilemma
As companies strive to achieve measurable improvement, data pertaining to DEI is essential. But because such information speaks to our deepest identities, it is also inherently sensitive. The participants’ efforts reflected this dilemma. Some participants make responses optional and anonymous. Aggregate metrics include who is interviewed, who is hired, who is trained, and who is promoted. As of now, firms are looking for progress against broad annual goals. Those metrics, and the discussions they inform, will ideally become more specific and robust in the future.
One firm, many stakeholders
Private equity firms have many stakeholders. And institutional investors and other LPs are important drivers of DEI efforts. Interestingly, there are regional differences in emphasis. West coast investors show a heightened concern about DEI and ESG issues, often prioritizing it over returns. Although some efforts are rudimentary—a single slide in a presentation—communication with these stakeholders is vital.
By their very nature, firms have profound leverage over the objectives, policies, and even the cultures of companies they acquire. While most participants are focused on their internal efforts, they foresee a time when they will apply their DEI practices to acquired companies, although they did not specify a timetable.
Making work from home, work
Two statistics illuminate the important intersection of work from home trends and DEI concerns. Nalwa pointed out that one quarter of all working women plan on downshifting and that includes one third of all working mothers. In fact, McKinsey estimated that close to 3 million women left the workforce in the past year.
Most of the participants had yet to determine their position on work from home. Some were leaning toward a hybrid model with employees working from home 2-3 days a week, and the office the rest of the week. But these arrangements have implications that must be addressed to be successful and meet business objectives. How does one advance rapidly when it’s not practical to shadow more senior peers? How do you include remote employees in strategic discussions and informal bonding? Nalwa noted that organizations are considering a hybrid work strategy in order to recruit and retain talent, including diverse employees.
Note: sources for data include Mercer, BCG and McKinsey
Finally, such issues are further complicated by tax, cost, technology, office design, and real estate issues. If you now have remote workers in other states or even foreign countries, what tax laws apply?
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