Portfolio Advisors on gender diversity: What does success look like?

Measuring progress on gender diversity must cover everything from recruitment and retention to the pay gap and career advancement, says Liz Campbell, managing director at Portfolio Advisors.

This article is sponsored by Portfolio Advisors.

Liz Campbell

Why is gender diversity so important?

It has taken some time to get here, but there is a broad consensus today that diversity leads not only to more innovative thinking, but also better decision making, which ultimately means better returns.

What does diversity mean to Portfolio Advisors as a firm?

We think about diversity as three separate but related – and equally important – topics. For us, diversity doesn’t just refer to race and gender, but also encompasses categories such as age, sexual orientation, religion, military service, people with disabilities, and other traits and experiences that are reflected in our workforce. In our view, the ability to connect and engage constructively with co-workers, clients and other constituents with different backgrounds and perspectives than our own is critical to our ability to evaluate an investment or any other issue comprehensively and make the best possible decision.

Inclusion refers to a sense of belonging in any environment. For a company to really achieve the benefits of diversity, it has to be inclusive in recruiting, hiring, retention and advancement. Employees in inclusive workplaces feel comfortable and are proactive in sharing their ideas and perspectives because their differences are genuinely respected and appreciated.

Finally, equity is important for making sure that every employee’s voice is included in the decision-making process, that everyone feels fairly compensated for their work, and that everyone has access to the same opportunities. It’s crucial that everyone in our firm, and in the firms in which we invest, has an equal opportunity to grow and succeed.

How should we measure progress on gender diversity in particular?

In our view, progress needs to be measured across five metrics: the pay gap, recruitment, retention, advancement and representation.

Starting with the gender pay gap, men and women in the same roles should not only receive similar base salaries, but their discretionary compensation, such as bonuses and carry, should also be comparable.

From a recruitment standpoint, firms need to ensure they have a robust pipeline of women when hiring for a role. The ratio of women to men should also be tracked throughout the entire recruitment process – not only the numbers applying for the position, but also those being invited to interview, being progressed through the various rounds, and then hired.

Measuring retention is also important. As with recruiting, firms should know the ratio of men to women at each level of seniority and track the attrition rate for each gender so they can identify where in the organisation the ladder is broken. That leads to another critical metric: advancement. In addition to monitoring the number of women at the top, the percentage of women who are promoted each year should be benchmarked against the percentage of men who are promoted.

Finally, of course, there is female representation. Firms started to monitor the proportion of men versus women in their organisations some time ago but, quite rightly, that analysis has now become more granular. It is no good being content with a 50:50 split if 95 percent of those women are in back-office or administrative functions. We want to see women in investment roles, too.

What sort of progress are you seeing?

The proportion of men and women in the private equity industry is improving today, and we are certainly seeing progress at entry levels.

The problem comes when you look at seniority. The number of women declines sharply the more senior you go, so there are clearly still issues when it comes to advancement and retention. The challenge is not getting people through the front door, it is ensuring they can climb the ladder once they are in.

Are certain types of firms leading the way?

I would say that venture capital is leading the charge, possibly because of the negative press regarding the treatment of women at high-profile VC firms several years ago. Today, it is far easier to find senior women in venture capital firms than it is in the buyout space and, related to that, we see far more first-time VC funds led by women and other underrepresented groups relative to the buyout space.

Have you seen any especially helpful or innovative strategies for dealing with recruitment and retention challenges?

We are seeing firms broadening their recruitment strategies to reach a wider pool of candidates. Rather than sticking to the Ivy League or the top investment banks, they are realising that smart, driven candidates are at every college, so they are going directly to colleges that might not have been on their radar historically. One interesting and successful approach we’ve seen, for example, is firms partnering with Historically Black Colleges and Universities, or with consultants or insurance companies, instead of the traditional bulge-bracket investment banks.

In terms of retention, the most successful firms are those where equity and inclusion have really been embedded in the culture. Providing more flexible work options may improve retention, but if the corporate culture sees working mothers as less ambitious or motivated, for example, it can impede their opportunities for career advancement. Giving all parents extended leave and flexible work options, as opposed to focusing only on mothers, can change work-life balance expectations for employees of all gender identities and help create a culture where parental responsibilities no longer have to be in direct conflict with career ambitions.

Some firms are flipping the term DE&I, to lead with the I. Why is inclusion so important?

Inclusion is critical. We have all heard the phrase, ‘Diversity is being asked to the party, inclusion is being asked to dance’. Advancement is impossible without inclusion. It is great to be focused on increasing diversity in the asset class, but diverse employees won’t thrive within a firm if they don’t feel included as valued, appreciated contributors.

And a non-inclusive culture can have a domino effect: when employees from diverse groups have no opportunities to speak up, they don’t move up the ladder to more senior management and leadership positions. That, in turn, can lead to a continued lack of diverse role models and leaders with whom employees can network. And employers miss out on the benefits of diversity; notably, a wider range of perspectives and backgrounds that lead to more effective problem solving and greater innovation.

What kind of progress do you expect, or hope, to see in the years to come, and what would you consider to be success?

We want to see progress against all five of the factors that I outlined at the outset – equal pay, representation, retention, recruitment and the overall progression of women in the asset class. We need to look beyond the headline numbers and focus on actual solutions to address the barriers (where they still exist) that are preventing diverse groups from reaching the top. We want to see diverse groups driving decision making. Those qualitative factors are just as important as the quantitative factors.

I would add that success, for me, would mean not having to keep having these discussions around diversity. As a woman in private equity, the last thing you want to hear is that someone is being hired or promoted because we need more diversity.

Does that mean that you don’t believe in targets?

I think targets can be incredibly helpful because they give firms something concrete to aim for and allow them to work backwards and put policies in place in order to drive towards those goals. But, for me, what success really means is no longer having to have these conversations. The real reason to improve diversity is not to be able to say that you have filled some arbitrary quota, but rather because it leads to better decision making and ultimately better performance. That is why we should be increasing representation from underrepresented groups of all types.

Do you think that the pandemic impacted the degree of progress being made?

While no one would have welcomed covid, I do think that there have been some positive byproducts in terms of a rapid change in thinking about more flexible work policies. There is a far broader acceptance of flexible work schedules today and an understanding that people can work from home and still be very productive.

The pandemic has accelerated progress in this area because it has encouraged firms to be more creative in promoting policies that support women’s career progression – for example, policies that allow women to have children and feel that they can still be successful at their job, as well as being a good mother.

Is the LP community putting as much weight on diversity as it is on other aspects of ESG, and particularly environmental issues?

In the US, diversity is one of the hottest topics and focus areas among LPs, while ESG is probably more prominent in Europe. Employee protections and data privacy laws can make tracking DE&I progress challenging in Europe, but in the US the issue of diversity is huge.

Seven or eight years ago, DE&I was on the radar of LPs, but it was probably a minority and it wasn’t a priority area of focus in diligence. Now, it’s safe to say that a majority of LPs view diversity as critical.

I believe LPs deserve credit for placing diversity at the forefront of private equity firms’ minds. There is a recognition today that diversity breeds success, but I think it was LPs that got the ball rolling.