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How a Diverse Team (and Not Just in Gender) Can Increase Revenue

Dec 6, 2018 | Kayo Women, Your Community

Making the Case for Inclusion in Private Equity

 

By Bernadette Smith, The Equality Institute

“Women account for less than 10% of senior positions in the private equity industry: a lower proportion than that of other alternative asset classes with no apparent reason. In an industry so vast in terms of investment opportunities and nature, any increased diversity – not just in gender – in management should be of benefit to the whole industry,” shared Sandra Legrand of Alter Domus in the 2018 Preqin Investor Survey.

We know you aren’t surprised by this statistic – and the fact that you’re aware of Kayo reinforces that.  But we believe it doesn’t have to be this way.

The need for diversity and inclusion may seem obvious, but perhaps it’s a harder “sell” to the powers that be. Here are some strong selling points to make the case for diversity and benefit your bottom line.

YOU’LL BETTER UNDERSTAND THE NEEDS OF YOUR CLIENT

When a workforce is diverse, that talent has a broader understanding of the needs of their diverse clients. Naturally, when an organization better understands the needs of its target market, they can better innovate their products and services – and that leads to an increase in revenue.

According to their 2016 analysis of more than 20,000 global firms, McKinsey found that companies leading in executive board diversity had returns that were 53% higher than others. Organizations with high rates of female executives are also more profitable.

McKinsey & Co also found that companies that exhibit gender and ethnic diversity are, respectively, 15 percent and 35 percent more likely to perform better than those that don’t. Their research shows that organizations with more racial and gender diversity also have better sales revenue, more customers and higher profits.

YOU’LL SAVE MONEY IN EMPLOYEE TURNOVER

Diversity is either a sexy or terrifying word, depending on whom you’re talking to – but there’s no doubt that it matters. Not only can comprehensive DEI strategies lead to higher revenue, but they can also save companies money in employee turnover.

35% of the workforce is made up of Millennials, those who most value diversity. Generation Z is bigger still – and right behind them. We must pay attention to their needs. 66 percent of the millennials (including 57% of those in senior positions) expect to change jobs in the next five years, according to Deloitte’s 2016 Millennial survey. And, according to GlassDoor.com, 67% of job seekers said that a diverse workforce is an important factor when evaluating companies and job offers.

All this, yet the 2018 Preqin Investor Survey found that only 17% of fund managers have diversity policies in place, despite 60% admitting awareness that a diverse workforce is beneficial to investment objectives. 12% have policies in place for hiring investment managers.

“Part of this conversation is about the bottom line and superior returns, but I think part of it is also about the extraordinarily talented female portfolio managers that exist. If the conversation and the need for diversity is not being talked about and prioritized within their firms, then those top talents will find firms where diversity is a top conversation” Kelly Rau, Audit Partner, KPMG, wrote in the 2018 Preqin Investor Survey.

YOU’LL CREATE CHAMPIONS OF THE BRAND

While diverse teams are important, a comprehensive diversity, equity, and inclusion strategy is necessary to truly reap financial benefits. Diversity is the people: the mix of everyone on the team. Inclusion is the strategy of ensuring the diverse mix of people feel welcome, are given a voice, and permission to truly be themselves at work. Without comprehensive inclusion strategies that include buy-in from leadership, diversity is ultimately shallow and employees will leave.

According to Gallup, ”Companies with highly engaged workforces outperform their peers by 147% in earnings per share.” An engaged, included workforce means that employees can express their passions at work, allowing them to effectively be champions of projects that will ultimately advance the company’s mission. Their passion leads them to be agents of positive change within the company.

Even companies like Johnson & Johnson, Prudential, and Kellogg that pride themselves on their heritage and tradition are prioritizing diversity, equity, and inclusion (DEI) strategies and are now considered among the top 50 Companies for Diversity, according to DiversityInc.

Diversity and inclusion work has to be authentic and you can’t just check boxes — or it won’t work.  This work is hard but the rewards are great. With authentic investment from leadership, and a comprehensive DEI strategy, private equity firms will see benefits that go far beyond increased revenue

2 Comments

    • lindsay

      Thanks for sharing this Karen. I specifically like this paragraph. VC is probably one of the best “lab rats” for these studies.

      All in all, we couldn’t have asked for a better “lab rat” than the VC world… Diversity significantly improves financial performance on measures such as profitable investments at the individual portfolio-company level and overall fund returns.

      Reply

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