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Why Should We Care About The Private Equity Gender Gap?

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No Women Allowed?A recent article from PE Hub reported the results of a survey done by Preqin that reported that in North America, only 11 percent of senior positions at private equity (including venture capital) firms are held by women.  In July, Polaris made headlines when they named the only female partner currently at any of the area’s top VC firms (Amy Schulman, former general counsel and EVP at Pfizer).

Going back to the PE Hub article, they  also reported that the LPs who invest in the PE funds don’t see this lack of diversity as a problem because they don’t believe it has an impact on the returns a firm produces. Really?! There have been a number of studies done over the past 10 years that illustrate that publicly traded companies with women on their boards and in the executive suite perform better than those without.  Why would privately-held businesses be any different?

A March 2011 report from Catalyst found that:

  • Companies with the most women board directors (WBD) outperform those with the least on Return On Sales (ROS) by 16 percent.
  • Companies with the most WBD outperform those with the least on Return On Invested Capital (ROIC) by 26 percent.
  • Companies with sustained high representation of WBD, defined as those with three or more WBD in at least four of five years, significantly outperformed those with sustained low representation by 84 percent on ROS, by 60 percent on ROIC, and by 46 percent on Return On Equity.

Mary Jo White, the Chair of the SEC, gave a speech in September 2014, where she pointed out that:

  • It has been found that women tend to better understand the perspectives of stakeholders, including consumers and employees.
  • The presence of at leastthree women directors changes boardroom dynamics and is associated with even greater positive impacts.
    • For instance, companies with three or more women board members outperformed companies with none by 60 percent.

A report by Credit Suisse in August 2012, in which they analyzed stock performance from 2006 through 2011, found that “the results demonstrate superior share price performance for the companies with one or more women on the Board.”

Even the EU chimes in on the discussion, reporting that economic arguments in favor of gender diversity not just on boards, but also in top management, include:

  • Improved company performance;
  • Mirrors the market (women control 70% of global consumer spending decisions);
  • Better quality of decision making;
  • Improved corporate governance and ethics; and
  • Better use of the talent pool

They quoted a McKinsey & Company research study which reported that companies with the most gender-diverse management teams had 17 percentage-point higher stock price growth between 2005 and 2007 compared to the industry average. Their average operating profit was almost double the industry average between 2003 and 2005.

Charts for Women in PE Blog Post

If the evidence proves that having more women in executive management and on the board of public companies improves their performance significantly, then is there any reason to assume that the same would not be true of privately-held businesses?  So my message to the PE firms is this:  Do you want to outperform your peers? Then add some qualified women in senior positions at your firm, and to the executive management team and the board of your portfolio companies.

If you need help finding highly qualified women for these positions, just let me know – I’m on the Corporate Board Committee of The Boston Club, and we have (to quote Romney) “binders full” of qualified women I can introduce you to.