By Hoda Abou-Jamra, Founding Partner

Private equity firms today face greater scrutiny on their role in society than ever before, due to the growing intersection between business, communities and our environment. At the same time the General Partner investment landscape is becoming increasingly complex, in part due to the rapid globalization of markets and technological disruption of industries. These multifaceted business challenges require the type of problem-solving capabilities, creativity and heterogenous perspectives that can only be found through equally heterogenous leadership.

Building resilient, agile and successful businesses

Diverse leadership teams have been proven to build more resilient businesses as well as drive the agility and adaptability that is required to successfully adopt change. The nuance of whether these advantages arise from diversity of age, experience or cultural and religious affinity, or simply from cognitive diversity[1] uncharacterized by these factors, is not always clear. What is clear is that gender-balanced leadership has been proven to help drive competitive business advantages in companies, resulting in higher company value and return on investment. We would fall short on our investors’ expectations by ignoring the business benefits of diversity and gender-balance.

A recent Harvard Business Review study found that women outperformed men in 84 percent of the competencies that differentiate excellent leaders from average or poor ones, such as taking initiative, acting with resilience, practicing self-development, driving for results, and displaying high integrity and honesty. This may be because women who make it to leadership positions are usually held to higher standards than male peers and are more likely to hold other colleagues accountable.

Operational Value and the Business Case of Diversity

Private equity firms should recognize the operational value of achieving gender-balance at the board or management level due to their experience in modelling business growth strategies and developing corporate cultures within portfolio companies. They also have a responsibility to do so due to the role they play in building the businesses of tomorrow.

The business case for gender-balanced leadership has been made visible in Southeast Asia. Research from the International Finance Corporation (IFC) on six countries in the Association of Southeast Asian Nations (ASEAN) published this year showed that companies in the region with more than 30 percent female board members recorded better financial performance than those without.[2]

However, another report published by the IFC in 2019 shows that while most emerging market General Partners believe that gender balance in portfolio company management improves returns, only about 33 percent actively pursue diverse candidates when sourcing talent for portfolio companies.[3]

Of course, achieving gender-balance in leadership is not as simple as checking off a couple of steps. It requires a conscious effort to prevent gender bias at different levels and create an environment conducive to growth for women. But, setting intentions, professionalizing processes, creating a working environment conducive to women’s development and building transparency will help drive change from within and create the foundation for positive change.

Never has there been more compelling reason to focus on gender balance in private equity. It will help General Partners and their portfolio companies to tackle complex emerging business challenges, drive stronger performance, and define their contribution to society.

Sources: [1] https://hbr.org/2017/03/teams-solve-problems-faster-when-theyre-more-cognitively-diverse [2] https://www.ifc.org/wps/wcm/connect/21f19cfe-9cce-4089-bfc1-e4c38767394e/Board_Gender_Diversity_in_ASEAN.pdf?MOD=AJPERES&CVID=mM0qVBn [3] https://www.ifc.org/wps/wcm/connect/79e641c9-824f-4bd8-9f1c-00579862fed3/Moving+Toward+Gender+Balance+Final.pdf?MOD=AJPERES