Do PE firms struggle to attract female board directors? Alumni's partner Catharina Mannerfelt shares insights and recommendations based on conversations with female board professionals.
I recently discussed with some thirty female board professionals why private equity firms may find it hard to attract female non-executive directors for their portfolio companies. Rather than the usual theme of availability (or lack) of experienced and relevant female board director candidates, we discussed instead the perception that female candidates are more likely to turn down board offers from PE firms than their male board colleagues. With a surprisingly large number of the women I spoke to, however, the following themes came up again and again:
- Culture match: PE firms typically have a different style from the corporate one from which candidates come (and indeed a different style from most portfolio companies); the offices are grand, most investment professionals are young-ish men, and perhaps most importantly, there is a very specific jargon and style. If you have not worked with investment /corporate finance professionals in your earlier career, a slight and often unarticulated uncertainty may arise. This small uncertainty, or discomfort, may be what moves the needle in favour of another board engagement.
- Compensation: Most of those I have spoken to consider compensation to be one of PE's clear strengths; the cash remuneration is seen as fair, and the opportunity to invest is very attractive. There is, however, a 'but' with regards to the investment requirement, since it is often understood to be a requirement, not just an opportunity. With the aim of identifying a larger and more diverse pool of potential candidates, nominating committees and search firms scout beyond CEOs and the top-tier management teams. Candidates earlier in their careers and outside the 'CEO-track' have a lower typical income and available personal capital to risk, which means that investing, although attractive in principle, can be less possible in practice.
- Risk appetite: Is there a difference between male and female risk appetite? Both recent studies and the women I spoke to are divided. If, for the sake of argument, we accept that women are generally more risk averse, it carries a broad impact;
- If the PE firm is new to me, do I want to commit to a responsibility in a new setting?
- Do I want to invest my own capital?
- Can I trust the 'troika' to keep me informed and involved in all critical decisions?
- Is there a sufficient number of independent directors, or will I carry that responsibility alone?
- PE firms in general invest with a high-risk profile; is that leverage a deterrent in itself?
- Time consumption: Do PE boards consume more time than others? Opinions vary. Some regard PE boards as very intense, whereas other believe that the investment team and the 'troika' increase board efficiency. But if these boards are perceived as being time consuming, operationally active candidates may find it difficult to take on a PE board engagement, and a relatively large proportion of female candidates are still in executive positions.
My advice to PE firms (and other owners) based on this research can be summarised as follows:
- Build broader networks earlier: By making an effort to get to know more female executives and board directors, you can, of course, grow the network of potential candidates. But by also allowing time for a relationship to form, you will find that cultural or jargon uncertainty will be diminished. Make the (mutual) effort to understand each other's frames of reference, way of communicating, influencing and decision making. Perhaps some meetings should be on neutral ground, outside the impressive PE offices? Meet the potential candidates where they are at their most comfortable!
- Talk about compensation and investment - explicitly: There is an uncertainty regarding the personal investment expected when joining the board of a PE-owned company; my experience is that the size of the expected investment is in most cases exaggerated. Most PE-firms do expect some form of investment, but the size is adjusted to suit the individual director. Furthermore, have a realistic discussion about the time the board role will entail, both for board meetings and work in between meetings. Have a candid discussion regarding the match between time, responsibility and remuneration (cash and investment opportunity).
- Don't look for the 'token woman': Female board candidates are in some cases still given the impression (sometimes even explicitly) that the PE firm in question is primarily looking to improve the female representation on the board, and 'that's why we're talking to you'. Unsurprisingly, most candidates will walk away from this type of courtship. However, if you can show that the discussion is part of a genuine and comprehensive effort to become more diverse, it can be the start of an interesting and valuable dialogue. Furthermore, don't limit the diversity initiatives to the board. For long-term impact, executive teams and the investment professionals will need to be more diverse as well. On a related theme, most studies show that for a minority group to have an impact, there needs to be more than one minority member in the group. So, whenever possible, make sure to have two or more female directors on the board.