Private Equity-backed boards are still a man’s world, according to The LCap Group Leadership Capital Report. I spoke to female leaders who have broken through into PE-backed leadership about the challenge, and what it will take to drive change.
The 2024 LCap Group Leadership Capital Report paints a stark picture of gender diversity on PE-backed boards, finding that in 2023/24 just 17% of board executives were women, compared to 23% across the general business landscape. Even more concerning is that on average female representation declines throughout the hold period; in top quartile businesses, the proportion of female leaders dropped five percentage points (20% to 15%) from investment to exit. In certain core roles, female representation is almost non-existent; just 2% of chairs are female, 7% of CEOs, and 8% of operational heads.
As a woman championing women in this space, it is easy to get disheartened by these figures. But I still feel positive that change is possible. I know from talking to a wide range of people in the industry that, in principle, private equity firms would like to hire more female leaders. Studies about the benefits are convincing, showing cognitive diversity drives less groupthink, better decision-making, and better stakeholder management, plus it ensures companies better reflect their client bases. Equally, I know there are plenty of talented women who, given the opportunity, would thrive in a PE-backed environment, and deliver huge value.
That begs the question, why is gender diversity still so poor in this space? And what is holding back change?
A unique environment?
First, it’s important to recognise that private equity-backed businesses aren’t like most businesses. Operating to a defined timescale, with tough targets, investors and leadership must act fast and make the right decisions under immense pressure. Consequently, when it comes to recruitment, they rely heavily on networks, and invariably hire the leader with the most prior private equity experience (usually a man), rather than taking a chance on a less ‘known’ candidate.
“It’s a cultural way of working,” says Suzanne Harlow, Chair of the Advisory Board at Kenji, an experienced NXD and CEO. “With a three to five-year horizon and an urgent need for a certain skillset, investors turn to who they know.”
The focus on networks and prior private equity experience is even more pronounced at NXD level, due to the reduced number of roles. The high-stakes nature of the sector means there are few opportunities for women (or men) to take a ‘step-up’ role or to learn on the job.
“They are looking for people who have already had significant leadership, growth, and transformation expertise and ideally, experience at being a chair,” says Sharon Baylay, Chair at DriveWorks, and an experienced NXD.
Financial and operational roots
Another barrier is the financial and operational history of private equity, both functional areas with fewer women at every level. Investors naturally gravitate to leaders with the same background, via their networks and sphere of knowledge. In the process, they’re missing out on brilliant female leaders, with valuable skills, who have progressed via different routes.
“It’s the nature of private equity to favour the ‘known knowns’, so when it comes to CEO appointments, they look to the COO and CFO succession pathways, which feature women at a rate of 1 in 4 and (less than) 1 in 5 respectively,” says Sophie Lawler, CEO of Total Fitness, owned by Northedge Capital. “The generalist, brand, and people pathways are broadly overlooked, where women feature at greater proportions.”
Lack of role models across the sector
Exacerbating the issue is the lack of female role models in PE-backed leadership roles, to champion gender diversity from the top. This also applies to female representation within private equity firms, with figures showing only 23% of investment professionals at European private equity firms are women.
“There’s a lack of visibility of great female and other diverse role models across both PE-backed businesses and mainstream PE houses,” says Tracy Lewis, an experienced non-executive director and chair. “Less financial backing for female-led businesses generally also means fewer experienced women in the NED ecosystem.”
Building the talent pool
Given these challenges, just hoping that more female leaders with the right profile will come along is unlikely to work, and change will remain glacially slow. Instead, investors should be taking an active role in creating a female talent pool, to draw on when board opportunities arise. Initiatives can include mentoring and coaching, buddying schemes, and voluntary positions, to help high-potential women gain the skills and experience to make the leap.
“PE houses should enable female candidates to ‘buddy’ with chairs and businesses to give them access to different scenarios and “warm up” that relationship,” says Baylay. “Giving women observer opportunities builds that experience and trust.”
Lewis believes there needs to be “greater transparency over the whole recruitment process for boards,” rather than always opting for ‘known candidates’. She also believes private equity firms should shift their approach to board composition, looking not just at financial skills but also prioritising areas such as people and marketing where women have a greater representation. This would automatically boost the size of the female talent pool while bringing a wider range of perspectives and cognitive diversity to boards.
“Not enough critical thinking is being done about board composition and ensuring that boards look to all skills that can contribute to success,” says Lewis.
Inspiring female leaders
On the other side of the equation, the sector needs to ensure talented female leaders see a place for themselves on private equity boards. Private equity has a reputation for being an intense, cutthroat environment, where work-life balance goes out of the window. Instead, we need to focus on the positive side of working in a stimulating, high-growth business, where you can make a real impact. Female role models are a huge part of spreading that message.
“I think there's a duty on women at senior levels in private equity to encourage and pull people through,” says Harlow.
That should include raising awareness of what PE-backed firms look for in leadership candidates, so high-potential women can diversify their portfolio to acquire the right experience. While a female candidate might not have the cookie-cutter private equity background, a diverse CV makes it more likely that they have acquired the transferable knowledge and skills required.
“It could be PLC versus family business, small versus large, or digital versus physical; they all give you a different perspective and toolkit,” says Harlow. “I've worked with the British Heart Foundation for seven years, which is a very dynamic organisation, and I’ve learned a lot from being involved in that.”
Female leaders can also break through by taking NXD or advisory roles, where a business is looking for a particular area of knowledge, such as marketing, digital transformation, or international expansion. This provides board experience along with vital knowledge of private equity.
“I’m not a corporate financier, I got the gig because I knew private equity,” says Lawler. “And moreover, I knew my sector in the context of private equity. I understand the PE model, how it views the world, what’s important, and how it likes management teams to operate and plan strategically.”
Bridging the gap: the role of leadership consultants
The fast-moving, high-risk nature of private equity means there is no quick fix to the gender diversity challenge. Trailblazing firms proactively tackling the issue will push some others to follow suit. But for many, historical ways of working are entrenched, and change is slow coming.
For this reason, leadership consultants have a vital role to play in encouraging firms to make change faster, building and nurturing female talent pools, raising awareness of the opportunities, and how female leaders can acquire the necessary experience so that over time we can deliver more and more diverse shortlists to clients.
It’s a fight worth fighting, both for the benefits it will bring to private equity performance, and for giving ambitious women the opportunity to reach new heights.
As Lawler sums up nicely: “PE-backed leadership is an entirely different way of contributing value to your role and career. Never mind the defining features of PE - it’s a defining feature of senior women to be obsessed with demonstrating and contributing value. So go do it.”
This is the first in a series of articles I’ll be writing on gender diversity on private equity-backed boards. In the next instalment, I’ll compare and contrast the behavioural profiles of male and female leaders, and after that I’ll explore the steps that PE houses are taking to address the issue, with comments from PE leaders.
I’m very keen to work with private equity houses to find solutions to the gender diversity challenge, in particular by creating female talent banks by giving women the opportunity to take on shadow roles to build up their experience and competencies. If that is of interest, please don’t hesitate to email me here.
Download the Leadership Capital Report 2024 here
