While diversity, equity and inclusion initiatives continue to gain momentum within the middle market trading community, there is still a long way to go. It can be difficult for companies and their private equity sponsors to understand the most effective ways to pursue DE&I, make tangible progress, or even convince executives that DE&I should be a priority.

Speaking at ACG’s InterGrowth panel “DE&I’s Impact on the Middle Market: What Works and How,” experts presented the business case for investing in DE&I efforts and shared insights. ways in which companies can not only have a positive impact through these initiatives, but also grow their business.

The DE&I Business Case

What it means to be diverse, equitable and inclusive has evolved over the years, but at its core, the initiative is about ensuring individuals feel seen, welcome and safe. These are undoubtedly important features for a company and its workplace, but for a medium-sized company with limited resources, investing in DE&I initiatives – whether that means a more diverse workforce or a product line inclusive – may not be prioritized.

Yet, as David Baboolall, Associate Partner at McKinsey & Company, pointed out, there is a data-backed business case for investing in DE&I efforts. A May 2020 McKinsey & Company report reveals that even companies that invest in hiring at least one woman or person of color show performance improvements.

Diverse teams lead to better financial performance.

David Baboulall

McKinsey & Company

But success is most significantly improved among companies with the most diverse boards. Baboolall, who uses the pronoun they, summed up: “Diverse teams lead to better financial performance.”

Related Content: How to move the needle with DE&I in the financial sector

Additionally, they pointed out, companies that fail to make meaningful investments and progress in DE&I have proven to be significantly underperforming.

“There is a penalty for not doing so,” they noted.

In fact, McKinsey research found that the least diverse organizations underperformed their peers by 19%, up from 15% in 2017.

Beyond finance

Diversity also drives business success in other ways. In today’s ultra-competitive talent market, a diverse workforce provides organizations with a competitive advantage in attracting and retaining staff members.

“I would say there’s a war on talent,” said Tanisha Wicker, senior vice president of human resources at smile marks, adding that hiring black and indigenous people, people of color and LGBTQ+ people has significantly supported talent retention at his company. This practice opens up accessibility to people with similar talents who can be friends with existing diverse talents; When individuals feel supported and accepted in the workplace, they are more willing to offer vacancies to their peers.

Baboolall also emphasized that companies’ DE&I efforts must go beyond internal staff in order to achieve positive business performance results. Focusing inclusivity efforts on product and service offerings, marketing, and other efforts that reach the end customer similarly opens opportunities for revenue growth.

“If you have a room full of highly qualified straight, white, and cis men, they’ll probably appeal to straight, white, and cis men,” they said. “But if you decide, ‘Hey, we’re going to have a black woman, we’re going to have queers, a biracial person, we’re going to have Asians, Latinx [staff]’, the number of people you’ll be able to serve with the right product-market fit increases dramatically. »

How to get there

Once organizations understand the business case for DE&I, it can be easier to gain buy-in from leaders and decision-makers to invest in such efforts. The next hurdle, however, is understanding how to develop and execute a DE&I strategy. Setting the right goals is key, panelists agreed.

“At the end of the day, it’s intentionality,” said Tanya Wong, vice president of Houlihan Lokey.We must be thoughtful, above all. We must not be afraid of data.

We must be thoughtful, above all. Don’t be afraid of data

Tanya Wang

Houlihan Lokey

Organizations need to figure out where they are and where they want to be, and then, she added, they need to be patient.

“We are very good as an industry at wanting results overnight. Faster process momentum, that sort of thing,” Wong said. “The reality is that a lot of these things are going to take time.”

Baboolall agreed that starting by looking at the data and establishing a baseline is a good first step. From there, they said, companies can establish their aspirations and then revisit those goals and progress year after year. This offers a chance to switch strategies, as there is no one-size-fits-all approach.

“What works for private equity firm A in Chicago may not work for private equity firm B in New York,” they noted.

At Smile Brands, Wicker said leadership matters. “With us, it starts at the top,” she said. “Our CEO is engaged. He and I work side by side to make sure our leadership team is also engaged.

“You have to have commitment, and you have to have the right team around you,” she continued, “and you have to develop a strategy that works for your organization.”

Related Content: CEOs of Portfolio Companies Focus on DEI, But Have No Clear Path Forward

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