In brief: Board diversity is ‘not relevant’ for the mid-market

Initiatives such as EDCI are prompting firms to measure board-level diversity – but mid-market companies' boards are too small for this data to be statistically significant, argues one firm's head of ESG.

Board diversity in portfolio companies is not a meaningful metric for mid-market private equity, the head of ESG at one such firm argued. “Our boards are really small. It’s often two of us [from the private equity firm] and the chief executive officer [of the portfolio company],” he said, speaking at PEI Group’s Investor Relations, Marketing & Communications forum last week. Board diversity data “is more a reflection of our own firm” than the company, and is therefore “not really relevant”.

Private equity is seeing a push for diversity initiatives to trickle down from firm-level initiatives to the boards of portfolio companies. The ESG Data Convergence Initiative has made portfolio company board diversity a mandatory metric for fund managers to collect; the EDCI will use this data to produce board diversity benchmarks. The Institutional Limited Partners Association’s Diversity In Action framework reported in 2021 that 28 percent of its GP signatories had set minimum targets for portfolio company board level diversity.

Further reading: GPs are zeroing in on portfolio-level diversity.