Evaluating Diversity, Equity & Inclusion in Due Diligence
Introduction
Alliance Global Advisors is committed to facilitating conversations with investors and their partners on the topic of Diversity, Equity & Inclusion.
For the June 2020 blog on Evaluating Diversity, Equity & Inclusion (DEI) in Due Diligence, Alliance Co-Founders Jennifer Stevens and Heather Border leverage past work in the area of Environmental, Social and Governance (ESG) initiatives in Real Assets to provide guidance on how investors, investment managers and consultants might better address Diversity, Equity & Inclusion during the due diligence process.
Below are questions General Partners should address when it comes to Diversity, Equity & Inclusion efforts within their organizations. Believing that the topic of Diversity, Equity & Inclusion is “irrelevant given your primary obligation as a fiduciary” should no longer be an acceptable answer to these questions. The best fiduciaries can and should strive to enhance “diversity of thought” within their organizations. At Alliance, we believe that an inclusive workplace can lead to a more diverse work environment.
For guidance on how to improve DEI efforts and adequately address these questions, please contact us.
Incorporating Diversity, Equity & Inclusion in Due Diligence Efforts
Every investor is unique. Each considers a different set of philosophies, parameters, and definitions in the evaluation of Diversity across its partner and prospect base. For that reason, other than evaluating percentages related to diverse ownership and understanding the backgrounds, education and experience of a senior team, the topic of Diversity was historically relevant to only a specific investor - or "client-specific" as the Consultants say.
Integration, Reporting & Related ESG Efforts
Diversity, Equity & Inclusion should be integrated across all day-to-day activities. Accounting and reporting on DEI initiatives may fall within general firm practices or ESG, and typically requires the oversight of Human Resources. Best practices encourage the involvement and ultimate endorsement of Executive Leadership.
Investor demands for more quantifiable data-led experts to disproportionately focus on the Environmental (or “E”) component of ESG. It was a smart move – collecting data in a more consistent fashion resulted in statistics that incorporating sustainability at the asset level could lower operating expenses and potentially attract higher occupancies. Understanding the risk of ignoring ESG factors encouraged the investment community to pay attention to ESG.
A common question posed to ESG professionals by General and Limited Partners is, “how do we establish and measure outcomes when it comes to the Social (or “S”) or Governance (“G”) components of ESG?” If you have not addressed this issue in ESG Due Diligence Questionnaires, or elsewhere, now is the time. Below, Alliance Global Advisors offers a framework for hosting this conversation.
Establishing Common Definitions by way of Policies & Procedures
First, the investment community may benefit from establishing a uniform set of definitions and guidance for collecting voluntary information and reporting statistics. For example, when reporting to a U.S. investor, how should a firm headquartered in the U.S. classify professionals located throughout Europe, Asia or elsewhere?
Below are questions firms can consider that may lead to measurable outcomes.
1. Do you have an internal or external Human Resources department? Please explain.
2. How does your firm define and promote Diversity?
3. How does your firm define and promote Inclusion?
4. Does your firm have a Diversity, Equity & Inclusion Policy or something similar? Please explain.
5. How often are Diversity, Equity & Inclusion Policies formally reviewed/updated to reflect new guidance on best practices and remove systemic barriers to Inclusion?
6. Does your firm have a Sexual Harassment, Anti-Discrimination Policy or equivalent?
7. Does your firm offer Paid Parental Benefits? Is there a Policy? Is the Policy inclusive of maternal, paternal and partner benefits? Please describe.
Measuring General Workforce Composition
1. What percentage of the firm is owned by individuals with a diverse background? Be specific.
2. Does your firm track Diversity, Equity & Inclusion statistics when evaluating its workforce composition? How often are statistics updated? Are statistics reported and reviewed by Senior Management? If so, how often?
3. Do you Implement a key performance indicator (KPI) for Diversity, Equity and Inclusion for all employees?
4. Does your firm have a goal to promote a diverse workforce? Please explain the metric and how it is measured. This metric could be a target percentage of your workforce, which you would like to be more diverse within a specified time frame. It could be a growth goal – for example, a % by which your firm would like to grow diverse representation in decision-making roles within a stated time frame. And are you measuring your progress against this goal at least annually?
5. Does your firm track maternal/paternal return-to-work rates or something similar?
Promoting Diversity in Decision-Making Roles / Good Governance
1. Does your firm Track & Report:
a. Diverse Representation within C-Suite
b. Diverse Representation on Investment Committee
c. Diverse Representation on Management Committee
d. Diverse Representation on Independent Board of Directors, if applicable
2. Does your firm have a policy in place concerning the rotation of Key Decision Makers?
a. Do Investment Committee Members have defined terms?
b. If not, how and when do you consider new additions to promote Diversity of thought?
Considering Pay Equity
1. Do you conduct a periodic Pay Equity Survey?
a. If yes, how often?
b. If yes, is this conducted by a third party or an internal review?
2. Describe your firm’s succession planning initiatives, including considerations of diversifying equity participation by way of extension to other investment professionals within the organization.
3. Is the firm’s equity allocated to a group of diverse participants? Please explain.
Aligning Recruitment and Training Efforts with Established DEI Goals
1. Describe your recruitment process. Please describe who interviews the candidates, how the screening process works, and whether your firm is affiliated with organizations to promote Diversity in recruiting.
2. Does your firm conduct a periodic review of hiring initiatives to understand whether recruitment efforts promote Diversity? Specifically, what efforts are there to expand the applicant pool to reach a diverse group of candidates? How is implicit bias removed from the screening process?
3. Do you provide comprehensive leadership training for managers?
4. List all affiliations that promote DEI efforts for your organization. Examples may include TOIGO, PREA Foundation, Mentorship/Internship Programs or Executive Coaching.
5. Inclusion efforts focus on establishing behaviors and norms within an organization to foster a healthy work environment for all employees. Please describe any mentorship programs or training that take place (for example, training on implicit/explicit bias or discrimination) that may create a more inclusive work environment for your employees.
6. Describe any other actions you take to build a diversified talent pool. Actions may include efforts to promote diverse educational backgrounds or professional experience.
By: Alliance Co-Founders
About Alliance Global Advisors:
Alliance Global Advisors is a women-owned consulting firm focused on empowering the institutional investment community to elevate best practices. Advising clients with nearly $50 billion in assets under management, Alliance partners with organizations to provide an independent perspective and innovative approach to critical strategic initiatives. Our partnerships allow senior management teams to focus on what matters most: diligently managing client capital, creating value and delivering exceptional returns in a performance-driven market.
Disclaimer: This blog was originally published on June 10, 2020 and will be updated periodically to reflect changes in the industry. The content may contain or cite personal and/or professional opinions that differ from the views of Alliance Global Advisors.