How Private Equity is Driving Diversity and Inclusion in the Software Industry

The steady progress towards achieving greater diversity and inclusion at the company leadership level is being boosted by private equity firms that are increasingly demanding action over sentiment. This important topic was discussed in our past webinar, Women in Leadership: Closing Gender Gaps to Drive Business Success.

“Diversity as a measure is gaining interest from private equity,” says Sue Swenson, former CEO of Sage North America, who sits on multiple large-cap company boards. Speaking at the SEG-organized Women in Leadership Panel, Sue highlights that women make up roughly 28.8% of U.S. companies’ boards, while in senior leadership overall, they account for approximately 22.7%. By comparison, women at the board level in private companies account for only 11%.

Deloitte’s Diversity and Inclusion Model, released a few years ago, highlights that inclusive organizations are six times more likely to be innovative and to anticipate and respond to change effectively. They are also twice as likely to meet or exceed financial targets.

For SaaS companies that just dealt with a global pandemic and, in some cases, pivoted rapidly to survive, innovation and responding to change effectively are critical.

Aside from the math or technical aspects that many companies focus on, the standout people that Dru Armstrong, former CEO of SaaS company Grace Hill, has worked with have been “people people.” Speaking at the SEG panel, she said: “Creating outsized returns is extraordinarily hard, so you need the best people whose heads are in the game.” The best people, she says, are diverse teams whose diverse views lead to greater efficiencies in collaboration and decision-making.

In SEG’s virtual coffee with Alan Cline, Senior Managing Director of Vista Equity Partners, he describes how his firm is driving diversity not only within its own business but within its entire sphere of influence from underlying portfolio companies through to vendors. The agenda, he says, starts at home. “If you don’t set the example as a private equity investor in what you are doing in your own organization, it will fall on deaf ears with the companies you invest in,” he says.

Approximately 43% of Vista’s workforce are women, compared to an 18% average for the private equity industry broadly. Led by the personal mission of Vista’s billionaire founder Robert F. Smith, a champion of diversity and inclusion, Vista has focused on diversity for years. It works with portfolio companies to help them understand and measure where they are on the “maturity curve.” Deloitte’s model describes the maturity curve as companies growing from viewing diversity as a “problem to be managed” to it becoming the personal priority of the CEO and executive team, and eventually a shared sense of purpose for a company.

Alan believes that companies are at a tipping point in momentum on diversity and inclusion.

“We are a high-performing firm looking to drive performance. As a board member and investor, we can bring conversations about diversity to the center. We can provide examples of other portfolio companies, or from within Vista, that portfolio companies can use,” he says.

As SaaS companies look to scale with the right team at the helm, a considered and deliberate approach to diversity is important. 

In December, Nasdaq filed a proposal with the U.S. Securities and Exchange Commission to introduce new listing rules that would require companies to publicly disclose board diversity statistics. Companies would need to have, or explain why they don’t have, at least two diverse directors.

Almost all SaaS companies are for-profit businesses. So, in addition to doing the right thing, diversity and inclusion are also important because of the financial underpin, driving performance and competitive advantage across industries.

Watch the full webinar to learn more about how closing gender gaps can drive business success: SEG Panel – Women in Leadership. Contact us to learn more about our M&A services and ways to drive business success.