The woman on a mission to close the gender gap in finance

“Because it’s 2015,” Canadian Prime Minister Justin Trudeau famously answered when he was asked why he had made sure there was gender parity in his cabinet. But when Theresa Whitmarsh walked into investors' sessions at the World Economic Forum Annual Meeting a year earlier, 2015 felt far away: on several occasions, she was the only woman in the room. It made her wonder: what could investors do to improve the gender balance in their world?

As executive director of the Washington State Investment Board, one of America’s largest state pension funds, she oversees more than $100 billion in investments, one of very few women to wield such influence in her industry. At the almost all-male session among investors at Davos two years ago, she heard that many of those firms struggled to find, attract and retain talent.

“If you exclude 50% of the talent pool, it’s no wonder you find yourself in a war for talent,” she commented then. It was meant as an off-the-cuff remark, and people laughed at it. But she also meant it.

After the meeting several managers came to Whitmarsh, to ensure her they really tried to attract women. But, they said, they often didn’t even receive applications. Whitmarsh felt they were sincere: “It made me want to address the issue with them,” she said.

A few months later, she became one of the driving forces of a "coalition of the willing" – a “Women in Private Equity” working group from the World Economic Forum. Many PE fund managers followed suit. Their goal was quite simple: to increase the number of women in private equity. “Our approach was to look at the lack of women in private equity the same way we look at other complex business issues we’re used to solving,” Whitmarsh said.

They had three questions to answer: Why do we have so few women in private equity? Why is that a problem? And how can we solve the problem? Soon enough, they got some answers.

The reason why there are so few women in private equity, they found, is mostly because of a “feeder” problem: PE funds tend to look for candidates primarily at investment banks. The issue is that there too, there are few women. At business schools, another place PE firms hire from, women tend to choose more attractive sectors for them, like the technology sector. As a result, there are few women who find their way to the PE industry.

On top of that, the women that do get on board have to work in a corporate culture that is not adapted to them. “They might reach the associate level, but then decide they don’t want to be the first to fight the fight to get higher up,” Whitmarsh explained. Having worked in journalism, insurance, government and tech before herself, she went into investing in a more senior role to begin with, and thus didn’t have to go through that same struggle.

In the end, fewer than one in 10 employees in the sector is a woman. That causes problems way beyond the poor optics.

First, explained Whitmarsh “a private equity firm is only as strong as its human capital”. Having only 50% of the labor force to choose from, as she already argued, inherently hurts their competitiveness

Second, studies show that "diversity of opinions" in board rooms and other decision-making groups leads to better decisions. Having no or few women decreases that diversity significantly, further hampering the performance of PE firms.

And third, as private equity firms tend to be the ones investing in growth companies that ultimately may large public companies, having less women in the former causes a problem down the road too (less than 5% of Fortune 500 companies currently have a woman as CEO.)

So what to do about it? Whitmarsh and her “Women in Private Equity” team came up with several proposals.

To solve the feeder problem, PE firms should consider widening the pool of applicants to include those working in consulting firms, where there are typically more women than in investment banking. They could also reach out directly to business schools’ career offices, to make it clear they are truly looking for women candidates.

To solve the retention issue, PE firms should make sure there aren’t only “mentors” helping associates with advice, but also “sponsors” who make available more senior jobs for women in PE. “The mentor versus sponsor concept is something I picked up from Sheryl Sandberg when she spoke at Davos,” Whitmarsh explained. “I, too, had had a sponsor rather than a mere mentor: the then CEO of WSIB. He hired me as COO, and when he left recommended me as his successor. It’s thanks to people like him that I am here, and we need more such sponsors for women in the sector.”

Finally, PE firms should also change their cultural norms, daring to talk about the issues in private equity openly. “Companies need to openly recognize the fundamental difference between men and women: women have babies and men don’t,” Whitmarsh said. Talking about it openly with mothers to be can positively affect how welcome they feel afterwards. “You need to avoid unconsciously putting them on the ‘mommy track’,” Whitmarsh argued. “They might prefer to be challenged to come back, rather than cushioned.”

Having identified the problem and its possible solutions, PE firms in recent times have been taking action to attract more women. One large firm expanded parental leave to 4 months, to create a more welcoming corporate culture for parents. Another firm decided to cover travel costs and expenses for a caregiver for its parents, so that women can return focused on the job while being close to their child. Other firms have started to implement the best practices in terms of “feeders” and “sponsors”.

“It’s encouraging to see this evolution,” Whitmarsh said. “Large firms are embracing the challenge.” It's a topic that will be high on the agenda as Whitmarsh enters the discussions at Davos 2016.

Theresa Whitmarsh will be speaking at "The Gender Impact of the Fourth Industrial Revolution" issue briefing this Thursday, January 21 at 10:30AM CET at the Annual Meeting of the World Economic Forum in Davos. The briefing can be followed live at www.weforum.org