General Catalyst chairman and managing director Kenneth Chenault thinks investors need to push GPs on diversity and inclusion in the same way they push on investment performance.
“Be as insistent on that as you will other drivers of investment performance,” Chenault told the board of Los Angeles City Employees’ Retirement System Tuesday. “Yes, it’s harder. If it was easy, we wouldn’t be talking about it.”
“They’ve got to hear it from you—that you want change, and you’re not going to take poor results, and you’re not going to tolerate deteriorating investment performance.”
Chenault rejected the suggestion the investment performance and the diversity of the industry were mutually exclusive.
“I think it’s a cop-out when someone says to me, ‘Well, I’m concerned about investment performance,’” he said. “So am I. And I’m not going to compromise on it. But you know what? I’m also concerned about diversity and you need to improve it.
“My experience has been if you constantly insist on that, and you work with people and you understand what stage they are in the journey, that real progress can be achieved,” Chenault said.
The US has been undergoing a reckoning on structural racism in the aftermath of the death of George Floyd at the hands of police and the wave of protests that swept the country last year.
As Buyouts reported, LPs have begun to demand measurable results in diversity and inclusion among private equity managers.
Harvard professor Josh Lerner conducted research that has found no statistically significant difference between diverse-owned firms and non-diverse firm when adjusted for vintage year and size groups.
Chenault, the former chairman and chief executive officer of American Express, is one of the country’s most prominent African-American business leaders.
After stepping down from American Express in 2018, he joined General Catalyst, a venture and growth equity firm. Companies with which he is involved include Chief, a network of women business executives, Guild Education and Melio, an Israeli payment platform.
While running American Express, Chenault said he was open about the state of diversity at the company and set specific diversity metrics, which the company reviewed every year. He also tied performance diversity goals to compensation.
“I think the leader and the leadership of any organization needs to address the issue of diversity, equity and inclusion very, very, directly,” he said.
Most important, Chenault said, diversity became “institutionalized.” By the time he left, American Express had four diverse people on its board. That number has now increased by three.
“Like everything in business, if you measure it the probability that you’ll get results will be increased,” he said.
Action Item: Listen to the audio of the May 11 LACERS board meeting, including Chenault’s presentation, here.