MiddleGround: Private equity needs a more diverse workforce

With roots in manufacturing, not investment banking, MiddleGround Capital believes it has a role to play in bringing diversity of thought to the PE industry, say Monica McClinton, Viswa Maramreddy and Kristen Baily.

This article is sponsored by MiddleGround Capital. 

Monica McClinton
Monica McClinton

Could you start by explaining why diversity is so important to MiddleGround Capital, and where you see the challenges in this area?

Monica McClinton: If you look at the private equity industry generally, you see a lot of similar faces, resumes and educational backgrounds. We think this approach can be biased against diversity. When our founding partner, John Stewart, began his career as an hourly employee assembling and installing bumpers on Toyota Camrys at Toyota’s plant in Georgetown, Kentucky, a career in private equity was never something he envisioned. Through an 18-year career at Toyota, where he finished his undergraduate degree and was promoted multiple times, becoming the head of Toyota’s largest division in Europe, John realized that you have to make things happen yourself. You can’t wait on others to drive change.

Our diversity efforts are part of a strategic plan developed and initiated by our founding partners and supported by our whole team. We try to be different in every area of our business and refer to this approach as ‘Private Equity 2.0.’ We believe that diversity is important for making good business decisions and for shaping the culture of our firm. In 2020, we launched a focused initiative on ESG and became the first sub-billion signatory to the UNPRI for industrial buyout firms. Our DE&I initiative is an extension of our ESG initiative. We want to build a sustainable and impactful firm, and our focus on diversity allows us to expand and deepen our outlook with new thoughts and ideas.

What is the firm’s DE&I mission and vision, and why?  

MM: We have always been multicultural and gender diverse, which is rare in private equity. When the firm was founded in 2018, one of the three founding partners was female. Since then, the partnership has grown to 50 percent female, including me as an African American female partner. In all, about 60 percent of our entire MiddleGround team is comprised of women and minority individuals.

Our vision for the firm is one of inclusion, regardless of educational or professional background, gender or race, and we strive to be the employer of choice for top talent. But for diversity to have a real impact, people of diverse backgrounds need to feel listened to and respected. For key decisions, such as those in hiring and investing, our decision-making is done through consensus, so everyone has a voice and a veto.

For example, on our investment committee, our goal isn’t for everyone to evaluate the transactions the same way, so we include people with different backgrounds and experiences who can bring different perspectives. I don’t need to be an investment or operations professional to add value to the IC. As CCO, I examine the transaction risks and the mitigants differently.

We believe in developing our employees both personally and professionally, and we value family first. Both men and women at our firm receive four months of fully paid parental leave, which is rare in the US. We want all our people to spend time with their families and succeed in their personal lives as much as at work.

Our firm has been ranked one of the Best Places to Work in the state of Kentucky by the Kentucky Chamber of Commerce for the last two years and we feel that is due to the conscious effort made by our leadership to create a world-class culture.

What efforts does the firm make internally to support diverse groups within the business?

Kristen Baily
Kristen Baily

Kristen Baily: The main thing our leadership does is promote awareness of our mission. Our partners are constantly sharing our long-term strategy and making sure the team has the resources necessary to be successful. Many of our employees have less than five years of private equity industry experience, so we have created robust training programs to transition people into their roles.

Additionally, this year we launched an effort for the women in the firm called Women’s Wing. We meet at least once a month to share our experiences and best practices on ways we can improve worklife balance. We cover issues across financial, social, mental and physical health.

Past gatherings include an International Women’s Day Leadership Training webinar, a fitness class hosted by one of our colleagues, a Women of MiddleGround Cocktail Hour and a financial planning workshop with a female industry expert. We are currently reading a book on female confidence and empowerment, and the author will be our guest speaker at our Women’s Wing event this June. It has been a great experience thus far and gives us an opportunity to connect with each other on a more personal level.

And finally, what are your diversity, equity and inclusion goals, and how do you incorporate these values at portfolio company level? What will you be prioritizing in terms of actions for 2021?

Viswa Maramreddy: We acquire a controlling interest in all of our companies, giving us an opportunity to influence how they are managed. We are just beginning the process of incorporating DE&I into our ESG processes and systems at our portfolio companies. We have standardized reporting which includes diversity metrics, and we track compensation across races, genders, and other factors.

This year, we are focusing on three strategic DE&I objectives – diverse management teams, board of directors inclusion, and policy deployment.

First, we have started tracking diversity in our portfolio company management processes and are building our internal systems for hiring C-level management, making sure that diverse candidates are provided with every opportunity to participate, which we do through networking and passively recruiting diverse individuals both internally and externally.

Second, we construct all the boards of directors to promote equity and inclusion. We put independent board members on each board, and the audit committee for each company is always staffed by an independent director. Utilizing our extensive operating network, we focus on bringing together talented individuals with a variety of experience and backgrounds.

Viswa Maramreddy
Viswa Maramreddy

Finally, we work to remove structural racism and unconscious gender bias from our portfolio companies’ corporate policies, which means making sure they are following proper performance metrics and values, there is equity for all employees, and steps are taken to improve retention and promote equity in advancement of underrepresented minorities.

MM: We believe that transparency is important for accountability. One of our first initiatives was implementing a dashboard system called Tablecloth that provides transparency throughout our portfolio companies down to the individual plant and employee level. This platform allows us to examine the results of our current company compensation, benefits and employment policies and the direct impact to minority and underrepresented groups of employees.

KB: This year we are also partnering with a local non-profit organization supporting underrepresented demographics to increase their exposure to private equity. As the only PE firm headquartered in Kentucky, we realize we have an important role to play in educating others about our industry and eliminating preconceived biases of working in private equity. This community outreach is vital because we know that long term, we will all benefit from greater diversity in our workforce.

How do you incorporate diversity, equity and inclusion principles into your recruiting and hiring processes?

KB: DE&I is integral to our internal and external recruiting strategy, because we believe that having a diverse workforce makes us a better firm. We realized that in order to consistently achieve the diverse candidate pool we want, we would have to develop our own process.

For example, traditionally when you are hiring investment associates, you look to second year investment banking analysts. We found that if we limited ourselves to hiring at the associate level, then we had to accept the candidate population that the banking community was hiring by default. While we still recruit associates from the banking community, we also started directly hiring undergraduate students as analysts this year. We intentionally target people who may not have familiarity with our industry, and we employ an interview process that gives candidates with diverse degrees and experiences a level playing field. We believe that if you want diversity, you have to look where others are not looking.

We look for ambitious, intelligent, motivated and capable entry-level candidates for our intern and analyst roles and have focused on achieving 50 percent diverse applicants. For these hiring efforts, we broaden our job descriptions and explicitly state that previous banking or private equity internships are not required.

We reach out to upcoming or recent graduates of all backgrounds to promote the culture here at MiddleGround, allowing us to source talent ahead of the investment banking recruiting cycles. In 2020, we hired a female analyst onto our team and just recently onboarded an African American analyst. Both attended universities that are not heavily recruited by investment banks.

VM: We would never have met these candidates if we hadn’t proactively initiated contact with them directly. In terms of interview process, like every analyst, the candidates were asked to work on a case study as a first step. Once it was reviewed by our team, we conducted a personality and behavioral assessment to gauge leadership potential and learning aptitude. By asking candidates to work through assessments that simulate the first day on the job, we can identify potential. The last step was a face-to-face interview with our team, including associates, vice-presidents and our partners. This is just one example of how we try to open the doors and remove traditional barriers to enter one of the most competitive industries.

Monica McClinton is a partner and CCO at MiddleGround Capital, Viswa Maramreddy is a vice-president on the investment team, and Kristen Baily is vice-president of human capital; all three are part of MiddleGround’s dedicated Diversity, Equity and Inclusion team.