The CFO is used to dealing with tasks that don’t fit into the finance function purview. Talent management is – until you hire an HR guru – one of those tasks.

We recently invited two CFOs from mid-market firms to a closed-door discussion to get into the gritty detail of their jobs: no names, no inhibitions, no need for compliance: we wanted to know what challenges they really face and what frustrates them.

Among the challenges, personnel issues loomed large. Of particular concern was diversity within the make-up of the firm.

It was a recurring discussion point at the CFOs and COOs Forum in New York last month. According to a poll of about 60 chief financial officers and other members of the PE industry at the event, 52 percent were taking steps to increase diversity and a further 34 percent were thinking about it.

“We don’t want any more tall white, guys” was the instruction given to one of our CFOs by the partners as they embarked on a recent search.

One obvious – if unpalatable – question is why not? The industry has developed at a rapid pace, run largely by white guys (although not exclusively tall). Is it only now realizing that a more diverse group of investors is the right thing to create? It’s possible, but seems unlikely.

Outwardly firms will tell you they want to promote diversity and inclusion, because it will lead to better investment decisions and better performance. The theory is sound: the companies you invest in will sell product to, employ and be run by every slice of the demographic pie. A same-sex investment committee that all went to the same school should have some major blind spots when it comes to investment trends and relationships.

There is, however, no data to support the theory. A recent study found that from 2006 through 2017 women-owned and minority-owned funds had net multiples of 1.37 and 1.44, respectively, while all other managers had a net multiple of 1.42. Investors gained or lost nothing by seeking out minority-led firms.

Investor pressure and incentives are a much more credible reason for the current diversity drive.

Said one of our CFOs: “One [reason] is certainly a number of LPs view it as important; whatever the customer wants, to a certain extent the customer is going to get.”

Said the other: “Being a smaller manager or a newer firm, there’s a lot of emerging manager-type programs that are specifically targeted toward minority-led managers, female-led managers, so there are incentives out there.

“If you want to promote somebody to partner, how does that change the face of your firm to an LP? How does that change the dynamic of your business? The incentives are starting to trickle up as time goes on.”

Money is a great motivator, which suggests the discussion around diversity will gather even more momentum. It is likely that the many-hats-wearing CFO will be tasked with making it happen.

Write to the authors: toby.m@peimedia.com, Isobel.m@peimedia.com, brian.b@peimedia.com