In many industry sectors, diversity, or rather the lack of it, has been increasingly under the spotlight, with private equity very much at the centre of this. 

The pressure group Level 20, founded in 2015 to inspire more women to join and succeed in European private equity, set itself the aim of increasing the number of women in senior roles from c.5% to 20%. Private equity is not alone in this type of aim. Advertising/marketing is another space where women have historically been under-represented. A senior global executive at Diageo recently called on the Company’s marketing and advertising agency partners to make faster progress in hiring more women into their own businesses. Gender diversity is consistently topical and rightly so.

Like many other recruitment businesses, we’ve lent our weight to this ongoing challenge. However, we recently paused and asked ourselves whether we knew what was technically lawful versus unlawful and as each of us around the table came out with a slightly different view, it quickly became clear that we didn’t really understand the precise facts. Hence, we turned to our employment lawyers, Osborne and Wise, for clarity.

Eliza Nash, a Partner at the firm, picks up the thread:

“The big question is how can greater diversity be achieved and as importantly, achieved lawfully? In this piece we look at what the law says, how current recruitment practices fit with this and what changes could be made within the legal framework. 

The basic legal position, which applies to all employment in Great Britain, regardless of where the company is based, is that it is unlawful to discriminate because of sex, race, disability, gender reassignment, pregnancy and maternity, marriage and civil partnership, religion or belief, sexual orientation and age (the ‘protected characteristics’) in the ‘arrangements’ made for deciding to whom to offer employment. ‘Arrangements’ covers all aspects of the recruitment process, from advert to interview. This means being careful about statements made in job specifications and adverts, which may be construed as discriminatory, as well as instructions given to recruiters. For example, the use of the words ‘energetic’ or ‘dynamic’ may create an inference that older candidates will be discriminated against.

There is no ‘good’ or ‘bad’ discrimination. Favouring a woman for a role is just as discriminatory as favouring a man. However, the recognition that certain groups are disadvantaged or under-represented in the workforce led to the introduction, in 2011, of positive action in recruitment. Where an employer reasonably thinks that persons with a protected characteristic are disadvantaged or their participation in an activity is disproportionately low, they can give preferential treatment to a candidate with that characteristic provided they are as qualified as the other candidates. 

So, the first step is to show that it is reasonable to think that a group are disadvantaged or under-represented; some evidence of this is needed, but an employer is not expected to produce highly sophisticated statistical data or research. Taking the example of women as a group within private equity, their low participation across this sector is well evidenced. In these circumstances, an employer may (positive action is entirely voluntary), prefer a female candidate to a male candidate but only where they are ‘as qualified’ as the male candidate. This doesn’t mean only academic qualifications, but is rather a judgement based on the criteria the employer uses to establish who is best for the job, which will include matters such as technical skills, commercial experience and professional performance. Essentially, positive action is permitted where there is a tiebreaker situation and the candidates are of equal merit. However, a blanket policy or practice which routinely favours women is not allowed, even where there is evidence of under-representation or disadvantage. The action must be a proportionate means of achieving a legitimate aim - in other words, employers should look at other ways to address the issue, besides taking positive action.

Until recently, any misuse of ‘positive action’ had gone largely unchallenged, but a recent case of discrimination as a result of using positive action has changed that. Cheshire Police Force was successfully sued for discrimination by a white male candidate after it conducted a diversity drive to recruit more black officers. The issue wasn’t the aim to recruit more black officers, but rather the fact that the person suing was far more qualified for the job than the persons selected. This highlights the fact that positive action can only be taken where the candidates are equally well qualified. Quotas will almost always risk discrimination claims.

Returning to the example of women in private equity, a policy decision to search only for women candidates to fill a particular role will be unlawful discrimination, even if it can be shown that there are very few women in that particular function or role. So, requesting ‘women only’ shortlists, or insisting on a minimum quota of female candidates is unlawful.  However, if at the end of the recruitment process, two applicants – a man and a woman – could do the job equally well, the employer is lawfully permitted to take positive action and give the job to the woman. Also, it is not unlawful to target certain spaces, for example business schools and universities, where there may be a more diverse candidate pool, as part of a recruitment drive.

Private equity firms are well documented for recruiting from a small group of proven ‘training grounds’, most notably investment banking. Given that those employers themselves struggle to recruit a sufficiently diverse graduate pool, private equity firms have little hope of achieving diversity without significantly broadening their search parameters into other training grounds.

The most effective, as well as legally compliant approach might involve revisiting the criteria required for the role so that these don’t favour typically ‘male’ environments, looking to recruit from wider candidate pools and having targeted recruitment drives.  A focus on hiring for potential, rather than pre-trained investment banking style experience is likely to be key, even though the candidates in the newly targeted group/s do not yet have all of the relevant skills and experience.” 

It’s also brilliant to see Level 20 getting to the origin of the issue via its ‘outreach programme’ which aims to encourage young women to consider careers in private equity. Level 20 knows that if it hopes to see 20% of senior roles held by women at some point in the future, it needs to help increase the number of women entering the industry so that the pool of those that can eventually be considered for promotion to more senior levels is much deeper. It’s therefore targeting women at different points in their career planning, notably by increasing awareness of the private equity industry via a range of events. These have taken place at some of the main European business schools and are now being extended to certain universities. Days are also being held to encourage girls in the sixth form at school to think about careers in private equity and to understand the routes into the industry. Ultimately, this will have real impact and we see it as a really positive initiative.

Osborne and Wise is a niche employment law practice with experience across the recruitment and financial services sectors. For further insight or advice, please contact Daniel Wise (Partner): dwise@osbornewise.com or Eliza Nash (Partner): enash@osbornewise.com.