Signatory: Frazier Healthcare Partners
Signatory type: Investment manager
HQ country: United States of America
Asset class: Private equity
COVERED IN THIS CASE STUDY
Geography: Unites States of America
Frazier Healthcare Partners is a middle-market, healthcare-focused private equity investor. In 2020, against a backdrop of protests in support of the Black Lives Matter movement, our managing partners challenged our Diversity, Equity, Inclusion and Advancement (DEIA) Committee to come up with an objective way in which we could measure the impact of our initiatives across the Frazier portfolio of 17 companies and about 20,000 employees. “We want tangible impact, not just activities, or random anecdotes of success,” was the brief.
As part of defining the firm’s DEIA strategy, the group came up with a holistic scorecard, comprising 20 metrics with a maximum potential score of 100. To choose what we believe are the right metrics, we focused on KPIs that were reflective of more than just the standard US EEOC Diversity metrics, but also objective indicators of Equity, Inclusion and Advancement that we felt collated to workforce productivity, retention rates, and other human capital drivers of enterprise value.
In 2021, we rolled the scorecard out across our portfolio of majority-owned companies. We shared it directly with companies, allowing them to report on their metrics on a semi-annual basis to their Boards. In 2022, we saw the DEIA Scorecard results in comparison with the initial baseline. There was widespread improvement in the scores – more than we had hoped for. This initiative shows the power of establishing specific ESG metrics in driving accountability through Board governance.
Why this approach?
Frazier seeks to be a leader in DEIA across our industry and the communities in which our companies operate. Social impact is one of our six firm values and creating opportunities for female and ethnically diverse talent within our ecosystem is one way to drive social impact.
Most private equity firms are hesitant to conduct an employee census for their portfolio companies because, in the words of one industry executive, “We know what the answer will be, and it will not be a positive story”. Frazier takes a different approach to DEIA. We are going to measure our current state and report on it in a transparent way. Then we are going to drive improvement through our company Boards and hold management teams accountable. The DEIA Scorecard initiative is a major step in exercising and promoting Frazier’s philosophy.
The approach in practice
The formulation and execution of the firm’s DEIA strategy are the responsibility of the firm’s Human Capital Center of Excellence (CoE) Team, in consultation with the firm’s general partners. To launch the programme, the four members of the Human Capital CoE Team briefed our CEOs and chief human resources officers on the initiative, the tenets of the scorecard, and the reporting criteria. The scorecard metrics are:
% Female in total employee population
% Ethnic minorities in total employee population
% Female Board members/partners
% Ethnic minority Board members/partners
Mean pay difference across the hourly workforce (male vs female)
Mean pay difference across the hourly workforce (white vs ethnic minorities)
% Employees making >US$200k who are female
% Employees making >US$200k who are ethnic minorities
Frequency of employee engagement pulse surveys
Pulse scores on “I feel comfortable I bring my authentic self to work” question
Survey scores differences (male vs female)
Survey scores differences (white vs ethnic minorities)
% Female employee turnover in last 12 months
% Ethnic minority employee turnover in last 12 months
% Hourly employees promoted in last 12 months who are female
% Hourly employees promoted in last 12 months who are ethnic minorities
% Salaried employees promoted in last 12 months who are female
% Salaried employees promoted in last 12 months who are ethnic minorities
% Employees making above a living wage
Then we partnered with an HR SaaS platform to build the reporting modules that each company would use and would calculate their scorecard results based on those inputs. In 2021, we piloted the data collection, scorecard calculation, and Board reporting process with each of our companies. This gave us our initial baseline.
We then held workshops for our companies on how to improve their DEIA practices leveraging internal and external best practices. Each company was given a DEIA programme coach from Frazier’s Human Capital CoE Team. That individual worked with their CHRO counterparts on subjects such as how to generate more interviews with diverse talent for open roles, how to create diverse affinity groups and mentorship programmes, how to implement organisational pulse surveys, and how to properly leverage the results.
We also held workshops for our senior advisors, Board members, and deal team members on how to drive DEIA accountability as Board members. In 2022, we replicated the process and compared the company-by-company (and aggregate) scores from 2021 against our new scores in 2022.
Finally, we push our vendors to adopt a similar approach. We require the firm’s top 15 vendors (in terms of Frazier US dollars spent during the previous fiscal year), to brief us annually on their DEIA programme and metrics. Based on those metrics, we evaluate whether those vendors are properly aligned with Frazier’s values and whether we should consider scaling up or scaling down our partnership in future years.
Overall, our DEIA scores went up by an average of 20 points (on a 100-point scale) between the 2021 and 2022 reporting cycles. Specifically, the percentages of employees promoted within our companies that were female went up from about 35% to over 50%. The percentage of employees promoted that were from ethnically diverse backgrounds went from 30% to about 40%. These levels are higher than the national census levels in the United States for the same period.