Private equity firms are renowned for utilizing highly analytical, data-driven processes to identify deals and maximize return on investment.
Yet despite this reputed attention to detail, funds often reject qualified portfolio company candidates on the basis of a vague criteria: cultural fit.
Cultural fit is widely understood as the degree to which a candidate’s soft skills and personality fit with the culture of the company and sponsor fund.
While there is little doubt a true culture clash in the C-suite can disrupt an investment, the ambiguity underlying many funds’ definition of cultural fit often allows bias to impact evaluations of human capital.
In AlixPartners’ 2017 annual private equity survey, 50% of surveyed investors claimed their biggest hiring obstacle was assessing a candidate’s fit into a company’s culture. The urgent hiring timelines commonly present in PE can make determining soft skill compatibility a challenge, yet this issue is often exacerbated by a lack of clarity on the criteria being evaluated.
While a surface-level definition of cultural fit can be helpful in hiring an executive who will seamlessly transition into a company, it can also create environments comprised of a homogenous population.
Cultural fit is a vague evaluation criterium, and psychological data has found vague criteria can be more easily distorted by bias. This cloudiness may contribute to a lack of gender diversity both in fund and portfolio company leadership.