Compared to more quantitative issues (e.g.
, fees and expenses), it can be difficult to track a company’s diversity, equity and inclusion (DEI) practices or areas for improvement. For that reason, traditional audits and corrective measures may be inadequate. In light of that, there has been an increase in racial equity audits, which marry legal, quantitative and behavioral science evaluations to more effectively gauge a company’s DEI efforts. As PE sponsors increasingly obtain racial equity audits of their portfolio companies, it is useful to walk through the mechanics of what those audits entail at each step of the process. To that end, the Private Equity Law Report interviewed Zachary N. Coseglia, co‑founder and manager of R&G Insights Lab (the legal consulting arm of Ropes & Gray), and Michael R. Littenberg, partner at Ropes & Gray, on racial equity audits in the PE industry. This second article in a two-part series details the five steps of a racial equity audit of a PE sponsor’s portfolio companies, from developing a strategy to forming an action plan based on the audit’s results. The first article
provides an overview of R&G’s Insights Lab, as well as the goals, usage and logistics of racial equity audits. For additional observations from Ropes & Gray attorneys, see “Proxy for Permanence: Longer Duration, Not Perpetuity, Is Hallmark of Private Fund PCVs (Part One of Three)
” (May 18, 2021); and “Adapting RWI to Secondary Transactions: Mechanics of the Insurance Policies and Obstacles Posed by Secondaries (Part One of Two)
” (Apr. 13, 2021).