Mill Road Capital launches fund focused on diversity and governance

14 May 2021 3 min. read

Connecticut-based private equity firm Mill Road Capital has launched an ESG-focused investment fund – aimed at promoting a culture of diversity and inclusion at small, listed companies.

Launched in 2004, Mill Road helps publicly traded companies with a market capitalization of up to $300 million create long-term value. With investment markets picking up pace again following a pandemic-induced lull, the firm is now moving to align with cutting-edge investor priorities.

Mill Road Progressive Governance will launch in the second quarter of this year, with a strategy of taking large equity stakes at small public companies to steer them in the direction of diversity and inclusion – a nod to the widely acknowledged correlation between diversity and financial performance.

James D White, Managing Director, Mill Road Capital

“Study after study has shown that racial and ethnic diversity in both the executive suite and the boardroom not only enhances company morale from top to bottom, but also improves financial performance, encourages innovation, and brings in new perspectives that lead to new opportunities,” said James D. White, a seasoned investor who takes over as managing director of the new fund.

A 2019 study from Boston Consulting Group found that US businesses with above-average diversity on their management teams reported nearly 20% higher innovation revenue than others. Small tweaks to leadership have a large bearing on this correlation – a realization embodied by Mill Road’s new Progressive Governance Fund.

At least half of the fund’s director nominees will be women or people of color, according to a statement by the firm. Those appointed will play a “sponsoring investor” role in target companies – toeing the line between passive and adversarial board members. “Our Sponsoring Investor fund aims to change the way public companies are governed in America,” said Mill Road founder and senior managing director Thomas Lynch.

“With passive index funds becoming the largest voting bloc in public equities, shareholders now more than ever need a skilled, engaged, and aligned partner on the board to ensure the highest standards of operational and social governance are upheld. The Progressive Governance Fund was created to be that partner,” Lynch added.

Diversity and inclusion wave

Mill Road joins a wave of diversity, inclusion, and other ESG initiatives sweeping through the US – spurred on by growing public discourse on the issues of racial justice and equity.

Many in the consulting industry – Bain & Company, Korn Ferry, North HighlandRSM and Capco included – have established dedicated diversity practices, both for internal improvements and to help businesses across the country transition to a more equitable structure.