The Gender Imbalance in Finance: How Do We Narrow the Gap?
In September 2016, CFA Institute hosted “Alpha and Gender Diversity: The Competitive Edge,” a conference to discuss gender diversity, foster professional development, and provide many opportunities for attendees to meet their peers from other regions in North America.
As part of the Future of Finance initiative, CFA Institute recently held what I hope is the first of many discussions within our community on recognizing the value women can add in the finance industry, investing in women’s careers, and generating practical approaches on how to increase the number of women in senior positions across the finance industry.
Plenty of ink has been spilled on the business case for greater diversity on management teams and corporate boards. And we broached both these topics over the course of a wide-ranging, day-long conversation with six esteemed panelists: Leah R. Bennett, CFA; Meredith A. Jones; Elsie Maio; Nelli Oster, PhD; Sarah Burley Reid; and Jocelyn D. Wright, MBA, CFP.
There were many insights to reflect on, but two question-and-answer threads stood out in my mind:
- Would it be good for the end investor if women represented more of the industry?
- Greater diversity of thought processes can often lead to better end results. But is the finance industry attracting and, perhaps more importantly, retaining women?
Gender Diversity and Putting Investors First
Bennett, co-CIO at South Texas Money Management, and Wright, The American College State Farm Chair for Women and Financial Services and assistant professor of women’s studies, pointed to the recent report from Credit Suisse that found a better gender mix among senior managers is linked with better financial results.
“Investors are better rewarded by companies that embrace more diversity at the board level and within management as well,” said Bennett.
Maio, a C-Suite catalyst for step change in organizations and individuals, added: “As in any organization or industry, rich diversity of inputs yields richer solutions. Chaos theory pointed that out, and now innovative companies are enjoying those benefits.”
The panelists also noted that women and men differ in how they approach the markets, and this ultimately affects the end investor.
“Biology certainly plays a role in trading and money management behavior, with testosterone and differences in brain structure impacting how men and women interact with the markets,” said Jones, an expert in the alternative investment industry and the author of the forthcoming (28 April) book Women of the Street.
“Cognition and behavior is also different between the sexes,” she said. “For example, a common theory is that women are more risk averse than men, but in actuality they tend to have different probability weighting schemes. Women’s probability weighting has been shown to be flatter in general, which can result in less unnecessary risk taking . . . women also tend to trade less than men and may be better at maintaining conviction in their strategy during times of market stress. All of these factors, among others, have contributed to strong gains by female investors in a variety of studies.”
When you think about how all this impacts end investors, there are four factors to consider, according to Jones:
- If men and women do trade differently, would it be good to have more access to money managers who more closely match your natural trading preferences? (With women on the verge of controlling 66% of the wealth in the United States, Jones is betting the demand for this skill set increases.)
- If men and women do trade differently, would it be good to have access to both male and female portfolio and money managers for the purpose of portfolio diversification? If everyone in your portfolio behaves and thinks the same way, can you really say you are diversified?
- If women do generate higher returns based on their trading behaviors, isn’t that good for the investors who choose to place money with them?
- If having more “female” trading behavior helps to mitigate market volatility, isn’t that good for all investors as well?
(Jones will be leading a panel discussion on the topic of “Women and Alpha: Where Women Provide an Investment Edge” at our upcoming Women in Investment Management Conference this June in San Antonio, Texas.)
Reid is a partner in Spencer Stuart’s financial services practice where she specializes in executive searches within investment management and wealth management. She noted that there were two topics to consider when weighing up whether having more women in the industry was ultimately good for the end investor: investment decision-making and the business side of asset management, i.e. the general managers, sales and client-services teams, as well as the product development, marketing, and strategy group.
On both counts, more diversity results in improved outcomes.
“Greater diversity of thought process can often lead to better end results,” Reid said. “So if there are different kinds of people contributing to the investment process (security selection, asset allocation, portfolio construction, macro inputs, risk management), and if there is richer debate/discussion leading up to portfolio decisions, you are more likely to achieve superior outcomes. It is certainly the case that gender diversity is beneficial, but this really also extends to other types of diversity as well.”
As to the business side of asset management, Reid added: “These individuals are thinking about the needs of investors and working to develop new products for them, communicate with them about the markets, or better serve them in various ways. With more women in these business roles, there will be more and better thinking about the needs of an increasingly diverse client base, whether that be retail or institutional.”
Now for the crux of the matter . . .
How Can the Industry Attract and Retain More Women?
“Wall Street is perhaps the most profit-driven environment in the world,” Jones said. “The best way to increase the number of women in trading and other top financial roles is to show that there is a compelling monetary reason to do so.”
That may be easier said than done.
It is no surprise that many firms and organizations wrestle with how to increase the diversity of their teams.
Said Reid: “Most organizations really believe in [diversity’s] importance, but most also struggle with taking the right actions to actually get there . . . Many organizations are able to attract women just coming out of school, but they don’t necessarily hang on to them and help them to flourish and contribute at higher levels.”
When it comes to attracting women, Reid noted, firms should start early.
“Organizations should have their senior women out and about, recruiting on campus, speaking at events, representing the firm in different venues, thus directly and indirectly encouraging young women to consider finance careers,” she said. “There should be a heavy focus on trying to get the best women candidates into the organization, from the get-go. At the senior levels of recruiting, it gets tougher because just factually speaking, there are fewer senior women in the business.”
Wright said the industry could do a lot more to attract and retain women and proposed several solutions:
- Positioning the industry as a potential career option to women at a younger age. This means getting out and talking at high school career days, speaking to female college students, offering internships, etc.
- Providing the appropriate training and development that will help retain more female advisers.
- Studies have also shown that practitioners with certifications and designations are more successful. Organizations such as The American College, CFA Institute, and the CFP Board can do a great deal to help build awareness among women.
- Addressing the compensation model and pay gap.
- Top industry executives must walk the talk and demonstrate the commitment to increasing the number of women at all levels, including the C-suite.
Okay, Now What?
On the retention side, Reid said it all comes down to culture and values.
“The diversity imperative (gender and other) needs to come from the top,” she said. “Senior management needs to view it and express it as a priority, both in words and action. Working hard to retain great women shouldn’t necessarily be any different than working hard to retain any great employee. It’s about focusing in on how to keep an individual motivated, productive, and happy. Senior managers — both women and men — need to stay closely connected to top performers, giving them ongoing feedback and support in targeted ways. You figure out what you need to do to keep the best people — and you do it. Responsibility, compensation, flexibility, more resources, etc.”
For gender diversity to gain more traction, we need to hold more conversations about it, and we women need to engage men in helping our cause (see: “Men Pitch In to Boost Women at Work”). But if our actions do not produce change, the words “gender diversity” risk becoming meaningless.
“‘Evangelizing’ is a critical part of the process,” said Jones. “Even though conversations such as these are happening with increased frequency of late, the information is far from being accepted and socialized. I think that we need to continue these dialogues in order to generate consensus that there is a sustainable financial benefit in including more women in the financial industry.”
How can businesses encourage board diversity?
1. Make a top-level commitment to support women leaders.
2. Design leadership positions to be more attractive.
3. Invest in mentoring and sponsorship programs.
What can women do to step up to senior roles?
4. Put your hand up for stretch assignments.
5. Push yourself out of your comfort zone.
6. Challenge your organization to tackle gender bias.
How can government support senior women in business?
7. Consider mandating quotas for women on boards.
8. Facilitate shared parental leave.
9. Build the necessary infrastructure and legislation.
How does society hold female leaders back?
10. Stop holding them up to a higher standard.
11. End the stigmatization of men who share childcare.
12. Outdated business leadership stereotypes need updating.
What do you think?
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