Practical analysis for investment professionals
29 December 2015

Best of 2015: The Challenge of “Diversity”

Posted In: Best Of

Why does the word “diversity” reflexively conjure an “us vs. them” mentality? Why does it seem like a criticism? Similar to the “fight or flight” reaction when one is faced with stress, all too often the blood pressure and adrenaline levels begin to rise when confronted with the topic.

Too many articles on diversity tend to use language that only fuels the negative fire. Instead, we should treat diversity as a positive conversation, an idea whose time has come, something that serves the good of all, and never as a club or an indictment.

Research shows that diverse teams do, in fact, yield better business decisions. We can all applaud that. Better business decisions lead to better bottom lines and better investor outcomes. Again, a winning situation. Why not consider the “diversity” exchange along these lines?

Here, then, is a small selection of articles to provide some insight when the topic of diversity surfaces — and your blood pressure rises:

The Value of Diversity

Initially, this article rather oddly compares renewable energy and diversity. Wait, what? But read on. We know we need to move away from dependence on fossil fuels, but questions arise: Can we rely on renewables when the sun doesn’t shine or the wind doesn’t blow? Similarly, we know there is a moral imperative to put more women on boards and into senior management, but what about financial performance? Do companies with diverse boards really perform better? Yes, this article answers. And not only subjectively better, but materially better. Tying both themes together, the author concludes, “Just as the world will grow faster and more sustainably powered by renewables, your [company’s] business growth potential will increase with greater diversity in decision-making.”

Why Gender Diversity Means Better Outcomes for Investors

Mixed-gender teams work well together because men and women think differently — something that should help practitioners build stronger investment firms. This article discusses those differences, and how the innate skill sets of men and women can work together to the benefit of the investor.

Stock Tip: Try Betting on Companies Led by Women

Title aside, the premise of this article, which is backed by research, is that companies with a relatively high percentage of women in power perform better than those dominated by men. Put bluntly, when it comes to investing, gender pays. Whether motivated by social investing or just pure profit, “There’s money to be made in stocks of companies with a lot of women in top jobs.”

Alpha Wounds: A Lack of Diversity in the Human Resources Portfolio

This interesting article by my colleague Jason Voss, CFA, discusses the lack of diversity in the field of active management and the finance industry more generally. Beginning with the well-known imperative that investment managers should diversify across all of their portfolio assets if they want to limit losses and reach long-term financial goals, he charges that “instead of human resources portfolio diversification, we find bland sameness and concentration.” I particularly liked his argument, “so maybe you disagree that diversity all by itself is a panacea? Let’s flip the argument on its head then. Would you as a portfolio manager concentrate your portfolio in just one to 15 assets? Probably not.” He concludes that “savvy investors look to increase returns by minimizing autocorrelation, covariance, and so forth. Do the same with the people on your staff.”

Why Gender Equality Is Good for Everyone — Men Included

In this TED talk, the sociologist and author Michael Kimmel makes the funny and practical case for treating men and women equally. This quote alone is worth the viewing: “Privilege is invisible to those who have it.” Kimmel argues that race, gender, age, etc. are invisible traits to those who don’t have to think about them, and that making gender visible to men is the first step in engaging them to support gender equality. Gender equality is not a zero-sum game, Kimmel concludes, but a win-win for all, men included.

How Advancing Women’s Equality Can Add $12 Trillion to Global Growth

While all types of inequality have economic consequences, this in-depth report from McKinsey & Company focuses on the global economic implications of the lack of equality between men and women. For example, the study considers a “full-potential” scenario in which women participate in the economy to the same degree as men, and finds that it would add up to $28 trillion, or 26%, to annual global GDP in 2025 as compared with a business-as-usual scenario. For those looking for hard facts, this report is convincing.

Women in Investment Management: The Business Case for Diversity

Another colleague, Lauren Foster, notes that when teams run by men and women together were studied, there is collaboration and diversity of thought, and that is where you see the outperformance over other, non-diverse teams across both short- and long-term periods. Interestingly, she also writes that “there is a convincing business case for not just gender and ethnic diversity, which is how we typically think about it, but also in terms of introverts versus extroverts.”

You Won’t Live to See Gender Pay Equality

This piece made me sit up and take notice. Another 118 years before we close the gender pay gap? Living in the United States, I suppose I should be heartened that the milestone can be reached in this country by 2059, a mere 44 years from now. When it is increasingly necessary for families with children to have two incomes, however, this is nothing to cheer. What must we do differently to effect any real change?

For a slightly different take on diversity, read “Millennials Have a Different Definition of Diversity and Inclusion.” The author writes, “When it comes to defining diversity and inclusion, the generation gap between boomers, gen-Xers, and millennials is more like a growing trench.” As the parent of two millennials, I can confirm that our thought processes, more often than not, run on completely different tracks. Millennials view diversity as the blending of different backgrounds, experiences, and perspectives within a team. For boomers and gen-Xers, it is seen as more of a moral and legal imperative: in other words, the right thing to do to achieve compliance and equality. So why is this important? Because in 10 years millennials will compose nearly 75% of the workforce. Understanding how they view diversity and inclusion now will help a company’s bottom line down the road, especially in terms of engagement and empowerment.

Also, for pure amusement, read “Apple Exec Under Fire for Saying Women Find It ‘Difficult’ to Discover New Music.” I wasn’t sure whether to laugh or scream, so just settled on shaking my head. The response on Twitter said it all. Oh, and so did his apology a day later.

And finally, I can’t help but love this simple comment by Malala Yousafzai: “It’s about equality, it’s about feminism, it’s about saying that we’re all human beings. Why would you separate us just because our gender is different?”

Here’s to a more inclusive 2016.

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

About the Author(s)
Susan Hoover, JD

Susan Hoover was the editor of Connexions, the CFA Society Leader newsletter, and the digital editor of Enterprising Investor at CFA Institute. Prior to CFA Institute, Hoover worked for McCallum & Kudravetz, PC, and the US Department of the Navy in real estate and labor law. Hoover earned the CFA Institute Investment Foundations™ Certificate and holds a BA degree from Lehigh University and a JD degree from the Washington College of Law, American University.

1 thought on “Best of 2015: The Challenge of “Diversity””

  1. Becky B says:

    Interesting that your article on the value of diversity does not touch on the interest, integrity, abilities or experience of the person, male or female, in their role on a team/board etc. It simply states that diversity of the sake of diversity is good. This is just a sad attempt to push a social agenda under the guise of a ‘moral imperative’. It is also demeaning to the women who possess all the traits to be leaders without the quota requirement. What about freedom of choice, in the pursuit of a career, regardless of gender? Social engineering, even with the best of intentions, always fails in its goal of equality.

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