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Get On-Board Immediately or Risk Becoming Irrelevant: Workplace Diversity Drives Positive Alpha

19 juillet, 2017

Get On-Board Immediately or Risk Becoming Irrelevant: Workplace Diversity Drives Positive Alpha

Industry Diversity

With over twenty years of professional investment experience, I view my participation in this great industry as a privilege. As such, I make myself available to those seeking some wisdom and guidance in pursuing a career in finance.  In many cases, the people that reach out to me are newcomers to North America. Sometimes I sense that they feel disadvantaged for being born and raised abroad. Immediately, I put this concern to rest by telling them that “different is beautiful”. At no other time in history has investing been as much of an international discipline as it is today. ‎In fact, my conviction is that as each month goes by that any entity adhering to sub-optimal ethnic and gender diversity hiring practices will soon find themselves left markedly behind.

Still Time to Get On-Board

Gone are the days that large pension funds can expect to deliver superior performance simply by hiring readily-available, mostly male, local talent. In order to sustainably thrive, these entities must fully commit to employ the most diverse workforce possible or risk delivering perennial under-performance.‎ The added cost associated with adopting a global hiring process is more than offset by the value-add created by virtue of bringing together a unique combination of global thought leaders. For the investor, a strong, diverse team that respectfully challenges one-another’s ideas ‎by offering differing perspectives provides a more solid basis for sound decision-making.

Workplace diversity in finance remains under-implemented and thus the window for action remains open. ‎Nevertheless, the sad truth is that some firms are fiercely complacent while others are in complete denial. Some even state that they have a well-established, workforce diversity process that they fully adhere to. Most often this is simply not true. In other cases, their workplace diversity objectives fall well short of what is necessary to flourish.

Inherent and Acquired Diversity

Harvard Business Review points to two kinds of diversity: inherent and acquired. Inherent diversity involves the traits that people are born with, such as sexual-orientation, gender and ethnicity. Acquired diversity involves traits gained through some form of experience: such as an upbringing in another country that allows you to be cross-culturally aware. HBR believes that companies whose leaders exhibit at least three inherent and three acquired diversity traits as having “two-dimensional diversity” and have an edge in their decision-making. We transcend this two-pronged ‎approach with the belief that investors similarly require two-dimensional diversity to excel in decision-making or risk being left behind.

Concluding Remarks

We urge investors to methodically adopt and implement broad and inclusive workplace diversity policies. One needs to ask “does my firm offer two-dimensional diversity?” If your source of hiring is disproportionately made up of males from local colleges then you are not and in fact are sub-optimizing your alpha generation potential. The larger the size of your firm the more difficult it will be to make these critical workplace diversity modifications. Before anything else, you need buy-in from the top brass and that can be a drawn out process. But it is worth it because embracing difference will keep your investment firm relevant.  Because after all: different is beautiful.

Bibliography

“How Diversity Can Drive Innovation”, Sylvia Ann Hewlett et al., Harvard Business Review, December 2013.

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