The author is an associate professor at the London School of Economics and founder of LSE’s Inclusion Initiative, which focuses on creating inclusive workplaces.
Can diversity bring better business results? The lazy answer is simply “yes”, since the question is so complicated. The truth is, diversity is linked to better business outcomes, especially when the job involves innovation, creativity and risk assessment: think investment banking, asset management and capital -risk. This article, and my broader work, focuses on diversity in these sectors and in professional services.
I see again and again that the battle that remains to be won internally in organizations is that of eliminating favouritism. In practice, this means those with the closest affinity to their manager get the biggest share of opportunities, visibility and voice. Winning the patronage battle will close unexplained pay gaps and boost leadership positions for underrepresented talent.
Many financial services companies are, in fact, on the cutting edge of recognizing and stopping patronage. They recognize that there is a business advantage in employing and promoting staff from diverse backgrounds.
The most common barriers to progress we see are poor managers of all genders who refuse to embrace the idea (explicitly or covertly) that diversity matters.
To take advantage of diversity, one thing is absolutely essential: inclusive leadership. This is a jargon word thrown around by senior leaders who want to look good, but the practicality is that truly inclusive leaders are seen through their actions.
An inclusive leader will ensure that all voices on the team are heard and will make efforts in the recruitment process to find the diversity that their organization lacks. They do this to give their team an edge and gain access to a bigger bonus themselves. Finding diverse talent is harder in some industries than others, but it can be done. I’ve had many conversations with private equity leaders, for example, where they lament the industry’s “lack of diverse talent” as the cause of its dismal diversity statistics. The facts do not confirm them.
Progress in private equity is possible, but it takes effort. KKR, for example, recruits with the help of organizations such as Level 20, a non-profit organization aimed at creating a better gender balance in the sector, and the 30% Club, which seeks to promote more women in leadership positions.
Johannes Huth, partner and director of KKR Emea, says: “Cultivating partnerships with organizations that connect us with underrepresented talent allows us to hire the best, as we draw from wider pools. KKR is committed to diverse representation simply because it’s good for our business.
These actions are bearing fruit: KKR’s diversity statistics show that one in four senior executives worldwide is a woman, and women make up 44% of its workforce. KKR prioritizes expanding female representation at the top, as well as early in the pipeline.
To retain underrepresented talent at all levels, everyone must have an equal opportunity to progress. In 2021, I wrote a ‘Good Finance’ framework, on behalf of the UK membership group Women in Banking and Finance. This offers practical actions a company can take to ensure it retains and develops talented employees in a way that benefits the business.
The women I interviewed for the report told me that one of the biggest obstacles for them was that their managers didn’t pass on opportunities that could lead to visibility and promotion. Inclusive leaders can solve the manager’s “block” by paying attention to how projects and events are distributed. Note the distinction between “valuable tasks” (meeting a new client) and “non-valuable tasks” (arranging a colleague’s farewell drink).
An often overlooked point is that diverse talent should not be forced to conform to perspectives already shared by their colleagues. If they are not listened to – or even actively shouted – the business loses crucial information. The endless trend towards consensus-based decision-making is a bane on innovation, which only happens when outlier ideas are allowed to breathe. Consensus-based decision-making is also the thing that most often silences underrepresented talent. Endless battles to be heard require a mental muscle that most humans struggle to develop.
Too often, women and people from minority groups leave or adapt to the status quo, to the detriment of the business.
Meetings are crucial to assess whether all colleagues are encouraged or not heard. Gorm Thomassen, Chief Investment Officer and Co-Portfolio Manager of AKO European Fund, a hedge fund, says: “Whenever I invite colleagues to a meeting, I don’t want to waste their time. I am vigilant to the dynamics and ensure that every voice is heard. For me, that’s the foundation of inclusivity: hearing the perspectives of every person in the room. »
Role models among senior management are important. Marcus Satha, global head of short-term interest rates trading at Citi, has taken six months of parental leave. Afterwards, “the number of men and women in my company who have taken [it] skyrocketed because it challenged industry standards,” says Satha. “In particular, it was a welcome relief for many female traders who feared that having children would have a negative impact on their careers. I have found my team to be more open and engaged, they know I will support them through their personal challenges and life events, which has dramatically improved loyalty and motivation in the office.
None of these actions are enough to guarantee real change. Only rigorous continuous evaluation will guarantee the sustainability of the results. KKR and Morgan Stanley track progress with data. This assessment step is essential, but too few companies do it. As an academic working with financial services organizations, I’ve found that HR departments tend to create diversity initiatives that are “best practices”, or when they feel they will create a change. The effectiveness of these initiatives is rarely assessed in any meaningful way, suggesting that millions of dollars around the world may be funding initiatives that create no lasting change, or may even backfire. These internal missteps can be compounded by the use of external diversity consultants who roll out their initiatives (and then walk away).
Monitoring and evaluating data is the final piece of the diversity puzzle – and it is absolutely essential. This is the only way for any organization to secure and accelerate the progression of underrepresented talent.
Diversity initiatives: how not to do it
Five areas that may be ineffective or poorly targeted in your organization.
1. Unconscious Bias Training: An afternoon of training will not reprogram prejudices cultivated throughout a lifetime.
2. Mentoring without access: Underrepresented talent tends to be over-restricted. It is beyond condescending to be talented and ambitious and to be given a mentor who does not provide them with opportunities or access to their networks.
3. Complaint channels: In the past, HR departments have sometimes made things harder rather than easier for victims of discrimination and isolation. These systems in your organization may need an overhaul.
4. Managers: Underrepresented talent is often held back by poor managers. The internal training currently offered to managers largely does not allow them to be inclusive leaders.
5. Pipeline issues: Many organizations have early career pipelines for various talents. Without similar targeting of mid- and late-career professionals, an imbalanced power structure emerges and the voice of underrepresented talent is lost – none of them experienced enough to be heard.