This is a rather unscientific demonstration of the power of the crowd. But it makes an important point, which is that when a crowd is involved, they are unlikely to be wrong.” 1
One finding they emphasised were groups where a few people dominated the conversation were less collectively intelligent than those with a more equal distribution of conversational turn-taking.
Other studies have yielded similar results. In a series of experiments conducted in Texas and Singapore, scientists put financially literate people in simulated markets and asked them to price stocks. The participants were placed in either ethnically diverse or homogenous teams. The researchers found that individuals who were part of the diverse teams were 58% more likely to price stocks correctly, whereas those in homogenous groups were more prone to pricing errors. In addition, when bubbles burst, they found that homogenous markets crash more severely. The findings suggest that price bubbles arise not only from individual errors or financial conditions, but also from the social context of decision making. The report postulates that diversity facilitates friction that enhances deliberation and upends conformity.
In a world where environmental change and risks to a business are high and accelerating, we would argue the greater ability of a management team to accurately identify approaching threats and challenges to a business and equally move to position a business to benefit from opportunities they can identify ahead of their competition is essential. We would actively look for CEOs who have created a diverse team leading their business who will be encouraged to challenge the status quo and who will come up with solutions and business opportunities that a non-diverse team would not identify. This then brings us to the opportunities thrown up by changing demographics, as one of the fastest growing wallets out there is that belonging to women.
Given this huge opportunity to find and finance products that will suit this growing wallet we would urge management teams to appropriately staff with talent that understand how to serve this demographic.
In another report BCG writes: “Companies that reported above-average diversity on their management teams also reported innovation revenue that was 19 percentage points higher than that of companies with below-average leadership diversity – 45% of total revenue versus just 26%.”5
The answer to increasing your company’s innovation is intuitive: People with different backgrounds and experiences often see the same problem in different ways and come up with different solutions, increasing the odds that one of those solutions will be a success.
The NY Times published an article last year titled: “More Women Than Men Are Going to College. That May Change the Economy.” Women have edged ahead in prestigious programs like medicine, law, and masters and doctoral degrees. While men still hold the lead in business schools, women are gaining ground. And so the usual hothouses that grow captains of industry and political leaders are now dominated by women – though men are still a majority of students in some of the highest paying fields like business, computer science and engineering.
Mary Ann Sieghart writes in her book The Authority Gap: “From an early age, girls outperform boys. They develop faster, talking earlier, learning self-discipline at an earlier age, and using a bigger vocabulary. They get better grades at school, particularly in the humanities, but also in maths and science in some countries, and outnumber boys at university. In the US, they win 57 per cent of masters degrees and 53 per cent of doctorates. So there is no question that they are better educated and qualified than men, at least in the younger generations, who weren’t held back from going to university. On average, girls and women are exactly as intelligent as boys and men.”6
For us, if an organisation is not taking the necessary steps to tap into this source of talent at the top levels of its organisation, it is selling itself short.
A concise way of laying out what practical steps can be taken can be found in the Women in Finance Charter authored by Dame Jayne-Anne Gadhia, former CEO of Virgin Money in 2015.
“Empowering Productivity: Harnessing the talents of women in financial services” was published in March 2016. The review found that in 2015, women made up only 14% of Executive Committees in the Financial Services sector. In response to the recommendations in that review, HM Treasury launched the Women in Finance Charter.
There are now over 400 firms, covering over one million employees, voluntarily signed up to the commitments of the Charter – from global banks
Equally of note would be steps taken by the FCA.
We are introducing new Listing Rules (LR 9.8.6R(9) and LR 14.3.33R(1)) to require, as an ongoing listing obligation, issuers that are in scope to include a statement in their annual financial report setting out whether they have met specific board diversity targets on a ‘comply or explain’ basis, as at a chosen reference date within their accounting period and, if they have not met the targets, why not. This allows companies flexibility to provide relevant context on their approach to board diversity, whether or not these targets are met.
The targets are:
- At least 40% of the board are women.
- At least one of the senior board positions (Chair, Chief Executive Officer (CEO), Senior Independent Director (SID) or Chief Financial Officer (CFO)) is a woman.
- At least one member of the board is from a minority ethnic background (which is defined by reference to categories recommended by the Office for National Statistics (ONS)) excluding those listed, by the ONS, as coming from a White ethnic background).
Why Having diversity at the senior level is vital
Mathematically, the gender pay gap widens in companies using this strategy and retention becomes even more of a problem as many of these junior women don’t see the culture as something they want to be part of and end up leaving.
“When a young woman hits a hard point in her career, if she looks up and does not see any women at the top, she wonders if she will make it – if all of the sacrifices she will have to make will pay off. That is one key reason why women leave the industry”
Marisa Drew, Managing Director, Co-Head EMEA Investment Banking and Capital Markets, Credit Suisse
The solution for us is to think creatively as pull in talent from other pools:
“It is not just one thing – we need to work on this on multiple fronts: we need more women at the top to set the example and set the tone. We need to deal with unconscious bias. And we need a whole set of programs to help development and career mobility for women”
Maria Morris, Executive Vice President, MetLife
“Today, you cannot get enough talent from one demographic pool, so banks that do a good job at diversity and inclusion will win because they will have better talent. Talent comes from so many diverse sources, to be successful all of them need to be tapped”
Jenn LaClair, Chief Financial Officer, PNC Businesses
Organisations such as Nurole and the Return Hub are providing invaluable services but more is needed to be done in terms of lateral thinking in hiring processes at the senior level. Biases need to be addressed as why women without a traditional career path to a senior role cannot be seen as a potential candidate for that role, and we have little time for the argument that it is hard to find good female candidates in a global pool comprising circa 4bn people.
An interesting case study is that from Aviva:
“Aviva became one of the first UK employers to introduce an equal parental leave policy, offering new parents in its UK business 12 months’ parental leave, with six months at full basic pay. The company introduced the policy to help remove barriers to career progression, challenge traditional gender roles and level the playing field for women and men at home and at work when a new child arrives. It has also given men the opportunity to spend more time caring for their young families, an overwhelmingly positive outcome shared by many parents at Aviva.”
- Equal parental leave has now been taken by over 2,500 people at Aviva, almost half of which (1,227) were men
- The average length of paternity leave taken has increased by three weeks over the four years: in 2021 it was 24 weeks, compared to 21 weeks in 2018.
- The average length of maternity leave has slightly decreased over the last four years, from 45 weeks in 2018 to 43 weeks in 2021.
- 268 Aviva parents have now taken equal parental leave more than once, including 131 men taking it twice.
In terms of what individuals may do to achieve change, this is very useful:
“We can accept that, however liberal and intelligent we are, we probably suffer from unconscious bias, whether against women, or people of colour, or people of a different class, or a different country, or a different sexuality. If we’re extroverts, we may be biased against introverts. If we live in the country, we may be biased against city-dwellers, or vice versa. We can’t stop this unconscious bias or put a lid on it. We don’t need to feel ashamed of it. But we can recognize that the bias is based on incorrect assumptions and then correct for it. The more we become aware of our bias in our everyday interactions, the easier it is. We should resist starting, when we first meet her, with the default assumption that a woman will be less knowledgeable, competent or interesting than a man. When we’re assessing a woman’s ability, we can ask ourselves if we’d think the same if she were a man. We can try to integrate the evidence that women are just as intelligent, qualified and authoritative into our working assumptions about people. We can notice if, when walking up to a man and woman together, we address the man first.”8
Profit Margins increase.
Employees’ sense of inclusion can contribute to an organization’s performance and talent retention. This is key – employee turnover costs money and can be disruptive.
Bank of America Merrill Lynch wrote in 2022, “Happy employees tend to stay put. Labor represents 40% of total corporate costs. Turnover is paramount today, given labor tightness: this year the US had 11mn job openings but 3.5mn jobs added. Not only does higher turnover lead to lower productivity, it costs money: the bulk of a US company’s cost is hiring, training and paying people and companies with happy workers have outperformed peers (~3ppt p.a.). Culture matters 2X as much as compensation, but it’s hard to fix and impossible to game.”9
This highlights how focusing on diversity can contribute to a company’s financial performance by increasing productivity, reducing staff turnover and lowering recruitment costs.
“By 2019, it’s predicted that Millennials will surpass Baby Boomers as the largest generation in the US. And due to their sheer size, their choices and preferences will make an outsized impact. They’ve grown up and are reaching the peak of their spending power and fundamentally shifting the ways people work – and live their lives. Millennials want everyone to have a voice at work, and they expect companies to contribute by allowing – and even encouraging – people to express different ideas, values and perspectives. In fact, 77% of Millennials surveyed say it’s important for them to work for a company that respects diverse opinions.” 11
A study published by BNEF and the Sasakawa Peace Foundation13 found that:
- Early adopters of the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) show higher gender diversity, and greater transparency on climate related data, than peers. International initiatives are expected to play a prominent role in climate governance and strategies in the near term and in cutting emissions in the long term.
- Leading integrated oil companies that have strategies for decarbonization and digitalization tend also to have higher female board representation. Gender diversity in that sector, however, does not directly contribute to lowering emissions and expanding digitalization.
- Gender-diverse firms also tend to make more investments in renewable power generation and energy efficiency improvement, according to a study by Haas School of Business, University of California, Berkeley. The study suggested that the presence of more women corporate directors encourages proactive pursuit of sustainable business practices and opportunities.
It not only makes business sense, but also builds a better society and serves our future generations. However, most importantly it is diversity at the senior levels of an organisation that is the game changer and the marker of this in an organisation can be observed through the gender pay gap. Therefore, investing in genuinely diverse companies can lead to better financial performance, reduced risk, and contribute to positive social outcomes.
We conclude with a quote from Dr Katherine Phillips, a professor of leadership and ethics management at Colombia Business School:
“The fact is that if you want to build teams or organizations capable of innovating, you need diversity. Diversity enhances creativity. It encourages the search for novel information and perspectives, leading to better decision making and problem solving. Diversity can improve the bottom line of companies and lead to unfettered discoveries and breakthrough innovations. Even simply being exposed to diversity can change the way you think.”14
2 Evidence for a Collective Intelligence Factor in the Performance of Human Groups | Science
3 Ethnic diversity deflates price bubbles | PNAS
4 Managing the Next Decade of Women’s Wealth | BCG
5 How Diverse Leadership Teams Boost Innovation (bcg.com)
6 Sieghart, Mary Ann, ‘The Authority Gap’
7 Rachel Johnson’s Difficult Women: 79 – Mary Beard on Apple Podcasts
8 Sieghart, Mary Ann. The Authority Gap (pp. 282-283). Transworld.
9 Bank of America Global Research, ESG Matters, ‘Follow the numbers, not the naysayers’.
10 Not inclusive? You’re losing 39 percent of job applicants | McKinsey & Company
12 BofA – Thematic Investing (baml.com)
13 BNEF Long Form Template (Grid) (spf.org)
14 How Diversity Makes Us Smarter | Greater Good (berkeley.edu)
ESG in fixed income – why do it?
Engagement summary: NatWest Q3 2022
Jupiter Fixed Income Engagement Review – September 2022
The journey to net zero: how we analyse bond issuers’ carbon footprints
The value of active minds: independent thinking