Monthly Archives: July 2019

Event Recap (part 3): Diversity & Inclusion: Bridging the Gap in the Investment Industry

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By: Hilary Wiek, CFA, CAIA, Society Volunteer

In the first two segments of my reporting on the Diversity and Inclusion event of June 5, I discussed the misconceptions about the event and some of the high-level topics discussed by our esteemed speakers.  In this final installment, I will outline research and resources on the topic that may 1) help convince some people that there is supportive evidence to justify diversify and inclusion efforts in the workplace and 2) provide guidance on solving some of the problems outlined previously. As a recap of the prior blog post, one broad topic area was having productive conversations about diversity and inclusion, a second was hiring a diverse workforce, and a third was retaining a diverse workforce.

Speakers at the CFA Minnesota event stated that bringing evidence-based findings to discussions about diversity and inclusion has really helped to advance the topic, in some cases converting individuals who were skeptical there even is a problem. A number of studies have found what many who have given this topic any thought would have suspected from anecdotal evidence, but having research to back up the suspicions has been powerful. 

For data and evidence, the University of Chicago, in partnership with private sector support, has dedicated resources to study this topic under the moniker The Science of Diversity and Inclusion (SODI). Their website states that the initiative “brings together leading researchers and organizations to identify, accelerate, and apply new evidence-based approaches to advance diversity, inclusivity, and belonging in our places of work and learning.” Profiles of the affiliated researchers, their areas of study, and a summary of their findings can be found here.

One of the more interesting studies mentioned at the CFA event was from a team out of Columbia University (Sheen S. Levine, Evan P. Apfelbaum, Mark Bernard, Valerie L. Bartelt, Edward J. Zajac, and David Stark) about homogenous and heterogenous investment teams (called “experimental markets” in the study).  A link to the work, entitled Ethnic Diversity Deflates Price Bubbles,” can be found here.  From the abstract (the italics are mine at the end): 

“Markets are central to modern society, so their failures can be devastating. Here, we examine a prominent failure: price bubbles. Bubbles emerge when traders err collectively in pricing, causing misfit between market prices and the true values of assets. The causes of such collective errors remain elusive. We propose that bubbles are affected by ethnic homogeneity in the market and can be thwarted by diversity. In homogenous markets, traders place undue confidence in the decisions of others. Less likely to scrutinize others’ decisions, traders are more likely to accept prices that deviate from true values. To test this, we constructed experimental markets in Southeast Asia and North America, where participants traded stocks to earn money. We randomly assigned participants to ethnically homogeneous or diverse markets. We find a marked difference: Across markets and locations, market prices fit true values 58% better in diverse markets. The effect is similar across sites, despite sizeable differences in culture and ethnic composition. Specifically, in homogenous markets, overpricing is higher as traders are more likely to accept speculative prices. Their pricing errors are more correlated than in diverse markets. In addition, when bubbles burst, 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 evidence may inform public discussion on ethnic diversity: it may be beneficial not only for providing variety in perspectives and skills, but also because diversity facilitates friction that enhances deliberation and upends conformity.”

The CFA Institute has been spending time on diversity and inclusion as well, conducting surveys and hosting workshops with industry participants to better assess the state of diversity and inclusion in the industry, provide public data from these efforts, and come up with ideas on how to address the problems. Here is a link to the CFA Institute’s published work derived from its efforts, “Driving Change:  Diversity & Inclusion in Investment Management,” which was distributed at the CFAMN event. 

Once evidence has been supplied and hopefully accepted, the next question is what can be done about it?  One of the resources mentioned several times at the CFA event was the book What Works, by Iris Bohnet, who is affiliated with the SODI efforts outlined above. The SODI site summarizes the book as a resource “to hand decision-makers the tools they need to move the needle in classrooms and boardrooms, in hiring and promotion, benefiting businesses, governments, and the lives of millions.” A short video summarizes Bohnet’s work here.  She also authored the following articles:

The pipeline of diverse candidates was another of the significant issues identified at the CFAMN event – even if a firm wants to hire from a diverse talent pool, there is often a dearth of qualified candidates fitting diverse profiles. Several organizations were mentioned at the event that are attempting to reach women and minorities earlier in their education to let them know a) that the investment field could be an attractive career option and b) what they need to do in order to prepare oneself for a career in the field (including education and internships).

One organization called out at the event was Girls Who Invest (GWI), which got its start in 2015.  Each summer since 2016, GWI has held a four-week summer educational program for college women, after which each participant works in a six-week paid internship. The stated goal of the organization is to get 30% of the world’s investable capital managed by women by 2030. A New York Times article linked on the website states that only 7% of investment managers in the $15 trillion mutual fund industry are women.  If you are looking for a way to help solve the diversity problem in our industry, GWI seeks volunteers to mentor students, speak at events, and teach courses during its college summer intensive learning program. They also seek financial partners in the investment management industry to provide mentors and host interns.

Another organization is Invest In Girls. Per the website: “Invest In Girls works with schools, community organizations, corporations and foundations to provide financial literacy programming to young girls.” This group’s programs seek to educate 10th, 11th, and 12th grade girls in workshops before they get to college, allowing them to learn about personal finance and careers in finance while there is still time to formulate a higher education plan. This organization is seeking volunteers to make short videos for its Role Model Exchange outlined here.

In 2013, financial services firms in Chicago came together with The Chicago Community Trust to form the Financial Services Pipeline Initiative. The key goals of this group are to 1) increase the representation of Latinos and African-Americans, at all levels, within the Chicago area financial services industry and 2) improve the overall cultural competency within the Chicago area financial services industry. While volunteer activities may be out of reach for the CFAMN membership, the website has interesting data and may provide ideas for how to bring some of this group’s activities back to our region.

Other resources/research not discussed at the event, but suggested by the speakers:

In closing, did you know this event was planned and organized by a CFAMN volunteer? Thanks again to Amy Jensen, CFA, Investment Director at Northwest Area Foundation who put together this enriching program. Do you have a great idea to share or a project you feel passionate about? E-mail society staff and they’ll help you make it happen!

Event Recap (part 2): Diversity & Inclusion: Bridging the Gap in the Investment Industry

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By: Hilary Wiek, CFA, CAIA, Society Volunteer

In my last blog post, I provided an introduction to the excellent program CFA Society Minnesota had in June on Diversity and Inclusion. In this post, I’ll outline some of the key topic areas from the event, drawing upon talks by BlackRock’s Jonathan McBride, Wells Fargo’s Leyla Kassem, CFA, discussions at the tables and then shared with the room, and two panel discussions – one with women working in their organizations on diversity and inclusion issues and the other with women discussing their paths to the leadership positions they now hold. A third post will provide information about where one can read more about or do more to advance this important topic. So here are some thoughts on the topics discussed on June 5:

1.) To have productive conversations about diversity and inclusion:

Assume positive intent. Our speakers challenged us to have an important and uncomfortable conversation. You probably have noticed that you will allow some people to tease you quite mercilessly and you take no offense. Or if you do take offense, you find yourself excusing them because you know that they meant nothing by it. Yet if a stranger made the same joke, your reaction might be quite different. This is one indicator of unconscious biases that we all harbor.

When hoping to have a constructive conversation on the topic of diversity and inclusion, it is good to do what you can to be aware of your biases, realize that the other people have their own biases, and make an effort to act with the assumption that you both have positive intent, regardless of what comes out of your mouths. By doing this, hopefully everyone will give the benefit of the doubt when it comes to word choice and will truly hear the perspectives being expressed.

It is important to note that unconscious bias training will not eliminate biases. The hope is to mitigate biases and have people learn to hire or act around the biases.

2.) Hiring a diverse workforce in the investment industry:

One major problem to getting to a more diverse workforce: pipeline. Many people at the event mentioned that when trying to hire people for their open positions, the applicants were overwhelmingly white males. One leader had assumed that her company was just doing a poor job recruiting, that the diverse talent was out there, but she came to see that many women and people of color opt out of the business because of things they have heard about the lifestyle and culture or they do not even realize what investment roles entail when they are in the process of designing their educational path. The next blog post will list a few real-world programs working to solve the problem of attracting diverse individuals to the industry.

It was noted that the accounting world has been successful in recent decades in identifying potential talent when there is still time to get the proper training. The investment world needs to get to diverse individuals early on and share with them what skills, attitudes, and attributes are needed to be successful so that those who are attracted by those things will know what they need to do to be qualified for investment roles when the time comes.

While schooling is important to get your foot in the door, learning the investment business is very much done through apprenticeship. It is important that young diverse talent has access to the mentors who will guide them through the early years of their career and give them the opportunities to broaden their skill sets at appropriate intervals. Companies can create programs to ensure that unconscious bias does not lead to only a certain type of person being selected for such opportunities.

What’s the goal? 50/50 male/female? Numbers are arbitrary and it could take years, even decades, to get to that level at the current pace. But getting to inclusive is more immediately achievable. The goal is to create an environment where all cultures and backgrounds feel heard and want to stick around. It will be harder to get to 50/50 if your diverse staff keep leaving because they don’t feel welcome.

3.) To get the most benefit out of having a diverse workforce:

The problem: retention. Even if you are able to make diverse hires, you will not garner the benefits of diversity if you are not able to make everyone feel heard (the “inclusion” part of diversity and inclusion), as the struggle to fit into an unnatural mold will be exhausting for many. While people are struggling to conform, they will not feel comfortable providing their best ideas for fear of dismissive attitudes from colleagues. Eventually people will depart, leaving your team back at square one in trying to restock the talent pool. Many firms will see this as a learning moment and assume that people who bring in diverse perspectives are a bad fit and they decide to hire people more likely to stick around – which often means hiring people who look or think or act as the current employees already do.

The solution is to focus the company’s efforts on inclusion. This means getting to know everyone, learning to play to each person’s strengths and listening to their points of view. This may be challenging to some, but it has been proven (see the next blog for research citations) that the more difficult and uncomfortable investment discussions that come from heterogenous teams result in better team decisions. As one speaker said, unanimity feels like a good thing, but hard things should be hard.

One way to work on the inclusion problem is to get to know each other. We have been conditioned to not ask about others who are different at work, to “keep it professional”, but getting to know the people on your team allows for the evident differences to fade and the commonalities to shine through. It also allows people to open their minds to the differing perspectives and realize the value they bring to a conversation. Diverse teams must find ways to bring the diverse points of view out, or the effort will have been wasted.

In a crisis, all of the differences and negative intent assumptions matter less and people come together to get something done. And afterwards the team is stronger for it. As a company, you have to figure out how to get your staff there without a crisis. Managers who are willing to show vulnerability to employees by admitting that this is hard and they need help will get their staff to care. Be fallible. People like the underdog.

I typed pages and pages of notes from this event and there were other really great points made during the morning, but I have attempted to faithfully provide the major areas of discussion. Please feel free to comment on the CFA site, particularly with substantive efforts you have been involved with or are trying that are intended to make a difference in the diversity profile of our industry.