Why diversity in recruitment is only the start

Investment firms that want the full impact of representation must go beyond getting the numbers right

Why diversity in recruitment is only the start

The evidence of a correlation between diversity and organizational success just keeps mounting.

A new report from S&P Global analysed earnings and share price data following 5,825 new executive appointments — including 578 involving women — from 2002 to May this year. The data, which focused on U.S. companies, showed that there were 19 male CEOs for every woman in the role at the end of 2018; for CFOs, the male-to-female ratio stood at 6.5. 

In the two-year period after a new CEO appointment, companies with female incumbents outperformed those with male appointees by an average of 20%. Those with newly instated female CFOs, meanwhile, were found to outperform their counterparts by 8% on share performance and 6% on profitability.

It’s hard to deny the role that the actions and decisions of women in power play in this trend. But according to S&P analysts, the findings support that “firms with higher earnings quality and lower leverage are firms with a culture conducive to making a female appointment.”

In other words, firms that aim to succeed can’t just count on token female appointments; they must look at their culture as a whole. And that’s exactly what investment firms participating in the CFA Institute Diversity & Inclusion Experimental Program aim for.

“A lot of firms are already focusing on enhancing diversity, bringing together talent with different backgrounds and perspectives, within their workforce,” said Rebecca Fender, head of the Future of Finance Initiative at the CFA Institute. “But a lot of firms are now thinking more about inclusion, which is really about leveraging that diversity as part of the organizational culture.”

According to a report on the CFA’s D&I program, investment firms are looking at different aspects of representation. Among some 300 companies surveyed, that included 96% who said they were focused on gender; 83% on race/ethnicity; 58% on LGBTQ; and 43% on generational aspects (e.g., millennials).

Opening doors
Having such targets is a good start when it comes to recruitment. But as Fender emphasized, there’s still much to be done in terms of how the hiring process goes.

“Once you've found the right people to come in the door for an interview, you need processes in place to evaluate people and take out bias,” she said. “That means training your interviewers so they know how to evaluate people.”

Having well-prepared interviewers ensures that talent is evaluated and introduced fairly into the organization; at the same time, it establishes a favourable first impression of the firm among candidates, whether or not they are ultimately hired.

Another important point for firms to consider is to have systems aimed at retention. While Fender stressed that turnover can be a natural, even healthy, dynamic within any company, too much of it can be harmful for firms that want to foster an inclusive culture.

“One of the ideas that we put forward in that report is to use a ‘stay interview,’ which is already done in various HR circles,” Fender said. “Instead of just an exit interview, where you really hear why the person left, you proactively find out what would potentially make them leave, and why they would stay.”

One participating firm has already adopted the measure, and is planning to use their findings to inform a future engagement survey. That creates a twofold benefit: employees see that the company is listening, and they have a way to measure success going forward.

Take it from the top
And as important as D&I efforts may be, it can still be difficult for employees within a company to discuss. As with all situations that involve the interfacing of different perspectives, talking about diversity within a firm can make for challenging conversations. That’s why the CFA Institute recommends that firms help the process along with talking points to help leaders start discussions and become more comfortable with the subject.

“It’s useful for leaders who stay silent for fear of saying the wrong thing,” Fender said. “But at the same time, you can’t just be scripting this; you need to personalize it as well.”

She also emphasized that culture can’t be mandated in a memo; there may be a declaration from the top that decrees inclusiveness across the organization, and the CEO can say all the right things and be authentic. But employees who hear one thing from the chief executive, and have a different experience with their immediate managers, will be much more influenced by what their manager says.

“Strong leadership is necessary, but not sufficient,” she said. “So one of the keys to success is really understanding how much a culture impacts the whole organization.”


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