March 15, 2023 Tapping into the diversity premium
Diversity isn’t simply an excuse for more data collection on the part of the authorities. Nor should it be seen as a box ticking exercise; something which has to be done but distracts from profit generation.
Various initiatives over recent times have helped to change the narrative over diversity. And let’s face it, the statutory duties of a director include taking account of the interests of the company’s employees, fostering the company’s business relationships, and maintaining a reputation for high standards of business conduct. And none of these can be fully pursued without taking diversity into account.
However, there is a difference between moving away from seeing diversity activities as a potential drain on company resources and moving towards actively promoting diversity and inclusion in order to boost company outcomes. And according to one report there may still be some way to go.
The report by WTW focused on one particular sector, the asset management industry. And the researcher’s findings can perhaps be best summed up in the title of the paper: “Diversity in the asset management industry: on the right track but at the wrong pace.” Commenting on the paper, WTW’s head of manager research, Chris Redmond, noted that whilst there has “undoubtedly been progress made on diversity by many asset managers in recent years, …the fact is that the pace of change at an industry level is still slow and disappointing.”
Despite those negative implications, the report also showcases the diversity premium which is available for those organisations which have tapped into the diversity marketplace. So much so that the report reveals that investment teams in the top quartile of gender diversity outperform those in the bottom quartile by 45bps in terms of net excess return. Interestingly this finding is irrespective of firm size with the report’s authors finding little difference between larger and smaller organisations.
So a focus on diversity can deliver premiums in terms of organisational performance. It is also important to stress that diversity should not simply be seen in terms of gender or ethnicity. A diversity of background, thought, training, outlook, and approach can also bring dividends for organisations. We also shouldn’t forget that, as the report’s authors comment, an attention to diversity within an organisation could help the company to be more representative of the customer base which they are looking to serve; perhaps helping to shape products and services which best match their client portfolio.