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Why diversity matters

In business, diversity can be the difference between success and failure. But while progress towards it has been frustratingly slow in many areas, the pressure is mounting on companies to act.

From Alabama to Amsterdam; from San Jose to Seoul; millions of people from across the world took to the streets in June to take part in Black Lives Matter anti-racism protests. Anger at the recent tragic deaths of three black Americans, George Floyd (46), Breonna Taylor (26) and Ahmaud Arbery (25), may have been the spark that lit the fuse, but the demonstrations reflected deep-rooted and long-held resentment against a societal ill that has festered for too long.

While Donald Trump’s opposition to the protests were, even by his standards, a gross misreading of the public mood, leaders of some of the world’s biggest companies – including JP Morgan, Amazon and Twitter – were quick to issue statements condemning racism and expressing solidarity with the protesters.

Their comments were greeted with understandable cynicism in some quarters, yet not so long ago the idea of a major CEO wading into a debate on race or other issues of social justice would have been unthinkable. And while their actions will ultimately speak louder than words, perhaps they have to be taken at face value for now with a recognition that progress will depend on the collective endeavours of individuals, companies, investors and governments.

“The first thing is to recognise we have a problem and a collective responsibility to work towards a solution. It must also be acknowledged that the US does not have a monopoly on inequality. The problem is systemic and global,” says Mirza Baig, global head of governance at Aviva Investors. “We need to ensure the diversity agenda is expanded to fully reflect the spectrum of marginalised communities, including colour, race, disability and class.

“It is not good enough that companies satisfy themselves with policies that simply prohibit discrimination – this only serves to perpetuate the status quo. If we are going to make a dent in tackling a legacy of institutionalised racism and inequality, it will necessitate proactive action to address the imbalance. Companies can make a difference. We don’t have all the answers, none of us do, but we are committed to being part of the movement for change.”

In this article, we explore all forms of diversity, including gender, age, LGBT+, neurodiversity and ethnicity.

The risks of getting diversity wrong

Companies are only as good as their people, so goes the business mantra of recent decades. However, organisations that lack diversity can deter talent from joining. Consumers also increasingly choose brands that reflect their values; companies are starting to echo this in their choice of suppliers. Not embracing diversity can therefore lead to a suboptimal workforce and a loss of revenue, something shareholders are increasingly concerned about.1

We tend to interact with people who agree with us and look for consensus in teams rather than get a full spectrum of views

In Billion Dollar Lessons: What You Can Learn from the Most Inexcusable Business Failures of the Last 25 Years, Paul Carroll and Chunka Mui argued the number one cause of business failure was misguided strategy rather than poor execution, incompetent leadership or bad luck. They found that as many as 46 per cent of the failures could have been avoided if companies had been more aware of the potential pitfalls. “A significant percentage of the other failures could have been mitigated if companies had seen warning signs,” they wrote.

Annie Duke, World Series of Poker champion and author of the upcoming book, How To Decide, identifies two reasons for bad decisions: ill fortune and imperfect information. One way to improve on this imperfect information is to collect different perspectives to gather corrective information.

Norman Marks, author of Risk Management in Plain English: A Guide for Executives: Enabling Success through Intelligent and Informed Risk-Taking, explains this depends on the willingness and ability to find that information, consider it and act on it.

“According to a study, 80 per cent of managers, when making decisions, make them based on their gut. They don’t ask other people or the right people. Some don’t even know what information is available,” he says.

This is important because data does not always equal truth. Two people can look at the same data and come to vastly different conclusions. “You need to recognise the need for information that’s different from your views to run a business effectively. If you’re not integrating reliable and quality information from all parts of your scattered organisation, how can you make quality decisions?” says Marks.

The problem is that we tend to interact with people who agree with us and look for consensus in teams rather than get a full spectrum of views. “What often happens is that we hire for a diverse group, but then we ask everybody to think the same,” says Duke.

If you have a belief about the world, is it something to be tested, or something to be protected?

Duke and Warren Hatch, CEO of Good Judgment Inc, believe not requiring consensus is crucial, freeing team members to fully express their views. Hatch says being “actively open-minded” is an important factor: “If you have a belief about the world, is it something to be tested, or something to be protected?”

Anonymity can also be a powerful tool in helping to overcome anchoring (typically induced by group members conforming their views to those of the high-status individuals). Hatch explains that his organisation’s forecasting projects are run exclusively on an anonymous online platform.

“We will go onto a forecasting platform and have no idea who the other team members are, so we are not thinking about their personal background or their personal beliefs – all I know is the information they are bringing, their comments and that is it,” says Hatch.

Putting your money where your mouth is

Unsurprisingly, correcting a lack of diversity will take time, money and resources. However, when diversity is seen as an opportunity rather than a cost the investment case becomes harder to ignore.

When diversity is seen as an opportunity rather than a cost the investment case becomes harder to ignore

In terms of gender, research in 2012 by Credit Suisse Research Institute of 2,400 companies globally found that, from 2005 to 2011, companies with at least one woman on the board outperformed those with no women in terms of share price performance, higher returns on equity and valuations and lower leverage.2

The study also looked into suggestions successful companies could be more likely to appoint women on the board, rather than women’s presence on the board being a success factor. It found that although large-cap companies, which tend to be historical strong performers, are more likely to appoint women to their boards, even in an isolated comparison of these large-cap companies the outperformance of companies with women on the board held up.

Research conducted by McKinsey following hundreds of companies around the world since 2014 also found correlations between ethnic and gender diversity in company leadership and the likelihood of financial outperformance (Figure 1). McKinsey also reported this relationship has strengthened over time.3

Furthermore, companies in the fourth quartile for both gender and ethnic diversity in the 2019 study were 27 per cent more likely to underperform on profitability than all other companies in the data set.

Figure 1: Likelihood of financial performance above national industry median, by diversity quartile
Likelihood of financial performance above national industry median, by diversity quartile, %
Source: McKinsey Diversity Database, January 2015

While greater gender and ethnic diversity in corporate leadership doesn’t automatically translate into more profit, the correlation does indicate that when companies commit themselves to diverse leadership, they are more successful.

The first steps towards diversity of thought

Once you accept the weight of evidence, the real issue is ensuring diversity becomes more than a token section in a recruitment policy and is instead embedded in the organisation.

A key step toward this is to better define it. Within the investment industry, for instance, the Diversity Project aims to accelerate a more inclusive culture across ethnicity, gender, LGBT+, neurodiversity, parental returners, young hires, military veterans, and those who need flexible working.

Neurodiverse people can make a make a particularly important contribution to overall diversity of thought

Neurodiversity is itself a diverse group, referring to the diversity of human brains, and includes conditions such as autism, attention deficit hyperactivity disorder, dyslexia and dyspraxia. Neurodiverse people can make a make a particularly important contribution to overall diversity of thought.4

The second step is to actively attract and recruit diverse talent, which requires overcoming several hurdles. People from minority groups may not know about career opportunities within a specific industry, or they may assume they will not be hired; and recruitment criteria and processes may be involuntarily biased towards mainstream profiles.

Candidate-matching software or predictive analytics can help to help remove biases.5 However, promoting diversity also requires rewriting policies, redefining the necessary skills for a particular role, writing clear and concise job descriptions and adapting interview processes.

In a joint report with Uptimize, a provider of training solutions to attract, hire and retain neurodiverse talent, the Chartered Institute of Personnel and Development (CIPD), the UK’s professional body for HR and people development, urged companies not to list excellent communication skills in the required skills section of a job description if they are not in fact essential. This could dissuade otherwise talented applicants – particularly those on the autistic spectrum that are more likely to be literal thinkers, or dyslexic people, who may fear the requirements for written communication skills.

The multinational software company SAP, for example, rewrote its interview process to attract non-neurotypical applicants. “Someone with autism would not survive the traditional interview process, for example, so we had to be more creative. Applicants are asked to build a robot with Lego Mindstorms and are assessed on how they arrive at solutions and support others, rather than a daunting panel interview,” said Stefanie Nennstiel, senior director of diversity and inclusion at SAP, in an interview with the CIPD.6,7

Nobody said diversity was easy

Imagine if that was the best compliment you ever received: ‘Wow, you are really normal.’ Compliments are: ‘you are extraordinary’ or ‘you step outside the box’, so if people want to be these things, why are so many people striving to be normal?

Then comes the truly difficult part: getting inclusion right. According to Boston Consulting Group, although companies are making well-intentioned efforts to recruit and hire a diverse workforce, many individuals from minority groups don’t thrive because, for the most part, they don’t feel included as valued contributors. The true culture of many companies is cultish and mono, implicitly pressurising employees to change in order to fit in – undermining the diverse hire in the first place.

Progress therefore begins with making diversity part of a company’s culture, advocacy from senior management, awareness training (particularly for middle managers who will be the first contact point for employees on a daily basis), developing a support ecosystem, and updating company policies.

Companies also need to adapt their processes at each stage of the employee journey and address them to all employees – as part of an onboarding questionnaire or employee satisfaction survey, for example – as not all neurodiverse staff will be diagnosed, or willing to disclose. The good news is these improvements will benefit the whole workforce.

Figure 2: Redesigning the autism spectrum
Redesigning the autism spectrum
Source: ‘Comic Redesigns the Autism Spectrum to Crush Stereotypes’, The Mighty Staff, May 23, 2016

For example, when onboarding neurodiverse staff, a one-to-one session may work better than a group presentation, providing the opportunity to clarify organisational conventions, ask new employees what they need in terms of their working environment and time flexibility. Tasks should be communicated clearly, and some roles may be reviewed – for example, reassigning non-core aspects of an employee’s work.

Many adjustments can be simple, such as providing an employee with an extra screen or a desk by a window, not communicating everything by email, providing assistive technology or not expecting neurodiverse employees to be able to contribute at an unplanned meeting.8

On an ongoing basis, getting the most out of diverse employees – and simultaneously making them feel heard and valued – can be achieved through a variety of initiatives. Awareness and training for other team members can cover subjects as broad as unconscious biases or as minute as avoiding specific fonts when emailing a dyslexic colleague.

Setting ground rules for communication during meetings (particularly on interrupting others), and leaders amplifying ideas expressed by diverse team members when they have not been heard are also essential – provided credit is given where credit is due. And with certain non-neurotypical employees, taking a strengths-based approach to assessments may be necessary to help their career development.9

Some employees may feel disadvantaged if allowances are made for others, such as a coveted desk by the window for someone who needs a quiet environment. In particular, given the limited number of senior roles in a company, those who benefit from privileged routes to top jobs may resist change that would increase competition. Organisations need to have support in place to defuse these situations before they escalate.10

Even when everything seems to work, having diverse perspectives can be difficult. “It is a balance we are seeking to find with so many of these processes. If we have a diversity of perspectives, we can analyse ourselves into paralysis and not get anything done. Finding that balance is something you do through a lot of feedback,” says Hatch.

Employees also need advocates who can support them, raise their profile and help them achieve their career goals

To really embed diversity, employees also need advocates who can support them, raise their profile and help them achieve their career goals. Not only will employees feel more valued, it will open previously inaccessible opportunities for promotion, reinforcing diversity within the leadership team itself. It is also important not to make assumptions about an individual’s abilities or aspirations, and to implement objective assessment and promotion processes. Finally, like any other business objective, inclusion must be continuously reassessed and measured.11,12

Diversity effectively makes everyone work harder, pushing people outside their comfort zone and depriving them of the confidence that comes with conformity.13 However, companies will not capture the full advantages of diversity until they create a culture that genuinely encourages diverse participation.14

Investing and diversity

Pressure is rightly growing from institutional investors to make diversity strides, particularly pension funds and their consultants. A 2019 survey of 100 asset owners globally with combined assets of more than US$8 trillion by think tank New Financial found that while pension funds themselves still have progress to make in terms of diversity on trustee boards, the issue is firmly on their agenda.

A considerable gap remains between leaders and the rest, but diversity questions in requests for proposals are increasing in number and frequency. The most engaged asset owners are also asking asset managers questions directly in face-to-face meetings, particularly on the diversity of investment teams.15

Pension schemes’ commitments are becoming more explicit, touching not only on diversity, but also culture and inclusion

New Financial found pension schemes’ commitments are becoming more explicit, touching not only on diversity, but also culture and inclusion. In addition, the most progressive asset owners are not only stepping up their advocacy and engagement on diversity, they are increasingly bringing diversity criteria into investment mandates and decision-making processes.

While diversity may not be a core criterion in selecting an asset manager, it could make the difference between two otherwise similar contenders. In turn, asset managers are escalating their engagement on diversity and inclusion with companies they invest in.

They are also focusing on ensuring diversity of thought within their own teams. “When you are deciding on who you want in your team, similar to portfolios, you want to ensure people are contributing in different ways, and that you don’t have one investment team all thinking the same,” says Emma Halley, head of investment process, multi-asset and macro at Aviva Investors.

This is borne out by research, which has found significant differences between men and women, as well as across age groups and education levels, in terms of attitudes to risk and investing. These differences in perception – and biology – can affect our views, questions we ask, and the data we consider or overlook.

A recent study in Norway set out to capture how situational and individual factors could shape attitudes to risk. The survey of 1000 people aged 15 and above used eight different dimensions of risk and reached some thought-provoking conclusions. “White men tend, in general, to judge risks as smaller and less problematic than women and non-white men,” the authors wrote.16

Higher-income earners tended to be more comfortable with risk-taking, as did the better educated. “Highly educated people are more positive toward a risky life course, risky physical arenas and competitive arenas in general,” the report noted, perhaps because education can help provide solutions for those in challenging situations. Interestingly, the mother’s education was perceived to be more significant than the father’s when it came to risk appetite. Overall, the implication is that a room filled with diversity could well come to different risk conclusions than one filled with uniformity.

In the investment arena, there is a history of exploring what difference means. One classic study titled Boys Will Be Boys examined brokers’ share account data from over 35,000 US households, and analysed trades between 1991 and 1997.17 It looked at security selection and whether there was a significant difference in gender outcomes.

The study found no difference in the success with which securities were selected, but overall women generated higher returns because they tended to trade less frequently. “Men lower their returns more than women because they trade more, not because their security selections are worse,” the authors found. Their thesis is that over-confident male traders tend to undermine returns, as higher trading costs add up.

Research into why this might be the case has been taken forward by John Coates, a former derivatives trader turned Cambridge University neuroscientist. He noticed a difference in the way men and women responded in a high-pressure environment in the dotcom bubble, as some men showed signs of manic, euphoric and delusional behaviour.18

He found testosterone levels in the morning would tend to correlate with the profit generated. Though neuroscientists don’t fully understand the impact of testosterone, it is thought to stimulate dopamine release, impacting the reward centres of the brain. Coates suggests testosterone might contribute to a ‘winners effect’ on the trading floor, fuelling irrational exuberance. But at a certain point, performance would peak, and high-risk decisions would fail.

Coates also tracked cortisol, theorising about whether it might be relevant in financial markets because high cortisol levels impact memory. He suggested high cortisol levels in market crashes might prompt traders to become radically risk-averse, contributing to pessimism and making it harder to recover from selloffs.

This idea was echoed in a 2014 article on price bubbles in financial markets by Sheen Levine et al.19 Levine and his team constructed experimental markets in southeast Asia and North America, where participants traded stocks to earn money and randomly assigned participants to either ethnically homogeneous or diverse markets. They analysed 2,022 market transactions by 180 traders in 30 markets, of which 16 were homogeneous and 14 diverse, and found bubbles were affected by ethnic homogeneity but could be thwarted by diversity.

The study found that, in homogenous markets, traders were less likely to scrutinise others’ decisions, and therefore more likely to accept pricing errors unquestioningly, leading to overpricing. Similarly, when bubbles burst, homogenous markets crash more severely than diverse ones. The effect was the same across markets and locations, despite marked differences in culture and ethnic composition (Figures 3, 4).

Figure 3: Pricing accuracy in diverse versus homogeneous markets, Southeast Asia
Pricing accuracy in diverse versus homogeneous markets, Southeast Asia
Source: PNAS, December 2014
Figure 4: Pricing accuracy in diverse versus homogeneous markets, North America
Pricing accuracy in diverse versus homogeneous markets, North America
Source: PNAS, December 2014

The authors concluded price bubbles arise not only from individual errors or financial conditions, but also from the social context of decision making. Ethnic diversity may be beneficial in providing variety in perspectives and skills, but also because it creates friction and upends consensus.

Uncovering unseen risks

Sunil Krishnan, head of multi-asset funds at Aviva Investors, argues groupthink increases fragility in the same way as metal corrosion. He believes that resilient teams should constantly work hard to stop the rust from setting in. This ultimately requires a commitment to challenge received wisdom, encourage the voices who are in the minority on an issue, and to keep diversity of mindset and background in mind when putting teams together.

“It doesn’t always translate to being right, but if you get it right it means coming up with ideas more quickly, recognising errors earlier and being more ready to change course. That’s what resilience looks like for a team,” he says.

Annie Duke is equally convinced of the power of a diverse workforce. “We should not think about the world as going only one way. We should try to imagine as many ways as possible it could go or have gone, both in hindsight and looking forward. Examine what all those ways are, then try taking some lessons from that,” she says.

Embedding diversity requires a fundamental change and ongoing feedback and adjustments at all levels of an organisation

Embedding diversity requires a fundamental change and ongoing feedback and adjustments at all levels of an organisation, but it is well worth the effort. As Duke goes on to say: “When you don’t access the diversity of opinion that exists in the group, the thing most likely to happen is that you miss risk. Why? Because nobody wants to be the negative person on the team.”

Thinking about the downside is uncomfortable, but identifying it is the only way to mitigate its impact or the probability of it happening. In turn, the best way to do that is to access diversity of opinion to the full.


  1. Magnet for talent: Managing diversity as a reputational risk and business opportunity’, PwC, 2017
  2. ‘Press release’, Credit Suisse AG, July 31, 2012
  3. ‘Diversity wins: How inclusion matters’, McKinsey & Company, May 19, 2020
  4. ‘Neurodiversity’, Diversity Project. https://diversityproject.com/neurodiversity
  5. Brian Westfall, ‘Can software solve your diversity issues?’, Software Advice, May 19, 2016
  6. ‘Neurodiversity at Work’, CIPD, February 15, 2018
  7. ‘Neurodiversity at Work Guide’, CIPD, February 2018
  8. ‘Neurodiversity at Work’, CIPD, February 15, 2018
  9. ‘Neurodiversity at Work’, CIPD, February 15, 2018
  10. Robert Austin and Gary Pisano, ‘Neurodiversity as a Competitive Advantage’, Harvard Business Review, May-June 2017
  11. Robert Austin and Gary Pisano, ‘Neurodiversity as a Competitive Advantage’, Harvard Business Review, May-June 2017
  12. Rocío Lorenzo, Nicole Voigt, Miki Tsusaka, Matt Krentz, and Katie Abouzahr, ‘How diverse leadership teams boost innovation’, BCG, January 28, 2018
  13. Barbara Moran, ‘Diversity is difficult’, The Brink, Boston University, July 30, 2018
  14. Frances Taplett, Matt Krentz, Justin Dean, and Gabrielle Novacek, ‘Diversity Is Just the First Step. Inclusion Comes Next’, BCG, April 24, 2019
  15. Olivia Seddon-Daines and Yasmine Chinwala, ‘Diversity from an investor’s perspective 2019’, New Financial, May 2019
  16. Trond Svela Sand and Anders McDonald Sookermany, ‘Risk-taking attitudes and behaviors in the Norwegian population: the influence of personality and background factors’, Journal of Risk Research 2020
  17. Brad Barber and Terrance Odean, ‘Boys will be boys: Gender overconfidence and common stock investment’, November 1998
  18. Eliza Strickland, ‘Could “hormonal diversity” help prevent another financial meltdown? Discover, June 28, 2010
  19. Sheen Levine, Evan Apfelbaum, Mark Bernard, Valerie Bartelt, Edward Zajac, and David Stark, ‘Ethnic diversity deflates price bubbles’, PNAS December 30, 2014 111 (52) 18524-18529; first published November 17, 2014

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