Nationwide protests this year have once again called for racial justice in all aspects of society, from worker treatment to healthcare to how our very institutions are structured. While company diversity and inclusion initiatives are just one small piece of a much larger puzzle, we still think financial services companies can play an important role in building a more equitable future. The Bureau of Labor Statistics reports that of the professionals labeled as “personal financial advisors,” approximately 32 percent are women and only seven percent are Black, despite each group representing 52 percent and 13 percent of the U.S. population, respectively. Aside from the much more compelling moral argument, that fighting for a racially just society is simply the right thing to do, or the fact that people of color will collectively become the majority of the U.S. population in 2045, there is also an economic argument for racial justice. Significant evidence points to the link between inclusivity and aggregate productivity. Eliminating discrimination on basis of race, ethnicity, gender, sex, disability, age, or country of origin is essential for businesses that serve a global population. Let’s take a closer look at why this matters for your business, the companies your clients invest in, and the world.
Diverse organizations can better serve a diverse customer base, are more successful at recruiting and retaining talented employees, and are generally more innovative. There is no shortage of research pointing to the fact that businesses harnessing the power of a diverse workforce see increased productivity and access to labor, as well as more resilient business operations. According to a 2015 McKinsey report, companies in the top quartile for racial and ethnic diversity are 35 percent more likely to have financial returns above their respective national industry medians, and those in the top quartile for gender diversity are 15 percent more likely.
As Ethic continues to grow its team and business, diversity and inclusion remain top of mind in our hiring practices for a multitude of reasons. We are something of an industry outlier when it comes to diversity: not only does our team hail from all corners of the globe (16 different countries, to be precise), we’ve also prioritized gender equity on our team and in our leadership. Five out of Ethic’s 10 directors are women, and we’re proud to report that 45% of our firm comprises women or people of color. We attribute that diversity not only to Ethic’s clear vision of creating a more equitable future for all, but also to a culture that welcomes and embraces diverse perspectives. Our workplace policies recognize that everyone’s needs and priorities are different, so are naturally conducive to inclusivity. That being said, we recognize that there is always room for improvement, and are continually seeking new ways to bolster diversity and inclusion efforts across our firm. Some policies and practices that make underrepresented groups feel more at home include nondiscrimination policies, community involvement, flexible working schemes, daycare services, and inclusive benefits, for example.
Diversity and inclusion is also an important consideration when assessing potential partners in the investment space. When you, as an advisor, choose to work with an asset manager, you’re essentially hiring the manager as a member of your team. The partners that you opt to work with are an extension of your business. Their diversity practices are a reflection of yours. With that said, advisors would benefit from spending ample time considering a manager’s diversity and inclusion practices along with other aspects explored in the diligence phase. We’re hearing more from investors, foundations, endowments, and individuals who want to better understand the type of asset managers that are selected to be a part of their investment portfolios. Transparency is key. Firms should be more transparent about the gaps in their workplace diversity and inclusion policies, the efforts they have made to rectify this, and publicize any resulting success stories. We’re in the midst of the greatest wealth transfer in history, and younger generations are leading the charge for dismantling systemic racism in our country. Additionally, with the life expectancy of women outlasting men in general, they’ll be the first to inherit a lot of this wealth. A 2016 study by Mercer noted that, despite accounting for the overwhelming majority of all consumer purchases and decisions on bank accounts, 84 percent of women feel misunderstood by investment marketers. A diverse workforce and inclusive workplace policies can enable organizations to better understand different segments of the population, anticipate their needs and deliver to them. Achieving significant firmwide diversity and inclusion will no longer be viewed simply as an accomplishment, but a requirement.
Finally, in the discussion around diversity and inclusion in the financial services industry, we’d be remiss to overlook the positive impact that can be made by considering this issue in the context of public markets. Corporate Diversity and Inclusion is one of Ethic’s 19 Pillars, or key areas of sustainability research. It’s clear that there is a need for continued scrutiny of this issue: in the U.S. alone, workers filed over 1 million cases alleging violations of federal anti-discrimination laws between 2010 and 2017. We evaluate companies on diversity and inclusion by looking at a variety of factors, then flagging bad behaviors like poor workplace diversity, inadequate anti-discrimination policies, and poor labor practices that disproportionately impact communities of color. To combat the fact that around 60 percent of black Americans and about a third of Latinos report being personally discriminated against at work because of their race or ethnicity, we assess companies’ anti-discrimination policies, the quality and measurability of their diversity programs, and their adoption of inclusive workplace practices, such as flexible working schemes and day care services. We also look at companies’ workplace safety records and other indicators of working conditions, because workers of color are more likely than white workers to suffer workplace-related injuries and disabilities. And because women in majority-male workplaces report higher rates of gender discrimination than those in balanced workplaces, we look at a range of measures of workplace gender balance, including the share of women employees, women managers, and women on the board of directors. These are just a few examples of ways we evaluate companies in our Corporate Diversity and Inclusion Pillar, but they should give an idea of how many different lenses are available for financial firms to seek diversity and inclusion in their and their clients’ investments.
We’re by no means suggesting that achieving greater diversity and inclusion is an easy feat. It requires taking a step back, taking a critical look at the business you’ve built, and asking yourself tough questions. Have you perhaps unconsciously contributed to a lack of diversity? Does your firm adequately represent the clients you serve? What are some concrete, actionable steps that you can take in the next quarter to improve your diversity and inclusion? By recognizing the problem, you’ve already taken the first step.