One summer Sunday, I happened to listen to a podcast that featured a very unusual investment banker - Anne Clarke Wolff.
Anne is a senior banker and a great advocate for increasing the ranks of women in the senior echelons of investment banking.
My attention was caught when she stated that there were more women in investment banking in the nineties than there are today, in the age of inclusion and #diversity
Anne shined a light for me on the whole concept of going beyond gender, racial and sexual orientation in enhancing diversity. What really matters is cognitive diversity.
But what does the data really say about the impact of diversity on results?
Does diversity pay?
Financial performance is notoriously hard to link to any specific factor like increased diversity on company boards, for example.
But a group fo researchers came up with a clever idea:
They studied the very tight venture capital industry, where not only are the decisions easily observable and traceable to specific firms and individuals, but there's also a wealth of firms and investment decisions to study over relatively long periods of time.
The results were crystal clear:
The more homogenous the venture firms, the worse the investment performance gets over time. The more diverse the partnership structure, the better the results.
What causes this effect?
Turns out that initial decisions to invest look similar across diverse and non diverse firms.
But after investment, when the portfolio firms face significant uncertainty, the firms backed by diverse VC companies start to gain an edge in their strategic direction, response to uncertainty and even operating performance because they now tap into significantly more creative responses they get from the diverse firms versus those from more homogeneous firms.
The most fascinating tidbit for me was this:
Although women face dismal prospects in being hired as a VC investor, the odds go up significantly when the incumbent partners have a higher proportion of daughters - they term this the "daughter effect".
The firms that consequently hired more women saw better performance than their more male-oriented firms:
Higher annual returns. More profitable exits. All the important financial metrics that VC's live and die by.
It's plausible to make the case that the same patterns would hold true for other forms of "skin deep" diversity - that end up increasing cognitive diversity - the real game-changer.
How can the financial services industry take advantage of doing well while doing good?
Start early. Increase ripple effects. Diversify beyond just the employee pool.
To #makefinancemorehuman, we need to start on the inside.
The outside will change soon enough.
Link to the research in the comments.
Hat tip to Anne Clarke Wolff for the initial spark
