Diversity, equity, and inclusion (commonly referred to as DEI) are important values to investors, employees and applicants alike. Yet recent research from Knight Foundation reveals there has been less than 1% growth in diverse-owned hedge funds in the past five years. This is a surprising trend given the fact diversity is reported to be at the top of most investors’ priorities. It also underscores how much work is still to be done to make hedge funds more diverse and equitable for all.
What Is DEI?
So, exactly what does DEI mean, and why does it need to be an important part of your firm’s strategy?
Diversity, equity, and inclusion hiring and investment decisions are crucial factors for a firm to ensure a range of perspectives that think in innovative, fact-based, business-forward ways. That strategy starts by understanding the importance of DEI and why it’s critical to the success of the organization.
According to dei.extension.org, DEI represents three concepts:
- Diversity: The presence of differences that may include race, gender, religion, sexual orientation, ethnicity, nationality, and socioeconomic status among other traits
- Equity: Promoting justice, impartiality, and fairness within the procedures, processes, and distribution of resources by institutions or systems
- Inclusion: An outcome to ensure those that are diverse feel and/or are welcomed; inclusion outcomes are met when you, your institution, and your program are truly inviting to all
Why Should DEI Matter to Your Firm?
1. DEI Improves Creativity
People tend to group together (or feel connected to one another) based on familiar experiences, trends, and ideas. In that way, the old adage “Birds of a feather flock together” holds true. However, social scientist Adam Galinsky has determined through his research that people who have relationships with a person of a different culture and background tend to be more creative.
While creativity and openness to different people may not share a completely causal relationship (perhaps those drawn to different races, ages, and genders are already predisposed to creativity), the research still teaches a valuable lesson. Regardless of its “nature” or “nurture” origins, enhanced creativity leads to a greater variety of ideas in the business environment. A diverse team, for example, benefits by having different points of view, which yields more thoroughly informed decisions.
2. DEI Increases your Potential Client Base
Every person tends to have their own blinders or tendencies. A non-discriminatory process allows the team to collectively remove the blinders, though, and opens the doors to a wider client base. It’s difficult to produce ideas that appeal to the general population if there’s no diversity in the ideas that are created. Your potential client audience is diverse and your client solutions, therefore, should follow suit.
3. DEI Expands your Talent Pool
Representing different backgrounds and ways of thinking is important in every industry, and finance is no different.
Accordingly, students from a range of experiences can succeed in finance—though there still remains an “educational gap” when firms are recruiting for top talent. To bridge that gap, it’s essential to understand that some employees may not have had access to quality education but still possess the skills needed to succeed in the industry. Ensuring access to training that can develop these employees and their skill sets is a step toward an effective DEI strategy.
4. DEI Elevates Team Culture
Megan Hogan, Chief Diversity Officer at Goldman Sachs, speaks to the importance of allyship and leaders fostering a culture of belonging.
“Corporations have become skilled at responding after a crisis, but we want to build awareness so everyone at Goldman Sachs feels understood, valued, seen, and appreciated every day of the year,” Hogan asserts.
Certainly, there’s a strong team culture argument to support DEI initiatives. Employees who don’t feel included tend to become disengaged. By giving employees equal standing and inclusive participation, a firm will see higher engagement among its team members. This often translates to higher job satisfaction, increased retention, and superior performance.
5. DEI Has Economic Benefits
Simply put, DEI is good for business. In this current period of social justice, we’ve seen economic benefits for firms that address DEI and intelligently market those endeavors to socially-conscious investors. A firm with a diverse talent pool will see enhanced financial returns, as well as a more loyal workforce. Sales teams with a diverse staff will have more empathy for their customers’ situations and have a better idea of how to serve them. A more diverse team allows for a better grasp of clients’ needs. Finally, the cost of hiring and training new staff is expensive. By addressing DEI, a firm can reduce turnover and lower these costs.
Attracting and Retaining Talent: The DEI Connection
Generation Z (born after 1996) is the latest generation to begin entering the workforce and clearly has DEI on their radar. These “digital natives” grew up with smartphones and social media networks. They’ve experienced at least one recession. Gen-Z is also well-educated, having finished high school and gone to college in greater numbers than previous generations. It is also a generation aware that systemic racism and other oppressive forces are a real problem—having grown up in a more diverse and less insular world.
As a result, this tech-savvy talent pool values DEI and makes it a priority when choosing a company to work for (or stay with). Managing a firm’s reputation within the Gen-Z cohort is an important aspect of hiring and employee retention.
Why Firms May Struggle With DEI
It’s important to understand why firms struggle with DEI to avoid these common pitfalls. Today, most organizations understand the value of a diverse and inclusive workforce, but taking action based on that understanding remains a problem.
Why? In some industries (like finance), there traditionally exists a small pool of diverse candidates to even choose from when hiring—possibly pointing to systemic racism, sexism, and a lack of access to higher learning for marginalized groups.
It’s important that your firm’s hiring practices acknowledge this as an unconscious bias. And it’s crucial to remember that unconscious bias can manifest in many ways within the workplace to include racial, gender, sexual orientation, language, criminal records, disability/health/ability, and age, among other areas. Increasing DEI in your workplace often starts with your hiring process. Make sure you and your team have policies and plans in place to attract a wider applicant pool and remove bias from the process.
The Bottom Line
DEI is now, rightfully, a primary focus of many organizations’ hiring and management processes. The new generation of talent, customers, and clients are demanding more attention to DEI issues than ever before. By prioritizing and implementing diverse, equitable, and inclusive practices as standard, your firm will see improvements ethically, culturally, and financially.
Looking for support for your firm? Arootah Business Consulting propels your business forward by leveraging our experience across the key areas of a firm: investments and operations. Our diverse, experienced industry veterans support you throughout the entire life cycle: from startup to raising capital to ongoing operations and beyond, including talent acquisition and human resources.