Why gender diversity is tied to success

The investment community is waking up to the connection between diversity and business success. This has been prompted in part by a number of large scale studies that have concluded that firms with more women in executive positions tend to be more profitable.

Not the result of magic

(This post is based on Bob’s closing remarks at “IMPACT: Gender diversity in financial services”, co-sponsored by Russell Investments and CFA Society Seattle.)

This relationship is not the result of magic. There are concrete reasons that diversity is tied to success. And I firmly believe that it is a two–way relationship. Diversity is not only a contributor to a healthy, thriving workplace (and hence to business success), it’s also an outcome of a healthy, thriving workplace. Diversity is tied to success, I believe, because it is a sign of life, an indicator that we’re doing something right.

Imagine if we were able to turn all of HR’s favorite buzzwords—inclusion, engagement, empowerment, and so on—into reality and create the ideal workplace, one truly designed to bring the best out of everyone. Wouldn’t that result in a diverse workplace from top to bottom, not only in the boardroom and the executive suite but throughout the organization? Doesn’t it seem likely retention would improve? It sure seems like it does.

So diversity is not only a worthwhile goal in its own right, it’s also a symptom of something wider and even more powerful.

This is one of the reasons why, in the specific context of financial services, Russell Investments have concluded that “organizations that can attract and retain the right people, offer a supporting environment for their investment teams, fair remuneration and incentives, a level of autonomy to make good investment decisions, and adequate resources to do a good job, are more likely to achieve prolonged investment success”. ¹

One of the authors of that statement, Sherrie Trecker, adds “Our industry is very metrics-oriented. If something can be quantified, our focus is naturally drawn to improving those metrics. However, we are not challenging firms to seek out diversity for the sake of diversity. We are instead challenging firms to reconsider what really creates a successful investment team and culture.”.

Just as the health of a plant depends on the health of the soil, so the effectiveness and power of diversity can depend on the wider environment within an organization. The evidence of a link between diversity and success appears solid—but so does the logic that would say that it is an outcome of, as well as a contributor to, a thriving workplace.