Does your Money Manager Have Sufficient 'Cognitive Diversity'?

August 13, 2015

4 minute read

Gorilla Girls

As a consultant and writer, I deal with themes and ideas day in and day out. I collect bits and pieces of related information in electronic and paper files that carry titles which summarize the concepts for me. Many never result in a published piece and some take years before they do.

One of the longest outstanding topics for me has been the issue of gender in the investment world — I started on it before this blog was first published more than seven years ago. That topic has always carried the title, “a seat at the table,” matching one of my earliest test illustrations for the blog, which showed a table of decision makers, each person represented by a ♂, save for one ♀.

I stashed notes of my own impressions about the role of women in the business and those of others, as well as studies, articles, surveys, tweets, etc. The paper folders grew in size and the electronic ones expanded in number. There are many angles to the story and I wanted to do a thorough job. The result was it never got done.

The encyclopedic look that I had planned will have to wait (it may appear as an installment in a survey of “the investment ecosystem” that I hope to get going one of these days). For now, though, it’s time to get to the essence of it.

It is very common to pull up the website of an asset management firm and see all male faces staring back at you. Sometimes five or ten or fifteen; sometimes even more. There are a few women shown by some firms, but if you look carefully, they are often confined to roles in marketing, operations, and administration.

How is that possible?

While social diversity is not the same as cognitive diversity (which is desirable for team decision making) there is a relationship. In addition, the body of evidence to date seems to indicate that women (in general, of course) may have a better risk/return barometer than men — and that they improve the performance of investment teams.

When doing due diligence, I quite like the element of surprise, but if your idea of building a team is hiring some other guys just like yourself, you can expect that I’m going to ask you a few questions about that belief. I’m always looking for “a way in,” and this area is a no-brainer for discovery for those performing due diligence, yet I can guarantee you that it rarely comes up.

The reactions to such questions will give you quite a bit of information. (Be prepared for emotion rather than analysis.) Are the leader and other members of the team knowledgeable about the issues at play? Can they speak to a clear plan for creating an effective team and building the human capital of the firm over time? Can they see past their own experience to mold something that is different and better than what they have known?

The questions target a soft spot at most organizations, especially young ones: they are so captivated by the investment chase that they don’t realize that building the organization is the key to whether they deliver value to clients and whether they live or die in the long run.

On Sunday, the New York Times had a long feature on the “anonymous artists and activists” known as the Guerrilla Girls. The group just celebrated thirty years of agitating for more exposure for female artists at museums and galleries. Their anonymity comes from their willingness to appear at events wearing gorilla masks.

Looking back, one of the “girls” said, “At that time, I think a lot of women and a lot of artists of color were taking their situation personally, thinking that they lacked something that the system wanted, not realizing that there was a systemic problem. The system did not want us.”

And, frankly, that’s the case at a lot of investment firms too. It’s not based on logic, it’s not based on the evidence. In fact, logic and evidence would argue for a much different approach than the standard one. If only we could do “blind auditions” by which we could assess the performance of someone without having our judgment colored by other factors.

Should we start with the presumption that firms that don’t seek out women for their teams have a systematic blind spot that will impede organizational success and investor returns? No. But someone doing due diligence on such a firm that isn’t asking pertinent questions about the issues at hand is revealing a blind spot of their own — and providing evidence of sloppy work.

I don’t think that we should publicly shame firms by showing the gender-pure team photos from their websites as the Guerrilla Girls might do (although I have some good examples). There is a better way to improve industry behavior — nothing will be as effective in forcing change as enlightened asset owners, who control the purse strings, asking tough but fair questions about how an organization that wants to invest their money is crafted and why.

Imagine that: Those doing proper due diligence (to get a better view of an organization for evaluation purposes) can improve the industry in which they work at the same time. All without wearing a gorilla mask.