Diversity and Inclusion: Not Optional
Over the past several years, Athena Capital has dug deep into the research focused on gender lens investing. As a woman-led firm inspired by our clients’ integration of social values into their investment portfolios, our firm has developed policy statements, model portfolios, and published thought pieces dedicated to this topic. As our research unfolds, it has led us to focus on the broader subject and intersectionality of diversity, equity, and inclusion. This evidence-based research places value on demographic diversity (gender, ethnicity, etc.) as well as diversity of thought, and has shown a positive correlation among firms that employ heterogenous groups and bottom-line performance. For a detailed review of the research on diversity and inclusion, as well as additional practical applications, I encourage you to read our latest landscape review.
Global and Business Growth Potential
Analysis by McKinsey & Company estimates global GDP could be lifted by $12 trillion by 2025 if all countries matched the progress of their best performing neighbor in women’s labor force participation, hours worked, and work in higher productivity sectors. In a scenario where all countries achieve 100% gender parity, McKinsey estimates an additional $28 trillion in annual global GDP by 2025. 
In a low growth world, we cannot afford to ignore this information. Some countries are already moving into action. For example, Japan has explicitly stated its intention to boost economic growth by improving women’s workforce participation in a program referred to as “womenomics.” While still below the average for high income countries, Japan’s female labor force participation has already improved from 49% in 2013 to 51% in 2018. 
There is room for improvement and opportunity in the corporate world as financial studies suggest an important link between diversity and performance. According to research by McKinsey & Company and LeanIn.org, businesses rated in the top quartile on gender and racial diversity are 21% and 33% more likely to have above-average profitability, respectively. Conversely, laggards face a financial penalty as bottom quartile businesses are 29% more likely to underperform industry peers. 
Why Diversity Works
Recent research in the fields of psychology and organizational design provide a clue as to why diverse organizations tend to perform better. Studies have shown that heterogeneous groups are more successful at a variety of tasks because they are more analytical and less prone to cognitive bias. The idea is that including diverse individuals not only brings new ideas but, more importantly, also changes the group dynamic to make individuals more effective in their decision-making.
In an experiment led by Professor Anita Woolley of Carnegie Mellon, groups with more women were more successful across a range of tasks. According to Woolley, “having more socially skilled or socially intelligent individuals in the group was better and, on average, women tend to score higher on tests of social skills and social intelligence.”
In another experiment at the Kellogg School of Business by Professor Katherine Phillips, small groups of student club members were more successful in solving a murder mystery when their group included a member of a different club, even if that person did not provide new information. Why? Phillips theorizes that diverse individuals not only bring different points of view, but also change the entire group dynamic. That is, diverse individuals can trigger more discussion, challenge assumptions, and make people focus more on the facts, ultimately leading to better analysis and decision-making.
These studies and others like it illustrate the far-reaching and sometimes surprising impacts of diversity. Importantly, they support diversity as a broad concept informed by both demographic factors as well as diversity of thought, which stems from anything that makes someone have a different viewpoint.
Applying the Research
This research supports Athena Capital’s belief that demographic diversity and diversity of thought are essential to a well-run and successful organization. Most recently, we augmented our due diligence process to incorporate a review of diversity and inclusion. One interesting discovery is that some of Athena’s fund managers use clever tools to promote diversity of thought. One manager uses blind votes at Investment Committee meetings to foster independent thinking and honest communication, while another has investigative journalists work with analysts to assist with fundamental analysis and provide an independent point of view.
In addition to considering the diversity of our investment partners, we are also evaluating our internal processes to reduce unconscious biases. We are currently focused on examining our recruiting and hiring practices, drawing on the research of Dr. Iris Bohnet, Harvard professor and behavioral economist. Bohnet’s book, “What Works: Gender Equality by Design,” delves into the problem of unintentionally biased processes in recruiting, interviewing, and compensation across industries.
In my own experience, as an undergraduate I took part in an interview that included a group lunch meant to test cultural fit. I was the only woman at the table of 10 or so. It was going well until the conversation quickly turned to sports and I sat silently through most of the meal. Was this lunch meant to exclude women? Of course not, but it had the all-too-common unintended consequence of screening not for talent, but for people resembling the interviewer.
Dr. Bohnet’s proposed solution is that it’s more feasible to fix the processes than to rewire human brains. She offers a number of practical applications and best practices that firms can implement to reduce gender bias. As an example, for a recent intern role at Athena Capital, we re-wrote the job description to be gender neutral rather than use language associated with male stereotypes  and only posted the role at the more diverse Boston-area colleges based on gender and racial composition. We screened the resumes “blindly” by removing the applicants’ names, schools, and other identifying information. In the interview process, we have borrowed concepts from structured interviews to ensure consistency across the questions asked as well as our assessment process. We expect to learn from this experience and apply our findings to the broader hiring process. We encourage our peers, investment partners, and clients to follow suit.