A recent survey on UK asset managers carried out on behalf of the Diversity Project, highlighted a dispiriting, though not unsurprising, lack of diversity in the industry. Investment management roles are dominated by White men (often privately educated); with significant variation from the broader population composition across a number of categories, including: gender, education, disability and ethnicity.  Whilst these findings would not shock anyone with direct involvement in the field; it is beneficial to have sample data rather than rely on anecdotal evidence.

It would be unfair to claim that the problem is asset management specific, rather than a societal issue; however, this does not exonerate or excuse the industry, which at best reflects the phenomenon and at worst serves to exacerbate it.  The situation is an obvious problem for the groups that suffer from restricted opportunities, but also for the asset management firms that are starved of cognitive diversity.

Although the subject and its consequences are palpable, there is no simple solution.  Many of the behaviours that contribute to the lack of diversity are caused by entrenched biases that are often either unconscious or difficult to acknowledge; a fact that has been evidenced in a range of studies across many years, and a variety of domains.

Bertrand and Mullainathan (2004) carried out a field experiment seeking to analyse the treatment of race in the job hiring process. They sent fictional applications for jobs advertised in Chicago and Boston newspapers, the CVs created were randomly given “African-American or White-sounding names” and the responses monitored. The results of the study were stark:  White-sounding names received 50% more interview requests; furthermore, the difference in response between high and low quality CVs was significant for White-sounding names (close to 30%), but markedly lower for African-American sounding names.  Whether conscious or unconscious, the differential labour market treatment based solely on race evidenced in this study was pronounced.

The issue of gender discrimination was tackled by Goldin and Rouse (2000) through an analysis of the audition process for symphony orchestras. They observed the gender diversity of eight prominent orchestras between the 1950s and 1990s, and sought to isolate the impact of blinding or screening (obscuring the identity of the player), a policy that had been adopted at different junctures by the orchestras under analysis.  The authors found that the use of screening increased by 50% the probability of women progressing from certain preliminary rounds, and accounted for “possibly 25% of the increase in the percentage female in the orchestras from 1970 to 1996” (738, 2000).  These are significant impacts from a simple procedure that obviates the potential for sex-based discrimination.

In a study of racial bias and leadership, Rosette, Phillips and Leonardelli (2008) found that “being White” was considered a typical characteristic for a business leader. The authors suggest that consistent exposure to White individuals in leadership positions and the history of White leaders in business and politics served to perpetuate “being White” as a typical feature or attribute of a business leader.  This view was supported by Gündemir, Homan, de Dreu,, & van Vugt (2014), who displayed that “race neutral” classical leadership traits were more strongly associated with White-majority group members and that “a major cause of the underrepresentation of ethnic minorities in leadership positions in the Western world is that this group does not fit the predominant image or prototype of a leader.” (2014, 1)

Whilst these studies focused on the importance of race as a means of leadership categorisation, we can assume a host of other factors (such as gender, disability, sexuality, social class) are also erroneously (and often unconsciously) used to evaluate an individual’s suitability for a particular role.  It is simple to link this type of thinking to the lack of diversity within the investment management industry – the majority of fund managers share a range of traits (white, male, middle class), which come to be viewed as archetypal, and are interwoven with other features and skills that one might associate with the profession. Thus, a vicious circle is forged where the dominance of a particular group in a role, leads to their aforementioned factors being viewed as characteristic and favourable.

These studies represent only a fragment on the research undertaken on bias and discrimination in the workplace; but serve to provide an insight into ingrained prejudicial behaviour and its potential consequences.  Whilst there is a growing awareness of the issues, there remains a great deal of uncertainty about how to effectively tackle a problem that often seems intractable.

Although businesses are increasingly keen to place diversity at the forefront of their employment practices, such simple signalling is possibly problematic; not only because these declarations do little to address the unconscious nature of many of our biases but, more importantly, it raises the spectre of moral licensing.  First detailed by Monin & Miller in 2001, moral licensing is a situation where “past moral behaviour makes people more likely to do potentially immoral things without worrying about feeling or appearing immoral” (Merrit, Effron and Monin 2010, 344).  As an example, in a study by Effron, Cameron and Monin (2009) participants that expressed support for Barack Obama (shortly prior to the 2008 US election), were more likely to make ‘pro-White’ decisions in an ensuing scenario.  The subjects’ view on Obama provided them with ‘moral credentials’, absolving them of the need to appear non-prejudicial subsequently. Although research on moral licensing is nascent and the subject complex, it is possible that proclamations of diversity are not simply insufficient, but counter-productive.

Given the behavioural hurdles of improving the level of diversity within senior roles in the asset management industry, it is apparent that bold steps need to be taken.  One example, in a different field, is The Rooney Rule in professional American Football (NFL), which requires that one minority candidate is interviewed for all head coaching positions and senior operations jobs.  The rule was designed to address the lack of opportunity for minority coaches in the NFL.  Although there remains much debate about the efficacy and desirability of such an approach, DuBois (2015) estimated that a minority head coach candidate was 19-21% more likely to acquire the role following the imposition of the Rooney Rule.  Furthermore, it has been contended that the Rooney Rule decreased discrimination by reducing “the archaic biases regarding the intellectual ability of minority candidates” (Collins 2007, 870).

In the absence of a counterfactual, it is difficult to precisely assess the impact of the Rooney Rule; however, given the potential strength of our biases it is easy to see how a policy that compels behaviour change from employers and alters the typical candidate pool could serve to both improve short-term opportunities for under-represented groups, whilst eroding harmful stereotypes and biases over the long-term.  For asset managers, an adapted version of this approach could be utilised when hiring for both senior positions and also more junior levels, such as graduate programs.

For each possible ameliorative strategy there will be imperfections and the potential for negative behavioural spillovers (where an intervention backfires and produces the opposite effect of that intended).  However, there is little doubt that the biases that impact recruitment in the asset management industry are deep-rooted and material; for meaningful change, bold thinking and actions are required.

Key Reading:

Blanken, I., van de Ven, N., & Zeelenberg, M. (2015). A meta-analytic review of moral licensing. Personality and Social Psychology Bulletin, 41(4), 540-558.

DuBois, C. (2015). The Impact of “Soft” Affirmative Action Policies on Minority Hiring in Executive Leadership: The Case of the NFL’s Rooney Rule. American Law and Economics Review, 18(1), 208-233.

Collins, B. W. (2007). Tackling unconscious bias in hiring practices: The plight of the Rooney rule. NYUL Rev., 82, 870.

Claudia, and Cecilia Rouse. (2000). Orchestrating Impartiality: The Impact of “Blind” Auditions on Female Musicians. American Economic Review, 90(4): 715-741.

Effron, D. A., Cameron, J. S., & Monin, B. (2009). Endorsing Obama licenses favoring whites. Journal of experimental social psychology, 45(3), 590-593.

Gündemir, S., Homan, A. C., de Dreu, C. K., & van Vugt, M. (2014). Think leader, think white? Capturing and weakening an implicit pro-white leadership bias. PloS one, 9(1), e83915.

Lavergne, M., & Mullainathan, S. (2004). Are Emily and Greg more employable than Lakisha and Jamal? A field experiment on labor market discrimination. The American Economic Review, 94(4), 991-1013.

Merritt, A. C., Effron, D. A., & Monin, B. (2010). Moral self‐licensing: When being good frees us to be bad. Social and personality psychology compass, 4(5), 344-357.

Monin, B., & Miller, D. T. (2001). Moral credentials and the expression of prejudice. Journal of personality and social psychology, 81(1), 33.

Rosette, A. S., Leonardelli, G. J., & Phillips, K. W. (2008). The White standard: racial bias in leader categorization. Journal of Applied Psychology, 93(4), 758.