The Hidden Value of DEI in the Workplace
When people feel safe - when they feel valued, heard, and appreciated - they tend to be more curious, and more engaged. They speak up. They ask questions. And that behaviour is profitable.
If you run a company (or are thinking of starting one), you should be familiar with the initialism “DEI”. If you’re not, it stands for “diversity, equity, and inclusion”. At its simplest, a DEI program is a declaration of intention; a commitment to fill its ranks with a diversity of people for the company's sake. The race, gender, and sexual identity makeup of the workforce within should reflect the world without, AND with that comes a pledge to ensure opportunity exists across a level playing field. There must be an understanding by business owners and corporate officers that this is the only way to remain viable in a global marketplace. It's the only way to remain solvent long-term.
Sounds great, and ideologically is great, but in practice the application of DEI programs (as far as I have seen, in most firms) results in outcomes ranging from “pointless” to “resentment-inducing”; I’ve seen next to no examples where they’ve been regarded as the “best thing that could have happened”. The truth is that properly implemented DEI programs make a company wickedly profitable, on a number of levels - but most leadership teams just don’t get that.
I’m not egotistical enough to believe I can speculate accurately on the challenges other firms experience with their DEI program implementation - but I can guess. The answer is most likely that most management teams don’t actually know why they should have a DEI program in the first place. I come to this conclusion because within my own industry, some peers I’ve had discussions with on DEI generally have the same response: they sigh, and either say they “know it’s the right thing to do” but express resentment that they “have to build in a DEI program” in the first place, or they assert that it is an “unnecessary waste of time” and “not needed”.
These responses reflect DEI implementations directed by external pressures - shifting cultural attitudes and global attention - rather than by a core understanding of value. This is somewhat hilarious, given that we get paid to be experts in valuation. It’s not dissimilar from equal pay initiatives being driven by a vague sense that it’s perceived as morally correct to equalise pay across genders (and seen as morally bankrupt to pay one gender less than another for the same work), rather than actually understanding that equal pay initiatives should be standard because the work is the same in the first place. And that vague sense drives a reactionary, rather than progressive, change within the organisation, in an attempt to be perceived in a positive light.
Look at any top sports team or athlete on earth and examine the systems in place designed to support their success. Managers, coaches, psychologists, injury prevention and rehabilitation specialists, emotional well-being specialists, friggin’ yoga instructors - you name it. If there’s a professional, service, or environment that can help an athlete be the very best they can be, there’s no hesitation on whether or not it should be added. Why on earth would you treat your talent any differently? They don’t train as hard? They don’t work as hard? Bullshit. Any asset manager who’s not managing their talent like a top-tier sports team has no business crying about underperformance. You’re an expert in valuation? Great, then you should probably start correctly valuing your most precious assets, and commit to successful DEI program execution.
What’s crazy about this to me, especially in the financial sector, is that we spend years of our lives becoming proficient in evaluating future reaction to change – and if we’re any good at it, anticipate and profit from that evaluation. Yet we are almost universally awful at applying the same mechanisms internally to our own workforces. Financial professionals can give you a dozen reasons why a change in manufacturing process, leadership composition, commodity availability, central bank lending rates, or any in a long list of global macro-economic factors, may or may not be advantageous to the value of a particular asset. But most can’t seem to do the math on DEI, which concludes that it is both the right thing to do and is profitable.
Evolution Is Profit
In my thirty-plus years as a professional, I have never known stagnation to beat evolution in a profit cage match. Ever. Yeah sure, stagnation can be profitable for a time, but evolution ultimately always wins, forcing any organism, ideology, or process to evolve, adapt, or go extinct. Moderate adaptation can buy time, but, ultimately, evolution is the only way survival is guaranteed. It’s not hard to understand in pure business terms: the profit generated by the digital data storage business is vastly greater than the filing cabinet business ever was at its peak; global cellular business is vastly more profitable than the global landline business ever was; and on and on.
DEI (understood and correctly applied) produces evolution - or extinction. When you prioritise diversity in the workplace, you challenge institutionalised ideologies, stereotypes, and business practices, as we’ve committed to at Kaiju.
If you’ve never worked with a specific ethnicity, gender, or culture, and you have preconceived opinions about who those people are, and what their values and beliefs might be, those opinions are going to be challenged. There are two outcomes to these challenges: either opinions will be reinforced despite heavy cognitive dissonance, or opinions will be exchanged for facts, and through that process, individuals and their companies can evolve. This is how we grow (and through that growth, profit) as humans in all areas of our lives.
So DEI not only challenges your beliefs about others and what you can expect from them, but also forces you to examine how you interact with others, and whether that behaviour is or has been profitable or detrimental to your personal and professional development.
As a business owner, implementing DEI programs highlights weakness in your workforce by conclusively showing which of your employees, contractors, and partners have challenges with evolution of thought. This is key, because someone who can’t overcome cognitive dissonance culturally is not going to excel at innovation, no matter their pedigree - and those are the people you broom if you, like me, are interested only in cultivating excellence.
DEI Builds a Culture of Curiosity
One of my favourite things about DEI is that when it’s implemented by leadership that’s serious about its success, it creates what I call a “Culture of Curiosity”. When people feel safe - when they feel valued, heard, and appreciated - they tend to be more curious, and more engaged. They speak up. They ask questions. And that behaviour is profitable.
Brainstorming starts to happen all the time, not just within specific teams at predefined times. Questions can be related to negative observations (efficiency leaks or inappropriate employee behaviour, for example), or positive ones (new processes, enhanced business practices and policies, or ideas for growth and expansion); anything and everything. When a culture of curiosity is cultivated within an organisation, firm-wide evolution occurs at an exponential rate. Information and ideas flow unimpeded by the usual corporate cultural and hierarchical bottlenecks; a brilliant idea by an intern will find its way to implementation, because that intern feels safe in sharing it. Problems – existing and potential - within your corporate culture will be exposed, no longer able to hide, fester, and negatively impact everything from talent retention and external relationships to brand and performance/productivity.
The Culture of Curiosity is efficient, agile, electric, and will, without question, make you more money. Period.
Where Contentment Grows, Profit Flows
If your DEI program is operating as designed, you have an educated and evolving workforce (or, at least, its human weak points have been terminated or have chosen to leave), and you now work within or are actively building a Culture of Curiosity. The inevitable by-product of this is community contentment. Considering that I work in a business where, 252 days a year, I put on metaphorical armour and climb into a figurative gladiator arena to murder my peers for money, it may seem a little incongruous that I see happiness as a key component of profitability. But I do.
It’s true that some studies have shown that a culture of employee acquiescence and subservience is part of a profitable business model, and that happiness is actually detrimental. Let me put it plainly: my opinion is that those business models suck. Any company that has to keep its workforce under a boot to turn a profit really shouldn’t be in business in the first place (I’m looking at you, Amazon; you’d still be massively profitable if you treated your workforce better). In my experience, a happy workforce is a productive workforce, and I’ve never known increased productivity to not be profitable. Additionally, a positive mental and emotional state in any workforce is a primary indicator that, internally at least, operations are running well. While I can’t count the number of times I’ve heard, “You can’t have employee contentment at the expense of profit”, I think it’s equally true that you can’t have optimised profit without employee contentment.
DEI as a Castle
Perhaps in no business more than capital markets does the famous quote from Benjamin Britten’s iconic antagonist, Master-at-Arms Claggert, ring truer:
“The sea is calm you said. Peaceful. Calm above, but below a world of gliding monsters preying on their fellows. Murderers, all of them. Only the strongest teeth survive.”
The unwritten contract we all sign in this business commits us to daily combat with each other, whether we like it or not. Gordon Gekko unwittingly (but correctly) paraphrased Claggert when he said, “It’s a zero-sum game. Somebody wins; somebody loses”. Ask anyone who works in this business and they will tell you that endless war takes an emotional toll; a cumulative toll. Our collective ability to continue to successfully engage day after day is directly related to our available healing mechanisms. DEI, successfully implemented, is the best internal corporate healing mechanism I have ever come across. A community built on DEI is a castle, and castles have bad-ass walls. Within those walls, it’s safe. It’s restorative. It’s (almost) a family.
The only way that type of culture has any chance in hell of growing successfully is in a space where everyone feels valued, heard, and protected.
Looking around today at the climate in many Western nations (among others), one wouldn’t be faulted for extending Britten’s rather bleak outlook to society at large. Claggert certainly did; the oft- omitted conclusion to the above quote is: “And who's to tell me it's any different here on board, or yonder on dry land?" There may be some truth to his words, but we don’t have to live by them. At Kaiju, the way I choose to exert the control I have is to respond with, “That’s out there; that’s not how it works in here.”
I won’t pretend that we don’t operate a competitive environment at Kaiju; all evidence to the contrary. We don’t bake cookies. This isn’t a bunny sanctuary. You screw up here because you were lazy, distracted, careless, or didn’t sufficiently work the problem, and you’re in for an ass-kicking. But whether or not you receive that ass-kicking is entirely within your control. You get your ass kicked outside these walls, because you found yourself horn-locked with a better gladiator (and sometimes that just happens), and we’ve got your bandages and space. What we ask is that you do the best job you can, and meet our collectively determined performance requirements - with no compromise to your integrity or character made in the process - and you’re safe here. You’ve got the resources to heal, grow, and evolve.
We are living through challenging times and the load is heavy: we’re in the midst of a global pandemic with uncertain markets, whiplash-inducing changes to business models (some rife with ethical questions), and murders of unarmed black Americans by police and vigilantes. Daily, people are losing loved ones and fearing for their economic safety and mental well-being. Sometimes, life itself is the cage match. And while the oft-brutal culture of the financial sector is unlikely to change, companies can - and should - do their part to hold the line on equality and integrity.
The Proof Is in the Performance
I get asked all the time how we achieve what we do; why the funds we manage are generally fully subscribed at all times. Truthfully there are many reasons, but if I had to boil it down to just three, I would have to say: 1) talent acquisition, 2) talent retention, and 3) an environment that embraces DEI in all its forms. That third element, fundamentally, is what draws and keeps the talent (yes, even more than compensation). Everything else flows from those foundational elements. If you are an asset manager or financial professional struggling with strategies for increasing alpha, it’s likely DEI isn’t even on your radar as a mechanism for consideration. It absolutely should be.
If it isn’t? We’ll see you on the battlefield.
Ryan Pannell is the Founder and Chief Investment Officer of Kaiju Capital Management.