SEC Commissioner Allison Lee recently spoke about diversity and inclusion in the context of human capital and corporate performance. Obviously, issues of crucial importance today (and hopefully forever) in and out of the capital markets. It is worth noting some items Commissioner Lee cited—board diversity corresponds to lower stock volatility and less risk; executive teams with greater ethnic diversity outperformed those with lower ethnicity in profitability; and companies with more women executives outperformed those with little or no women executives. And a lack of diversity in today’s market creates another risk—franchise risk, and the risk of being unable to attract and retain top talent. Good reasons for you to ask whether more can and should be done to promote diversity in your organization.
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Diversity of talent matters in capital markets
Fortune 500 firms with the highest proportion of women on their boards outperform those with the lowest. Companies with higher than average diversity on management teams report higher revenue from new products and services. More women in senior positions is associated with higher return on assets. The list of tangible performance benefits goes on. That’s why we see so many investors, asset managers, proxy advisors, and others incorporating diversity into their proxy voting decisions. I’ve even talked to analysts at quant firms who pull diversity metrics into their algorithms because they have learned that it increases alpha.
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