Defining Diversity in Silicon Valley and on Wall Street

Defining Diversity in Silicon Valley and on Wall Street

Jana Rich, an executive recruiter who specializes in consumer technology companies, estimates that 80 percent of the searches she has done over the last 18 months in Silicon Valley, San Francisco and New York have been for candidates lumped under the rubric of “diversity.”

“I meant the broadest definition — if the person is not a straight white male,” Ms. Rich said. “A gay, white woman would be considered diverse. A gay, white man also factors into our characteristic of diversity.”

But then in the technology industry, the definitions get blurred. “A straight Indian male with an engineering degree from Stanford counts as diversity in most companies,” she said. “If it’s a woman, in all companies. But are Chinese people considered diverse? It’s such a broad population.”

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No one seems to disagree that the long-term health of a company depends on having a work force that reflects the marketplace in which companies do business. But solving the challenge of hiring a diverse work force is not as easy as it might seem.

Foremost is the question of how diversity is defined. Is a work force diverse if many ethnicities are represented but everyone is male and under 35? Or if it’s a mix of men and women but a majority hold degrees from Stanford or Harvard? What are companies to do if certain fields, as is often said about engineering, are predominantly male?

If it sounds confusing, it is. Diversity often varies by industry. And although the composition of Silicon Valley’s work force has come under scrutiny lately, it is at least trying to change its image.

“We’ve seen a lot more attention being placed on diversity and getting the right workers in place,” said Jack Cullen, president of Modis, a staffing firm that fills the lower ranks in the technology sector. “Companies in the Silicon Valley area have taken this a step further than places like Wall Street.”

In Wall Street’s defense, financial firms at least have older workers. Modis found in a recent report that age is considered the largest impediment to diversity in technology, two and a half times as great as gender diversity and three times as great as ethnic diversity.

“In the run-up to Y2K, they made a big push to get aged programmers in who knew Cobol,” Mr. Cullen said of the tech industry. Since then, not so much.

Still, women make up only 20 percent of the work force in Silicon Valley. Most companies, Mr. Cullen said, are in the midteens trying to get to 30 percent. “In tech, there is a much higher amount of males, and there are more Asian males in the work force than women,” he said.

This shouldn’t be surprising: A recent study found that 92 percent of senior investment professionals at venture capital firms were men. At 44 of the 71 top funds there were no senior women. In other words, men with money are funding men with ideas.

While myriad studies show that complex problems are solved better by diverse groups, the trickiest part may not be hiring a diverse work force but doing so in a meaningful way. This entails thinking about how inclusive a company is and whether it has a work environment that allows employees to rise through the ranks based on their abilities and skills.

“If you think about inclusiveness in the organization, do we have an organization that is a frictionless meritocracy of talent?” said Art Hopkins, an executive director in the technology officers practice at Russell Reynolds Associates in Atlanta. “Or are there highly talented people who aren’t able to excel?”

Consumer companies are often singled out as being better than other industries at cracking the code of diversity and inclusiveness. This is a function of the customer base, which — if you’re Coca-Cola, Nike or Procter & Gamble — is the entire world.

“They’re close to the consumer and they have to be sensitive to it,” Mr. Hopkins said. “They want to ensure that they’re not carrying forward staid ideas about lack of inclusion.”

But there is also a sound business reason. “Some say, ‘We live or die on the opinions of our customers — we will course-correct on what we hear from them,’ ” he added.

For companies that are slower to change, the case for diversity has to be made in stark business terms, said John Kurtz, global head of diversity and inclusion at A. T. Kearney, a consulting firm. There are four reasons to make the change, as he sees it. Attracting the best talent is the first and most obvious. That is followed by creating a work force diverse enough to solve complex problems, having employees who reflect customers’ backgrounds and realizing that other companies want to work with companies that are themselves diverse.

“The lesson for us and for many of our clients is that defining things in terms of the meaning of the business is the most powerful way to go about it,” Mr. Kurtz said. “Being a passive supporter of diversity doesn’t work that well in the corporate world. You have to turn it into a business imperative.”

It was a lesson, he said, his own industry and firm had to face to get past its history of being one of “white men consulting to white men.”

Fast-growing companies in fast-growing industries are more adept at making themselves more diverse. “If you lean into these companies that are high-growth, male, female, spotted or purple or orange, they’re adding people,” Ms. Rich said. “That’s easier than ‘replace your white guys.’ ”

Where change could come more slowly is at the board level. Historically executives have ascended to boards after full careers to assume the role of august figures overseeing a company and its long-term survival. But today’s companies want younger leaders more attuned to younger consumers and trends.

“Today, I don’t care what sector you’re in, boards are responsible for governance, but it’s in a more complex disruptive world,” said Tuck Rickards, the leader of the digital transformation group at Russell Reynolds. “It could be cybersecurity or things related to globalization or business model disruption.”

Getting older, less relevant board members to leave what is a cushy job — often one that pays several hundred thousand dollars to attend a couple of meetings each year — can be a hard sell.

Sometimes those members can be persuaded to step down. If not, it’s a waiting game.

For companies adding diverse board members, the trickiest part may be when to seek publicity for the new member or when to be more modest about it. Ms. Rich said she recently worked on a search for a female board member for a technology company that was valued at over $1 billion. The company wanted someone with experience in the marketplace, and she found someone who helped to build one of the sector’s earlier players.

When the search was done, though, the company did not want to announce the addition of a new, female board member, Ms. Rich said. “They said, ‘Maybe this isn’t that noteworthy. One woman isn’t news. When we have three, four women on our board it’s news.’ ”

Companies that are laggards in diversity could be persuaded to change by the difference in investment returns between companies that are diverse and those that are not. The trick is it’s hard to determine correlation.

Stephen R. Freedman, head of thematic and sustainable investing strategy at UBS Wealth Management Americas, said research showed that diverse companies performed better. “Is it the diversity leading to better performance or is it the performance that’s leading companies to be more diverse?” he said. “Or the third possibility is there is something underlying this — a strong culture of corporate governance that is leading to better performance and a more diverse board.”

He added, “When you try to disentangle all those effects, the conclusions are less clear-cut. From an investment perspective it’s less critical to know the answer — more diverse companies have better performance regardless of the causality.”

While the case for diversity seems a natural and democratic one, there are potentially unintended consequences, like the difficulty of managing diverse teams. “This is one of the most interesting areas to see how the needle moves,” Ms. Rich said. “There’s a healthy degree of fear here. If we’re successful at diversifying boards and leadership teams, will it work?”


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