We need to rethink our diversity strategy, says Sallie Krawcheck. What we’ve been trying for the last decade hasn’t been working, but what exactly is the problem? Research reveals that diversity is actually worse in meritocracies. Managers—and particularly middle managers, Krawcheck points out—fall into the cognitive trap of hiring people who “remind me of a young me” (i.e. look like them and think like them) instead of more cognitively diverse people who would bring a missing skill set to a team. This is as important now, under the almost all-white male Trump administration, as it was in the 2008 Financial Crash. Wall Street is one of the most homogenous institutions in America, and Krawcheck has no doubt that having a more diverse set of minds in finance would have lessened the severity of the global crash. In addition, risk-taking and the poor decision making that results can be tracked to fluctuations in one hormone: testosterone. Whether it’s the housing bubble, America’s healthcare, or foreign policy, these are mistakes that affect millions of lives. As a CEO, Krawcheck’s approach and advice on diversity is changing. The current strategy has been a failure, but what if companies paid their managers, in part, based on the diversity of their hires? What if we thought of diversity as more important than meritocracy? Sallie Krawcheck is the author of Own It: The Power of Women at Work.
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Transcript: In my experience, most CEOs and boards “get” the power of diversity. There may be some who are giving it lip service still out there but in my travels these individuals understand that not only is it the fair thing to do, and it’s really the tenet upon which our country was built, but it’s really the smart thing to do.Financial results, reaching different customer bases—I think they get it. Sadly, middle management is where diversity goes to die. And I’ve been thinking about this a lot recently because there’s research I’ve recently come across that says that diversity is actually worse in meritocracies. It’s really surprising, right? You’d think, you know a meritocracy, people will search out the best person, will search out the best strategy and we’ll judge them later, and the capitalism, the market forces, will decide. Huh.
But it’s worse in meritocracies and I think it is exactly that sort of hands-off perspective, that if you’re a CEO you get it, you’re hiring all the time, et cetera.But if you’re in middle management, you’re hiring, what? Once a year, twice a year, four times a year? Once every few years? It’s not a regular part of the job. And the research tells us that while there are these supposed benefits to diversity that we tend to retreat to the comfortable. We tend to overvalue products that we already have. We tend to overvalue environments in which we already exist.
And by the way the longer we have it or exist in them, the more we overvalue them.And so what you see in the middle management is, “I like working with people like me. Maybe I read some research report one time that said diversity was better but gosh, I like Jim,” right? “Gosh I like him.” Compound that with that we tend to allow ourselves in this country to ask the wrong question. And the question we usually ask when hiring people is, “Can you help me find the best person for the job?”
The “best person for the job” — our cognitive shortcut is, typically, someone who reminds us so darn much of ourselves. Whereas what we should be asking is, “Can you help me fill out the best team?” Build the best team with diverse skill sets, et cetera. So as a CEO my advice is changing. My advice is to often override the meritocracy. That this desire to let your managers manage — honey, we tried it. There’s nothing more meritocratic than Wall Street and look what happened there. The most homogeneous of environments and oh— financial crisis.
And so to put metrics out there, to pay managers on diversity is, I think, the only way to drive it. And as for the old diversity committee which you sort of did that ten years ago and, “Look, we’re working on diversity because we have it.” If you’ve had something in place for five and ten years and you’re diversity is not moving forward it’s time to stop it. It’s time to do something different, to change the tired mentoring program into a sponsorship program. To set those quotas—I know we hate the word quota—to set those goals. To pay people on those goals. To try to do something that’s different.