Diversity, Equity and Inclusion in the Bond Markets – a Discussion Between Mike Nicholas of BDA and Leo Harmon of Mesirow Financial

The bigger aspects of that are, and sometimes less understood, are inclusion and equity. So inclusion, at least as we look at it and define it, is more about leveraging those differences and creating value for those people that have diverse backgrounds within your organization. I liken it to it being the difference between being asked to the dance and being asked to dance. And so if you are just there and you're just happy to be there, you're not necessarily being included in the process.

And so without access to opportunities, there's no development. And that's where the equity piece comes in. Equity is providing the tools, providing the opportunities, having a level of fairness and transparency, so that the folks who you've recruited and now have included, now have an opportunity to really thrive and help your organization.

And so I liken it to, you got three kids, one is a six foot five football player, one is an 11-year-old, and one is a toddler, and you have 15 chicken nuggets, equality means you give each one of them five chicken nuggets. Equity means you give them what they need. So my high school football player is going to need more chicken nuggets than my middle schooler, and my toddler doesn't need any chicken nuggets, because they don't eat food. And so the concept is providing people with the tools that are necessary in order for them to be successful.

The other piece of that is providing them access, so through mentorships or partnerships, you want to be able to have access to those ideas. So if to be promoted, everyone has to belong to the same club that the boss belongs to, but that club doesn't allow certain people to get in, then those people will never be promoted. And so you don't necessarily have equal access to opportunity, if that's the case.

What we talk a lot about is, not necessarily removing opportunities, but expanding the pie, expanding and creating opportunities for our organization. Being affirmative in the process and the results will end up being what they are, but if you're affirmative in the process, if you're making a deliberate effort to increase your numbers, if you're widening your scope and your target market of potential candidates in your organization, eventually your organization will be more reflective of your community, of the folks and the clients that you're trying to serve. Not necessarily based on a quota, but just based on the opportunity to leverage the entire talent base that is available to you.

And as you've alluded to what we've discovered through a lot of different studies, is that firms that have paid attention to diversity and been very intentional in driving diversity and inclusion and equity through their organization, have had better financial results or have at least better odds of having financial results than companies that have not. And so not only is this the right thing to do from the standpoint of reflecting a better social commitment to equity and outcomes, but it's also the right thing to do from perspective of leveraging your business to being more profitable. And expanding that pie, and creating more opportunities for your organization down the road.

So as we started to talk about this, we really tried to put a structure and a plan into place to deal with it. The killing of George Floyd really accelerated that process. And so it was something that was already in place, but it drove home, for us at least, the need to address these broader social issues as an organization, and to communicate to the world, our ability to address our problems internally. But also help externally, dealing with issues of equity and racial injustice and implicit bias.

And so we decided to put together our diversity, equity, and inclusion council for that purpose, really to create consistency across our organization, to build a structure that we thought would be sustainable, and helpful in creating processes and procedures that can be used throughout our organization to help us meet our goals. I think the biggest thing is, we sometimes pat ourselves on the back because we're good people, and we have good intent, and we think we're doing a good job, but sometimes you really have to break the process. If you're doing the same thing over and over again and expecting a different outcome, you're not going to get a different outcome.

It's the old adage that that's the definition of insanity. And so what we wanted to do is to create a new process and create new procedures and understand what we were doing well, understand what we weren't doing well. And really evaluate, how we can improve not only our numbers, but our impact in the community that we serve and with the constituents and colleagues within our organization.

Mike, I would also say that the really important thing is, is that you have to have throughput through the middle. And so the top of the organization can push and push all they want to, but if the middle parts of your organization aren't aligned with all those processes and procedures, nothing will ever get done and nothing will ever change. And so there's a huge layer between the top of the organization and the people who have to execute. And in certain respects, you have to get buy in throughout the firm in order to actually meet the goals. Otherwise, you get bottlenecks within that process. And so I think what our leadership has done, has done a really good job of driving that aspect home. That we need you as seeing your managers and middle managers to really concentrate on driving better input, so that we can get better outcomes as it relates to diversity, equity, and inclusion.

And so that's a little bit discouraging, because I think we're doing a better job of creating entry points for traditionally underrepresented communities. Now we have to do a better job of retaining and promoting that talent within organizations. And part of that deals with that I and the E piece of DE&I, where you create environments, where those folks feel included, where they feel that their contributions are valued, and where they feel that there is fairness and transparency in how they're being judged and processed.

But there's a penalty, your likelihood of being in a bottom quartile of financial performance rises significantly, the less diversity you have in your organization. And I'll use an old example for my business school days, the Chevy Nova. The Nova was an economy car that had a level of success in the United States, and somebody got the bright idea to start marketing this car in Mexico. So they build a marketing program, they build out production facilities to ship this car to Mexico. In Spanish, no va means, no go.

But understanding that having, not just a diversity of ethnicity, but a diversity of ideas, a diversity of approaches to solve a particular problem or issue is always going to be helpful to an organization. If everyone in your organization comes from the same school and they think the same, they have the same, or basically the same background, they've all lived in the same neighborhoods, your outcomes are going to be fairly homogenous-

I'm of the concept that the top kids at every school are very good. Harvard or Yale might have more top kids, but the top kid at William and Mary at Bradley university at the University of Illinois, at your local state school is going to be a really, really good kid.

And so I think we do ourselves a disservice as an industry when we recruit from the same pipelines, from the same schools, and not reach out to broader institutions to state schools, to smaller institutions, and pick off top kids that are there.

And whereas, kids that I went to school with grandfathers or fathers or uncles or neighbors worked in financial services, and so they had a more natural path to at least pursuing those career opportunities than I did. And I think part of that is on the institutions themselves to communicate more broadly with colleges and universities, so that more diverse, underrepresented communities know that these opportunities exist.

There's a survey, I think, it was by Boston Consulting Group that looked at perceptions of fairness among different communities within the organization. And they used white males as the baseline, and then had different degrees of freedom from that. And every degree of freedom that you move away from being white and male, there was less satisfaction within organizations as it related to fairness and transparency. So is that a perceptual issue or is that an actual, real dynamic and outcome that may be driving diversity out of your organization and impacting your results? So that's the first thing that I would do.

The second thing is, how do you want to communicate this externally? So at Mesirow we came up with a six point plan or a six point statement that we wanted to recommit to our external constituents, our desire and our objectives within diversity, equity, and inclusion, "So now we're on the hook. We've told you that this is what we're going to do. Now you have an expectation of us as an organization as to how that's going to happen."

We also communicated that internally through a DE&I policy statement where we've made a commitment to our clients and our constituents and our colleagues that, "We're going to implement these processes in order to get better desired outcomes." And so that would be the second thing.

And the third thing is, I would make sure that whatever actions I'm taking within the organization align with what I'm doing with my customers, with my communities, and with my constituents. And so at Mesirow we've partnered with like-minded organizations, particularly, in the areas of economic development and education, and in broad based community services, where we want to help service our community and align ourselves with those groups.

At the same time, those groups are helping us, because, in some cases, particularly with some of our educational groups, they're actually creating pipelines of talent that we can import back into our organization and create, not only opportunities for them, but they create income and drive profitability for us as well. And so it becomes more of a symbiotic relationship.

I think the last thing is you have to have concrete incentives in place. I laugh sometimes that I'll know that we're really serious about DE&I, when my best salesperson refuses to be involved in the program and I fire them. Because what I'm doing structurally as a corporation in addressing DE&I, is more important than that particular producer. And when organizations are taking this seriously, there is a proper incentive structure to reward and/or punish people who are not helping the program to progress.

These are always difficult conversations, because no one wants to believe that, or at least most of us don't want to believe that this is something that we are doing intentionally. And most of us don't want to believe that we are bad people who have bad intentions. And I think there's a lot of work and a lot of heavy lifting to do within a lot of these organizations, who see themselves as being altruistic and doing the right thing, but are sometimes reticent to have those conversations that are much harder and much deeper in order to get to the core of the problem, and actually change the structure of their organizations to be more inclusive.