How the finance industry can combat racism
“I’m going to tell them there’s an African American man threatening my life.” – Amy Cooper
“I’m a tenant of the building; are you?” – Tom Austin
Amid the unrest, anger, and outrage at the sheer injustice of systemic racism, Amy Cooper and Tom Austin are just two examples of white people using their privilege in an attempt to control Black people who dared to exert personal agency in shared spaces. After being called out publicly, Cooper lost her job, and Austin lost his office lease.
Why point out these incidents instead of the thousands of other examples? Because while both apologized and stated “I’m not a racist,” they had tremendous influence in the finance industry through their leadership positions.
There are real questions as to how these implicit biases influenced hiring, advancement, and access to capital at their firms. Their actions in these moments provide a spotlight on how decisions are made in their institutions.
In an industry overwhelmingly driven by personal networks, relationships, and opaque decision-making processes, and dominated by pedigree, the personal quickly becomes (and remains) structural. In this system, decision-makers give preference to peers and managers who look like them.
These decision-makers think they have to choose between performance and diversity, when in fact they might actually be undermining their fiduciary responsibility by not prioritizing diversity and inclusion. This reality is highlighted in an Illumen Capital study that concludes, “racial bias could potentially result not only in the unfair treatment of fund managers of color and their grantees, but also in leaving significant financial opportunities on the table, thus hurting the entire financial ecosystem.”
Let’s be clear, we haven’t “found ourselves” in this predicament. The disparities in access, opportunity, and evaluation of performance are the result of intentional decisions that have accumulated advantage and disadvantage along the lines of race. Dismantling the barriers that have resulted requires naming and addressing the truth of systemic racism.
As Ibram X. Kendi has shared in his groundbreaking book, How to Be an Antiracist, claiming that you’re not racist is not enough. We must move in a way that is antiracist and confront features holding the system in place. Here are a few actions asset owners can take:
Anti-Black bias is a central feature of systemic racism, so take a minute to actually understand your bias by taking Harvard’s implicit bias test. This is not to make you feel judged, but to make you aware. If you value diversity, yet continue to invest in nondiverse firms collecting fees to build wealth, then you should do some self-exploration.
Address institutional accountability
This can be accomplished by issuing a race-informed investment policy statement. Your policy is a statement of purpose that will orient you toward equity. Then hold yourself and your primary decision-making body accountable by using metrics and adding quarterly or annual reporting requirements. This might include tracking the demographic composition and ownership of all firms you’re invested in, the number of firms in your portfolio with majority Black, Indigenous, or people of color (BIPOC) ownership, how many meetings you are taking with diverse firms, and how much funding is allocated to such firms across your portfolio.
Know who you’re doing business with
Include diversity performance and metrics in your consultants’ scope of work and require regular reporting on your decision-makers’ progress toward meeting these goals. Require your consultants to provide information regarding their internal diversity and inclusion policies and practices.
Change the environment
Keep an eye on where and how you spend your time. Attend, sponsor, and speak at diverse management events, and invite those managers to speak at industry events in your sector.
Pursue relationships with different industry affinity groups
The National Association of Securities Professionals, National Association of Investment Companies, Association of Asian American Investment Managers, New America Alliance, and Opportunity Hub are a few examples. Establish regular contact and connection with diverse managers and make a robust list of media to consume on this topic, such as Emerging Manager Monthly and The Plug.
Once you’ve taken these steps, go and allocate your funds with diversity in mind.
This moment has been building for generations. Let’s accept the challenge and make change that will help us all.
Erika Seth Davies is a Beeck Center for Social Impact and Innovation fellow and founder of the Racial Equity Asset Lab. She is the author of “Foundation Investment Management Practices: Thoughts on Alpha and Access for the Field” and “Diverse Managers: Philanthropy’s Next Hurdle.”