What a difference five years makes! In the world of institutional investing, we are seeing significant shifts in how diversity, equity, and inclusion (or DEI) initiatives are perceived and implemented. As a retired college professor and former financial adviser, I believe it's crucial to examine this anti-DEI backlash objectively and consider its practical implications for our industry.
Let's begin with the facts. Following George Floyd's murder in 2020, financial institutions made substantial commitments to DEI. Many firms hired chief diversity officers and launched new programs. However, enthusiasm waned considerably due to criticism and legal challenges. This shift isn't just a matter of changing opinions; it's reflected in real actions and policy changes across the sector.
The Supreme Court's decision in Students for Fair Admissions vs. Harvard was a pivotal moment. By effectively banning affirmative action in higher education, it set a precedent that is reverberating through the business world. Conservative groups and individuals like the Claremont Institute and Christopher Rufo have strategically targeted DEI programs, framing them as discriminatory. This isn't just talk — it's led to real-world consequences. America First Legal, for instance, has filed over 20 lawsuits challenging DEI programs. These aren't isolated incidents; they represent a coordinated effort with measurable impact.
In response to this legal pressure, we've seen tangible changes in how financial institutions approach DEI:
- Goldman Sachs expanded its "Possibilities Summit" to include white students.
- Bank of America broadened internal programs to "include everyone".
- Comcast expanded a grant program initially focused on Black businesses to all backgrounds.
These aren't minor adjustments; they represent significant shifts in policy and practice. Leaders in the field need to consider how these might affect their own organizations.
Knight Foundation studies
One of the key arguments against DEI initiatives is that they prioritize demographics over merit, potentially compromising investment performance. Once again, as the professor, I find it essential to look at the research. Studies by the Knight Foundation have found no statistically significant differences in performance between diverse- and non-diverse-owned funds across asset classes.
This is crucial information for decision-makers. If diversity doesn't harm performance — and may even enhance it — then the argument against DEI on performance grounds becomes less tenable.
As institutional investors, fiduciary duty is paramount. The question is: Does prioritizing diversity conflict with this duty? Some critics argue it does, but if diversity enhances value, as some research suggests, then actively opposing it could be seen as a breach of fiduciary duty. This isn't just a theoretical debate. It has real implications for how pension funds are managed and make investment decisions. We need to consider both the legal and ethical dimensions of this issue.
The DEI backlash is also having tangible effects on our industry: Some companies are cutting the funding for diversity programs. I have a number of friends who promoted their organizations as “game changers” when they were naming the brand-new role of Chief Diversity Officer. Many of those friends are now out of work. DEI staff positions are being reduced and employee resource groups are being reconsidered. Also, many firms are continuing diversity efforts but more quietly, avoiding terms like "DEI" or "ESG." These are concrete changes that affect organizational structure, resource allocation and corporate communication. Industry leaders need to be aware of these trends and consider how they might impact their own strategies.
Given these challenges, what concrete steps can we take? Here are some actionable strategies:
- Focus on inclusive language and practices without explicitly using DEI terminology.
- Emphasize the business case for diversity, linking directly to improved decision-making and financial performance.
- Broaden the scope of diversity initiatives to include a wider range of backgrounds and experiences.
- Increase transparency in hiring and promotion practices to demonstrate fairness and merit-based decision-making.
These aren't just feel-good measures; they are practical steps that can help navigate the current controversy while still working towards a more diverse and equitable industry.
The anti-DEI backlash in institutional investing isn't just a passing trend; it's a significant shift. As leaders in this field, we have a responsibility to understand these changes and respond effectively. We need to:
- Stay informed about legal developments and industry trends.
- Critically examine our own DEI initiatives considering potential legal challenges.
- Consider how we can continue to foster diversity and inclusion while mitigating legal and reputational risks.
- Be prepared to articulate the business case for diversity to stakeholders.
This isn't about taking sides in a political debate. It's about understanding the changing landscape of this industry and making informed, strategic decisions that balance our various responsibilities — to our clients, our employees, and society at large. The path forward may not be easy, but by focusing on facts, measurable outcomes and practical strategies, we can navigate these challenges effectively. It's time for decisive action based on clear analysis. Let's lead the way in shaping a future for institutional investing that is both equitable and excellence-driven.
Dan Young, PhD, is the creator of Kairos Class, a wealth building platform for women and people of color. He was also the founding director of the Wharton Alt-Finance Institute at the Wharton School of the University of Pennsylvania and a former Certified Financial Planner practitioner for Ameriprise. He is based in Wilmington, Del. This content represents the views of the author. It was submitted and edited under Pensions & Investments guidelines but is not a product of P&I’s editorial team.
