Why Diversity Is More Important Than Meritocracy: Quotas, Talent, Wall Street | Sallie Krawcheck

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, 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 your 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.

P.S. it’s not a pipeline issue. It’s not a lack of talent issue. There are plenty of women, there are plenty of professional women, there are plenty of people of all kinds of diverse cognitive perspectives out there. It’s not just bringing them in and letting the organization work; the organization is working against you.

There is no doubt in my mind that the financial crisis that the United States and the world suffered would have been less severe if we’d had more diversity on Wall Street. There’s no doubt. We know this intuitively. If all of us think about those cavernous trading floors where the individuals populating the trading desks looked the same, that if those had been incredibly diverse, sort of the United Nations of every different kind of person you could have, we intuitively know that the crisis would have been less severe.

We intuitively know that if there were more women at the senior leadership tables that the crisis would have...