Random Thoughts on The City, Wall St & Capitalism

My summer sojourn is now over. Back to work then, in a manner of speaking. My first post is regarding a matter that seems to be close to everyone's hearts. Been on any Diversity training lately? I have. It's pretty nonsensical and another little timewaster. There seems to be an a priori assumption that Diversity is good and indeed desirable in financial services companies, especially banks. The FT has recently reported that minorities are under represented in banks and financial services companies and UK boardrooms. So lets examine the logic of diversity from a financial perspective, lets apply investment principles. Since I constantly hear that people are an 'investment', or they are our biggest 'investment'. Where better than to start with actuarial methods, Pegler's Principles of Investment seems like a good tool.

1. Maximising Returns: Does having a diverse work force maximise returns, do you actually make more money as a business. Diversity training costs, recruitment processes that conform to affirmative action procedures cost, seeking a more effective way of recruiting minorities costs. Does having a adequate measure of minorities in your company mean you will get more business, maybe so in the cases of public bodies seeking goods and services who will give preference to companies which meet diversity targets. Is that necessarily good for the customer or the supplier. If I have two widget makers to choose from and one of them makes excellent widgets but does not have a diverse workforce whereas the second makes a competent product which will last half as long, but has met their diversity targets, should I use the latter supplier. Is that good economic sense for my business? In the end you will be keeping an uncompetitive and inefficient company afloat, which means poor allocation of capital in the economy as a whole. On the other hand minorities may work harder, but if you are already comfortable with the margins your business makes - do you want to go to all the hassle of trying to actively meet diversity targets? I am at a loss to find any non-anecdotal evidence that diversity maximises business returns.

2. Diversification reduces risk: How?, the more minorities in the workforce means more potential for misunderstanding and general cultural conflict. If my religious belief makes me frown on the making of profit from usury, then perhaps I shouldn't be in a company that arranges loans to companies. There is more risk of litigation due to cultural sensitivities, there is more likely a non-alignment of interest in business as a whole. You may end up with distinct sub-cultures within the business that is not helpful when it comes to achieving shared objectives.(Profit).

3.Take account of future trends: It may be that your business seeks to position itself as a provider of choice for new markets, and new ethnic and demographic groups. For example many banks are expanding their private wealth management offering in Asia to cater to the newly rich. It may therefore make sense to employ people with the same demographic in that region to face customers, but this is a response to a business need. This is not diversity as an end in itself.

4.Orienting Investment towards economically and socially desirable ends: This may be the reason why companies are driving towards diversity( aside from the legal aspects such as anti-discrimination legislation). That said, this cannot be the overriding business principle it is merely one of the four principles set out by Pegler.

In the end the case for corporate diversity as an end in itself is extremely flimsy. Unlike other types of businesses, banks should be considered a sui generis type of business.The overriding investment principle for these businesses is to make as much money as possible, without taking into account moral or ethical considerations, as a shareholder , as long as the activity is not illegal why do I care whether my business meets diversity guidelines or not. Businesses are legal persons, there is no moral imperative. The issue of diversity is sadly linked to the myth of merit. In banks almost every person is fungible with any one else, from the CEO down to the contract cleaner.Try firing either and see if your business blows up. I doubt it. Merit is a meretricious concept. Who wants to employ people based on merit, especially in finance, there is just no need.The idea itself is absurd, especially in banks, 95% or more of the roles do not need any 'real' skills. If you have basic literacy and numeracy skills you should be OK to perform any role in any bank.They are unskilled jobs essentially with a professional veneer. You may be an analyst, you may have CFA, but the point is it's totally unnecessary, especially if you are an analyst at HSBC, your work has already been deemed worthless.

Banks are extremely dry places to work, it would be better if people were hired on their ability to amuse , attractiveness and general ability to make good small talk. These are the skills that get people through the working day. Diversity and merit should have no special place in the recruitment process. I am not sure it is even desirable. I personally like myself best and like to go around with people who are mostly like me, why would I want to change that.

RB