The Diversity Project has selected Professor Alex Edmans (pictured) – professor of finance at London Business School – to lead a study into how cognitive diversity impacts team performance in the investment industry.
Selected from a global field of academics who submitted research proposals, Professor Edmans will explore whether diversity of viewpoint and experience improves the investment performance of a team and explore specific situations where cognitive diversity is beneficial or harmful. His study will also look at how firms can create inclusive team dynamics to harness the benefits of cognitive diversity, forming the basis of practical guidance to help firms develop strong-performing teams.
The Diversity Project has commissioned this work following criticism of existing studies claiming a linkage between demographic diversity and financial performance. Given questions raised over both the robustness of the methodologies and the replicability of these studies’ results, the Diversity Project said it decided to re-examine the ‘business case’ for diversity, focusing on diversity of thought. Specifically, there is very limited, if any, academic work exploring the linkage between cognitive diversity and investment performance.
Edman has previously authored papers concerning the links between employee satisfaction and equity prices, as well as a recent paper entitled ‘(Diversity) Equity and Inclusion’, which goes beyond demographic diversity. He has also worked with a number of investment management firms on culture and talent management.
The research project will incorporate a literature review of existing academic research, plus structured interviews with both senior and junior fund managers, to identify those aspects of team decision-making processes that lead to either strong or weak performance, and the situations that lend themselves best to cognitive diversity.
Having identified these factors, Professor Edmans and the Diversity Project will publish both a report and practical suggestions to help firms improve their approach to hiring, assembling teams and creating cultures where opinions are heard.
“We know many people are keen to understand more precisely how cognitive diversity influences the performance of an investment team. We have set out to establish that, using the best researchers in the world. In our briefing to academics, we specifically asked them not to work back from any conclusions they might assume we wish to see, but to truly identify whether there is any linkage and/or benefit from cognitive diversity,” Baroness Helena Morrissey, chair of the Diversity Project, said.
“The judging panel was extremely impressed by Alex’s proposal and his nuanced approach to identifying the drivers of a team’s success – or failure. This initiative has already garnered worldwide attention and we hope its findings will benefit firms and their clients globally.”
Professor Edmans said: “Diversity has the potential to harness the collective wisdom of a team to improve investment decisions for the benefit of clients, companies, and wider society. But for this potential to be fully realised, it must go beyond demographic diversity to encompass diversity of thought. I am particularly excited to be partnering with the Diversity Project given their commitment to letting the data speak rather than wishing to support a particular viewpoint, and eagerness to explore whether cognitive diversity might have costs as well as benefits.”
