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How Ariel Uses Its Diversity as a Competitive Advantage: Mellody Hobson

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According to Mellody Hobson, the diversity at Ariel Investments — and lack thereof throughout the rest of the industry — is a competitive advantage for the firm.

Hobson is the president of the Chicago-based Ariel Investments, which was founded in 1983 by John Rogers Jr. She recently gave a keynote speech at the Morningstar Investments Conference in Chicago.

“We think diversity is a competitive advantage for Ariel,” she said during the conference. “It’s shocking to us that other people don’t see it.”

The Chicago Tribune reported recently that 51% of Ariel Investments’ staff are women, while 27% are African-American, 13% are Asian and more than 7% are Hispanic. Two-thirds of the leadership team is female, as well.

Meanwhile, the Tribune also reported that a 2015 report on the Chicago financial services industry compiled by Mercer found that African-Americans made up only 12% of employees.

The Certified Financial Planner Board of Standards’ Center for Financial Planning recently conducted a study that found that only 3.5% of CFP professionals are black or Latino.

One way Ariel sees a diverse staff as an advantage is it believes that leads to diverse thought, according to Hobson.

She described a passage from a book called The Difference by Scott Page, a professor at the University of Michigan — a book, she adds, that every one at Ariel reads.

“[Page] says if you’re trying to solve a really hard problem — super hard — you want a diverse group of people trying to solve it, including those that have diverse intellectual levels,” Hobson said.

The example that Page gives in the book is the smallpox epidemic that was ravaging Europe.

As Hobson tells it, the greatest scientists from around the world were brought in to try and solve this problem. Yet the actual first understandings of what was the vaccination and what would be the way to deal with this epidemic came from the observations of a dairy farmer.

“A dairy farmer noticed that the milk maids were not getting smallpox, and the smallpox vaccination is a bovine-based vaccination because of that dairy farmer’s observations,” Hobson said. “Now, maybe the dairy farmer was a genius and … maybe he wasn’t, but he was different than all the scientists who were mostly taught to think the same. And that lead to the breakthrough in that instance.”

While Ariel isn’t trying to solve smallpox, Hobson said the firm has plenty of problems to solve.

“We believe that every single day when we’re sitting down and we’re thinking about ‘do we buy this stock, sell it, hold it, etc.’ we’re trying to solve a really hard problem,” she explained. “And that problem is magnified by the fact that people’s livelihoods ultimately depend on the decision that we make.

“If they can send their kid to college, retire comfortably, etc. That’s always in our minds. It’s not billions of dollars, it’s real people and their money.”

Because of that, Ariel believes that the best way to then solve that problem is to have the most diverse ideas and people sitting around the table to challenge one another.

“At Ariel we actually joke that if we are like-minded in our point of view about a stock, it’s going to be a problem,” Hobson said. “If everyone agrees, there’s something wrong. We really want to challenge each other, challenge our assumptions, and make sure we’re looking at every conceivable angle, every conceivable idea.”

According to Hobson, the only way a team can do that is by having people come with different points of views, different genders, different races and ethnicities, different ways of growing up, and different backgrounds.

All of that leads to a perspective that can shape an outcome.

The other way that diversity has become a real advantage for Ariel is it allows the firm to attract the best talent, according to Hobson.

“I can tell you that if you are a student and interested in finance and black [and] in any reasonable university? You know about Ariel,” she said. “So that means we get these amazing resumes all the time.”

The fact that the firm has Hobson, who is black, as its president and other diverse leadership encourages women and minorities to apply for jobs.

“They can see [that] I was the booth person who’s now sitting on this stage as president of Ariel, and say ‘well maybe that can happen to me,’” she said during the conference.

Hobson added that there isn’t this kind of visibility of diversity in “a lot of organizations, big private equity shops, etc.”

“There’s not even partners of color,” she explained. “And so again, it creates an advantage for us.”

Hobson said that she is waiting for the industry to “wake up” to this necessity to have diversity on staff and leadership.

“Not only are they missing the talent of the individuals who can be in the room with them — and I know many organizations are making good-faith efforts so I’m not saying this being dismissive or condescending — but also the other thing that they’re missing is the insight into new potential customers and markets that maybe they haven’t had opportunities to reach before,” she said.

(UBS recently announced a new partnership with a diversity recruitment and career advancement platform. And RBC Wealth Management also recently hired a dedicated recruiter to focus on building a diverse advisor force.)

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