Sallie Krawcheck is questioning the meritocracies of Wall Street — or, as she’s calling it, the “man-tocracies.”
As Krawcheck describes them, meritocracies are like the “apple pie of capitalism.”
A meritocracy is a system in which the talented are chosen and moved ahead on the basis of their achievement.
“What’s more meritocratic than my industry Wall Street? Core meritocracy. What’s another meritocracy? Venture capital,” Krawcheck said in a recent speech during Ellevate Network’s Mobilizing the Power of Women Summit. “These are businesses that must be meritocracies, in which these businesses are money businesses driving capital to the best returns. So therefore, they will find the best talent.”
However, she added, “it just so happens that the best talent is more white males.”
Today on Wall Street, according to Krawcheck, nearly 90% of traders are male, 86% of financial advisors are male, 90% of mutual fund managers are male, 95% of hedge fund managers are male, and 95% of venture capital partners are male.
“Those males are so damn good … They’re 90-95% of these, by the way, quantitatively measured jobs. That’s amazing!” Krawcheck said. “Here’s the problem: Women are better investors than men. Women are better hedge fund managers, we’re better mutual fund managers, [and] we’re better individual investors. Where’s that meritocracy?”
A growing number of surveys and research papers have shown this. For example, Fidelity reported in 2017 that a growing body of research, including an analysis of the investing behavior of more than 8 million Fidelity retail customers in 2016, showed that women tended to outperform men in generating a return on their investments.
Another report, this one by Wells Fargo Investment Institute, finds that women’s greater willingness to show patience, forgo excessive trading, seek education and adhere to an investment plan has tended to result in better investment results.
In addition, a 2009 study by Vanguard of 2.7 million IRA investors found that during the 2007-2008 financial crisis, accounts led by women lost 13%, while accounts led by men lost 16%.
This is also true for hedge funds, according to other research. From January 2000 to May 2009, hedge funds owned by women gained 9.06%, compared with 5.82% for the composite hedge fund index, according to Hedge Fund Research. And, the Women in Alternative Investments Hedge Fund Index returned 6% from January 2007 through June 2012 while the HFRX Global Hedge Fund Index fell 1.1%.
“It’s a meritocracy, it should be the best people [working on Wall Street],” Krawcheck said. “Meritocracies, they don’t exist. They’re ‘man-tocracies.’”
A few years ago, The Atlantic published an article that also examines meritocracies, or rather “the false promise of meritocracy.” And what the Atlantic found is that “managers who believe themselves to be fair and objective judges of ability often overlook women and minorities who are deserving of job offers and pay increases.”
The Atlantic concludes that meritocracy can actually “exacerbate inequality.”
The research also shows that companies with diverse workforces do better financially.
According to McKinsey & Company research, companies in the top quartile for gender diversity are 15% more likely to have financial returns above their respective national industry medians.
In addition, the research also finds that companies in the top quartile for racial and ethnic diversity are 35% more likely to have financial returns above their respective national industry medians.
However, companies in the bottom quartile both for gender and for ethnicity and race are statistically less likely to achieve above-average financial returns than the average companies in the data set. What this means, according to McKinsey, is that bottom-quartile companies are lagging rather than merely not leading.
Krawcheck also stressed that by hiring majority male talent is hurting the industry.
“These money industries are overlooking the facts that these guys are not 90% of the best — at the expense of making more money,” she said.
Krawcheck, who has worked her entire career on Wall Street, is currently the CEO and co-founder of Ellevest, a digital financial advisor for women launched in 2016. Krawcheck acquired the Ellevate Network (formerly known as 85 Broads), which was started in 1997 as an unofficial network for women who worked or had worked at Goldman Sachs, in 2013 and rebranded it as Ellevate in 2014.
— Related on ThinkAdvisor: