We previously discussed some excellent research by Alex Edmans (London Business School), Caroline Flammer (Columbia University) and Simon Glossner (Federal Reserve Board) looking at Diversity, Equity and Inclusion (DEI).
They sought to identify what the determinants of a DEI environment in the workplace are and then looked at the consequences of that environment on performance, valuation and stock returns. We discussed their findings in this Quick Insight 👇🏾
They found, for example, that there was a positive association between high DEI and all but one of the eight measures of future profitability studied and a positive link to future earnings surprises. However, they found no evidence of a link between DEI in a firm and its stock returns, all else being equal. We'll come back to that in a moment.
That is not what I found most interesting.
They challenge the common view on what DEI actually is. That's a good thing. It means we can focus on the right actions. It means we can design workplace policies and approaches to improve DEI in the workplace. I discussed that in a Perspective 👇🏾
Their piece stimulated some other thoughts for me. This is where we come back to their finding on stock returns. If there is no link between DEI and stock returns, from a purely investing perspective, should we care whether a firm has a culture of DEI?
Let's look at that...
The important foundation of the swim leg
A triathlon comprises three legs - a swim, a cycle and a run with the transition between each leg often seen as the 'fourth leg'.
I learnt a pretty important lesson about cold water shock doing my first triathlon back in 2012. It was in St. Neots during the first week of May with the swim leg in the River Ouse. It was a brisk 9 degrees Celsius (48 degrees Fahrenheit). I reasoned that the water would be f-f-fairly cold too and that the least time I spent in there the better, so I decided to get in the water just before the gun went off. I never made that mistake again. The cold water shock meant that after the first nine strokes (with no breathing) I was essentially a bobbing mass and the swim leg took me more than double the time it should have. For half of the following cycle leg, I had numb lumps for legs.
So the swim leg is important. Is it what determines overall success in the event?
A study of Ironman triathlons over the competition's first 40 years found that the biggest improvements for elite competitors came during the cycling stage. That was the biggest correlation to the overall result.