DEI gets priority in manager succession

Succession plans are more important than ever, but a tight labor market has made it harder to retain employees and anticipate which ones will rise through the ranks and lead companies. Piling pressure on top of that is a new emphasis on creating diverse and inclusive workforces and leadership that means succession planning is requiring a new level of effort and dedication.

"While there hasn't been a huge wave of change in leadership across the industry, we have seen an increased awareness amongst leadership at asset managers in recognizing the importance of developing a transparent succession plan," said Will Karkar, a director at New York-based Alpha FMC, a global consultancy that counts the 20 largest asset managers as clients, as well as others.

In recent years, Mr. Karkar said, asset managers have realized they were "exposed" to the risk of losing high performers, especially those working at the middle-management level who would typically feed into senior positions. Companies that want to become more diverse and inclusive, but are unable to retain junior employees, are especially in danger of not achieving DEI goals, he said.

Since Laura Pollock started her New York-based executive search and talent advisory firm Third Street Partners in 2013, she has done her best to promote women and minorities in the asset management industry. Now, she's noticing something "incredibly refreshing," she said: Asset managers are more interested than ever in those candidates.

Two things in 2020 greatly contributed to the state of succession planning today. The COVID-19 pandemic — which caused millions of people to rethink how they want to work and live — and the murder of George Floyd that sparked protests, reinvigorated the social justice movement and led workers to demand that companies, including asset managers, better support Black and other minority employees.

"I guarantee you every single one had to adapt and change those (succession) plans," Ms. Pollock said about asset managers. Either would-be successors have departed or the candidate pool for positions no longer meets a company standard, she explained. A new emphasis on creating workplaces that are diverse, equitable and inclusive has "greatly impacted succession planning," Ms. Pollock said.

Terrence Murphy, CEO of ClearBridge Investments LLC, a $157 billion equity manager in New York, said in an email his company benefits from different experiences and perspectives of employees, making DEI "essential" to the organization's success. ClearBridge has started sourcing job candidates through more diverse channels, including recruiters and pipeline programs, and it's revamping its summer internship program to ensure the cohorts are more diverse.

The asset manager is also working to make sure that when someone joins the company, they want to stay.

"We pride ourselves on low employee turnover, which means the demography of our employee base will evolve at a measured pace with our expanded diversity recruiting efforts," Mr. Murphy said. Since January 2021, 78% percent of hires at Clearbridge were diverse, based on their gender or ethnicity. Women have represented 43% of overall hires and 33% of investment professional hires over the past three years.

Baillie Gifford, the $365 billion growth manager based in Edinburgh, has embraced diversity and inclusion factors in its hiring and succession planning because it will position the company for long-term success, said Andrew Telfer, the CEO and joint senior partner at the firm. It is already seeing some good results: the majority of new partners this year were women.

By comparison, a report by Deloitte last year found that in 2021, women held 24% of leadership roles within financial services and that percentage is projected to grow to 28% by 2030.

About half of all entry-level positions in asset management are held by women but white men hold a disproportionate percentage of vice president, senior vice president and C-suite positions, according to a 2021 study by McKinsey & Co.

"All firms should be thinking about this. If there is a firm out there that's not, then they are most likely being left behind," Dominica Ribeiro, chief marketing and distribution officer at the $41 billion Breckinridge Capital Advisors in Boston, said about DEI and succession planning.

Other companies have made "strong inroads" finding and developing diverse talent who might ultimately become leaders in their organizations, said Keith Robinson, a managing partner at Focus Consulting Group, a Long Grove, Ill.-based firm that helps asset managers develop their strategy, culture and talent.

"What will likely play out are these firms' ability to develop strong talent and to recruit new talent that is more diverse. This is not something solved quickly, it takes intentional leadership and a clear strategy about how to build a more diverse workforce," Mr. Robinson said. "However, given the expectations of the millennial and Generation Z workforce, this is a challenge that must be met."

Conversations about succession planning and diversity at asset managers often lead to ones about good strategic visions, sources said. It is easier for firms and personnel to make succession plans when a company's future is laid out as well as it can be.

"The link to a firm's overall strategy is absolutely real. For a succession plan to work over the long term, more junior team members need to believe that the business model will continue to work, and that the leadership roles they may eventually fill will be both economically and professionally attractive. Firms that don't have a clear story for why they'll succeed in the future will also struggle to explain to their employees why they should remain committed to the firm," said Kevin Gallagher, New York-based senior manager at Deloitte's asset management consulting business, Casey Quirk.