Could improving cognitive diversity be the next frontier for better business decision making?

While the backlash towards diversity, equity & inclusion (DEI) policies in the US has been prominent in global news headlines, in the UK and Europe work continues through various initiatives to ensure those who are underrepresented are given access to opportunity.  The most significant of these range from inclusivity training to gender and ethnicity pay gap reporting. Increasingly, investors are viewing these metrics as indicators of a company’s commitments to acting as a responsible business.  

This week, new research was published around the merits of businesses embracing better cognitive diversity. Put simply, cognitive diversity is defined as introducing a range of expertise, experiences and ways of thinking within a team which can arise from differences in educational and personal backgrounds - as well as cognitive styles. 

The financier, author and campaigner, Baroness Helena Morrissey and former CEO of Newton Asset Management announced the findings of new research around when and how cognitive diversity works in an investment context. Based on written submissions and interviews by Alex Edmans, Professor of Finance at the London Business School, it identified three main findings:

1. Cognitive diversity can create clear competitive advantages for investment firms:

• A cognitively diverse team has a broader range of knowledge and viewpoints;  benefits can be greater in asset management firms partly because different perspectives can help investors identify factors not priced in by the market.

2. Cognitive diversity comes with potential challenges:

• If not managed well, diverse ways of thinking can also result in miscommunications, misunderstandings or friction and may slow decision-making. Firms cannot just ‘add diversity and stir’.

3. Sophisticated leadership is therefore essential to harness the benefits and minimise frictions from cognitive diversity:

• Cognitive diversity can be valuable in all areas of asset management but particularly in equities, however it can be hard to hire for.

But how do we go about actively finding different viewpoints and structuring our teams better to reflect cognitive diversity? Edmans argues that it is important that managers think about how meetings are organised, such as having a chair who does not express views at the outset and who actively encourages different viewpoints. 

Of course, the question of how much we should embrace cognitive diversity in investment funds or business more generally is not entirely new. When KPMG’s Board Leadership Centre asked more than 100 audit committee members about how they ranked cognitive diversity as a priority, 86% of those surveyed felt that diversity of thinking requires further exploration. Two-thirds said that no personality profiling was done on their boards at all.

It seems fair to assume that in wider recruitment - including amongst those building high-performing Corporate Affairs teams - that there is still an opportunity to introduce ways to ensure a team has a wider range of different thinkers. KPMG recommends one way is to ask what type of thinkers we need in our teams. Think about the mix of profiles such as:

• Risk-averse vs. risk adventurous?
• Diplomat vs. provocateur?
• Idea initiator vs. idea generator?
• Strategic thinker vs. master of operation detail?
• Collaborative vs. autonomous?

Some of the above is often tested informally but without a full framework. The new research makes it clear that the positive role a cognitively diverse team can play comes down to how well teams are managed. The fact is that business leaders are used to dealing with the imperfect and a formal embrace of cognitive diverse programmes will need to align with commercial realities. Management teams have a big part to play in turning cognitive diversity into business advantage.