Diversity and Inclusion-The Mischler View

Diversity and Inclusion-The Mischler View Towards D&I Best Practices


Diversity and Inclusion (“D&I”) programs, whether in form of legislated public policy or corporate policy are intended to address respective goals and/or mandates that work towards providing a ‘level playing field’ for among others, gender-specific, race, ethnicity, age, or so-called “physically-disabled” groups that are under-served, under-represented, or as a result of cultural bias, are disadvantaged in terms of not being afforded the same opportunities as  non-minority groups with regard to among other things, employment, business contract awards, education and housing. That said, diversity and inclusion programs should not be engineered solely to address social or cultural bias-or to merely comport with an edict. We believe that D&I initiatives should be based on a bigger premise, one that is supported by reams of data courtesy of not only academic, but work-place studies across hundreds of companies and organizations that have determined enterprises that advance diversity and inclusion outperform those who do not, based on a broad list of metrics.

The financial industry is comprised of many hundreds of firms and tens of thousands of people; as such, the topic of diversity and inclusion is front of mind for leaders within the industry as well as for public company treasury executives, public pension funds and investment management firms that provide business to “Wall Street firms.” As noted in the 2016 report published by KPMG, “Raising Awareness of Diversity and Inclusion in Financial Services”[1] “new diversity and inclusion standards will drive financial services organizations to enhance internal and third-party compliance practices to integrate new diversity and inclusion policies, metrics and reporting.”

And, so “we” have, and we continue to do so; but not without many financial service firms “suffering from” added layers of compliance and bureaucracy associated with D&I directives. When D&I initiatives call for a percentage of business to be directed to minority firms, the phrase ‘set aside mandates’ is viewed by some as ‘hand outs’ that favor purportedly lesser-qualified diversity firms that provided investment management services or  investment banking and/or institutional brokerage services. As such, the notion of ‘set-asides’ is one that has been subject to spirited debate within the financial services and investment management industry, as well as many other industries.

Those who advance corporate policies which mandate a certain percentage of business be directed to certified minority firms, whether in form of asset allocation to diversity fund managers or within the context of institutional order execution to sell-side, minority-owned BDs are, in our view, implementing well-informed best practices in terms of not only corporate governance, but also when considering the multitude of corporate workplace studies that have proven diversity and inclusion is a best practice for business strategy. Those opposed to what might be viewed as ‘preferential’ awards contend that D&I ‘mandates’ are inadvertently prone to a ‘check-the-box’ and/or ‘group think mindset’ that leads to mandates being ‘handed out’ to firms whose qualifications and capabilities meet only the most minimal level of standards; an approach that is arguably counter-intuitive to those who point out that corporate issuers and asset managers have a fiduciary obligation to their constituents that should prioritize capability and qualification over ‘carve out.’

In view of Mischler Financial Group’s minority certification (aka diversity firm profile) in which we are recognized as a Service-Disabled Veteran-Owned Business Enterprise (as validated by several different Federal and State certifications, each with different acronyms e.g  SDVOSB (US), SDVOBE (MA), SDVOB (NY), DVBE (CA))  and also FINRA’s oldest minority firm owned and operated by Service-Disabled Veterans, we side with the universe of D&I thought leaders who advocate the importance of diversity and inclusion initiatives. We further assert that it is precisely because of our diverse makeup– one that happens to coincide with the diversity profile of the world’s most respected military force– that we can offer expert testimony based on nearly 25 years of operating history and state without equivocation that diversity and inclusion provides the foundation to an organization’s long-term success.

For those who believe our perspective re: the topic of diversity and inclusion is ‘subjective’, it comes with a caveat. We also strongly believe that those having D&I goals, objectives or formal mandates to allocate a certain percentage of business to minority-certified firms should implement those policies and award mandates only when using a rigorous set of criteria that require prospective awardees to meet certain capability standards and to demonstrate true qualifications. Having a minority certification should not be misconstrued as an entitlement, rather it should be viewed as a qualification to be considered for an opportunity.

One need only research the phrase “diversity and inclusion” via the internet to discover the multitude of widely-accepted corporate and academic studies that point to not only the societal importance of advancing D&I within our human ecosystem, but within the context of a corporate environment. According to a variety of metrics, companies that proactively embrace diversity and inclusion as part of an internal human capital framework and in the course of engaging third-party service providers are noticeably more successful than their peers.

A diverse workforce should be taken as a central competency of a business because diversity in most cases is directly proportional to increased creativity and innovation. And, it is virtually true that an organization’s success depends on upon its ability to embrace diversity and to harvest it in the long term. Many organizations today are actively pursuing diversity as a “business strategy.”
According to Diversity Inc.’s Top 50 most diverse companies across the globe; companies, where the CEO is actively engaged in diversity efforts, stand out.” [2]

The 2015 research report by global management consultant McKinsey & Co, “Why Diversity Matters,” is telling in view of their findings; “We know intuitively that diversity matters. It’s also increasingly clear that it makes sense in purely business terms. Our latest research finds that companies in the top quartile for gender or racial and ethnic diversity are more likely to have financial returns above their national industry medians. Companies in the bottom quartile in these dimensions are statistically less likely to achieve above-average returns. And diversity is probably a competitive differentiator that shifts market share toward more diverse companies over time”.[3]

The McKinsey report further states, “The unequal performance of companies in the same industry and the same country implies that diversity is a competitive differentiator shifting market share toward more diverse companies.”

The firm’s white paper examined proprietary data from 366 public companies across a range of industries. The findings clearly indicated (among other things) “..the unequal performance of companies in the same industry and the same country implies that diversity is a competitive differentiator shifting market share toward more diverse companies.”

While McKinsey’s study and dozens of others with similar theme points to overwhelming evidence as to the benefits enterprises enjoy when proactively advancing diversity and inclusion initiatives, this isn’t to suggest that true progress has come quickly or without contest. Embedded behavioral norms or negative biases within certain organizations are not easily modified; it can take more than one or two generations before a material and positive impact is realized.  The good news is that within a broad spectrum of corporate settings, including the financial services sector, the respective landscapes are well-populated by thought-leaders who are achieving noticeable positive results for their organizations by advancing a D&I ethos.

The 2018 Forbes List of Best Employers For Diversity lists 250 such companies, includes many such companies, including those that SDVOBE-certified Mischler Financial Group is proud to have worked with, is currently working with, or anticipates working with in the course of their respective capital markets initiatives.

One of the companies on the Forbes list is Johnson & Johnson (NYSE:JNJ), the global healthcare company. J&J has also been listed eleven times on Diversity Inc’s Top 50 Companies for Diversity. What some may not know is that J&J Chairman and CEO Alex Gorsky (who has been in this role since 2012), is a graduate of the US Military at West Point (’82) and then served 6 years in the US Army prior to moving to the private sector.  His pedigree is uniquely coincident and similar to that of Mischler Financial Group Principal and CEO Dean Chamberlain (USMA ’85), who also served 6 years as a Captain in the US Army, and similar to that of Mischler’s Founder & Chairman Emeritus Walt Mischler (USMA ’69), who served as a US Army officer in the Vietnam ‘theatre’ for five years before sustaining battlefield injuries that brought him back home and thereafter, to a now multi-decade career within the financial services arena.

According to J&J’s Gorsky, his widely-regarded views on the subject of corporate leadership and D&I were forged in the course of his military service, and therefore speak volumes when he frames J&J as “an enterprise that not only celebrates diversity — we champion it.” According to Gorsky, “Diversity inclusion involves moving beyond lip service and supporting these efforts in highly visible ways and building in accountability metrics for senior executives and managers. A diverse workforce should be taken as a central competency of a business because diversity in most cases is directly proportional to increased creativity and innovation. And, it is virtually true that an organization’s success depends on upon its ability to embrace diversity and to harvest it in the long term.[4]

In today’s world, the decision as to whether to embrace or discount a D&I mindset is no longer an option. The survival of many enterprises may depend on it. The intense competition among companies on a global scale requires organizations to be able to retain their workforce d to address the interests of their customers and clients.  To do so, the organization will necessarily embrace basic tenants of human capital management. People aspire and want to work at companies such as Facebook, Google, American Express, GE, McKinsey, etc. because these companies go out of their way to take great care of their employees, irrespective of race, gender or religion and to position themselves to their clients and vendors as diversity and inclusion thought-leaders. Therefore, they recruit and retain the best talent, thus making them even better at what they do in order to remain globally competitive.[5]

While correlation does not equal causation (greater gender and ethnic diversity in corporate leadership doesn’t automatically translate into more profit), the correlation does indicate that when companies commit themselves to diverse leadership and diverse workforces, they are more successful. More diverse companies are better able to win top talent and improve their customer orientation, employee satisfaction, and decision making, leading to a “virtuous cycle” of increasing returns. This in turn suggests that other kinds of diversity including experience, global mind-set and cultural fluency—are also likely to bring a level of competitive advantage for companies that can attract and retain such diverse talent.

It is true that Mischler’s legacy as the financial industry’s oldest diversity firm—which is based on the firm’s SDV minority certification- can be attributed to the thought-leadership of the world’s two largest public pensions, The California Public Employees’ Retirement System (CalPERS) and The California State Teachers’ Retirement System (CalSTRs). It was their view back in the early 1990s (before the US Federal Government recognized Service-Disabled Veteran owned businesses as a minority classification) that, however much the investment management industry had properly taken steps to ensure financial service firms owned and operated by women, African-Americans and Hispanic-American be provided equal consideration to compete for and provide services to public pensions in the course of navigating financial markets, the industry at large had failed to recognize service-disabled veteran owned and operated businesses.

According to the wisdom of senior leaders at “PERs” and “STERs”, military veterans, and in particular, those injured in the line of duty (and hence classified as ‘Service-Disabled Veterans aka SDVs) returning home after serving in the military and migrating to the private sector who demonstrate capability and aptitude deserve the same degree of consideration as that being provided to other minority groups. It was their view that military veterans not only best represented the diverse make-up of each of the ‘traditional’ minority classifications, but more important, the training and experience inherent to those who have served in the military would prove invaluable within a broad assortment of financial service industry roles. And of course, it was their view that, given the sacrifices made by those classified by the Department of Defense as “Service-Disabled”-which connotes having been injured in one form or another while in service- SDV-owned firms within the financial sector that demonstrate capability, acumen and skill in a manner that is equivalent to or exceeding those of competitors, should be provided every opportunity to demonstrate their abilities through the award of mandates or contracts.

We salute every Issuer and every investment management firm that has recognized the importance of Diversity & Inclusion within their workforce and within the context of service-providers they engage to help advance respective business initiatives and strategies. One can argue that advancing D&I is not only a feather in the cap of organizations that embrace this philosophy, but more important, it should be considered a badge of honor for your company or your firm. When D&I programs are administered properly, it becomes a win-win-win proposition for the enterprise, its constituents, its customers and by extension, those who benefit from the success enjoyed by the diversity firms who are afforded business opportunities.

At Mischler, we’re also sensitive to the fundamental business obligations that corporate treasury teams and investment management firms have when awarding underwriting or trade execution mandates. As fiduciaries, the first obligation should be to award transaction mandates to firms within the context of qualifications and capabilities and references from peers and contemporaries. When working to address corporate D&I goals, the minority-certified firms selected should meet the same standard of qualifications that are imposed on any non-minority firm. At Mischler, we believe those who are responsible for awarding mandates to diversity firms should not take the simple “check-the-box” approach; that went out with the bath water well over a decade ago.

To the point above, apart from the fact that Mischler Financial Group Inc. is a fully-certified minority owned and operated firm, it’s critically important that our clients appreciate the more relevant pedigree of our leadership and our team. However proud we are that our executive leadership and many of our team served in the US military with distinction, and however much that legacy infers compelling personal qualities and characteristics, of greater importance to our clients (as well as to our business model) is that our team be comprised of highly-seasoned financial industry veterans, each contributing a unique set of talents and skills, and all working together with military precision.

In that latter context, it is therefore our obligation to consistently out-compete and over-perform when providing focused coverage and delivering execution capabilities across the spectrum of primary Debt Capital Markets (DCM), primary Equity Capital Markets (ECM), as well as respective secondary markets, where Mischler’s execution team focuses on true best execution as we navigate the assortment of US and International equities markets, exchange-traded funds (ETFs), investment grade and high yield debt markets, US Government securities markets, municipal debt markets and currency (FX) markets.

Every Fortune corporate treasury team and institutional investment manager who has sought out best-in-class investment banks and institutional brokerages that can also help advance respective Diversity & Inclusion mandates knows that Mischler has a nearly 25 year history for meeting and exceeding their respective transaction-based expectations. The rubber meets the road with seamless and flawless back office operations because as we all know, the trade isn’t over until settlement date.

All of these essential facets and many more of any D&I platform are requisites.  There are, however, other powerful certifications that comprise diversity and inclusion, which include African-American and Hispanic-American firms, Women-Owned firms and Veteran-owned firms–as opposed to Service-Disabled Veteran owned, among others. We work side by side with many of these firms and we compete with them as well. With that, Mischler’s designation as the nation’s oldest SDVBE is perhaps a secondary value-add versus the esteemed reputation we have earned for “punching above our weight class,” –best illustrated by multiple broker rotation schedules we’ve been designated for, alongside the biggest banks in the world.

Mischler Financial Group’s growth and expansion has been self-powered and organic. We’ve been enabled by the force of our brute determination, dedication to the best interests of our clients, all using the resources of our own capital. Towards advancing D&I, our internal hiring and mentoring programs are “all-inclusive”, although we do have a decided ‘carve out’ –which focuses on capable and qualified service-disabled veterans and military veterans of any race, gender or color. To the latter, and from the view of the US Army branch of the US Military, “the only color we recognize is green.”

We are not obligated to donate 10% of our profits to Veteran-centric philanthropic programs—which by definition are programs that address members of diverse ‘minority classifications’; we contribute to and advocate on behalf of these organizations because it is the right thing to do. Consistent with our views towards the awarding of mandates to capable and qualified firms, we meticulously research every Veteran-centric non-profit that we support and we select only those organizations that administer programs according to the highest standards and are fully dedicated and aligned with the interests of those who they serve.


[1] Raising Awareness of Diversity and Inclusion in Financial Services, KMPG

[2] Brigette Hyacinth,  Author: The Future of Leadership: Rise of Automation, Robotics and Artificial Intelligence

[3] Why Diversity Matters, McKinsey & Co 2015 whitepaper, by Vivian Hunt, Dennis Layton, and Sara Prince

[4] Why Diversity Matters, Brigette Hyacincth. Author  Purpose Driven Leadership: Building and Fostering Effective Teams Mar 21, 2017

[5] Forbes Magazine, “Diversity & Inclusion Matters to the Workforce of the Future