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Is it Time to Admit That "Meritocracies" Aren't Working?

Is it Time to Admit That "Meritocracies" Aren't Working?

In our capitalist society, the concept of meritocracy is as American as apple pie: give your managers the business resources they need to do their job, set them after a goal (such as delivering "shareholder value"), maybe stack rank them, reward them for their results, and let the cream rise to the top.

Equality of opportunity and capitalism at work. What's better than that? Nothing. In theory.

The only wrinkle is that it doesn’t always work so well.

Case in point: two of the most visible and vocal "meritocracies" are Wall Street and Silicon Valley. Their reputations are that they are capitalism itself, investing their trillions of dollars in capital to innovative companies and market opportunities that have the best risk-adjusted returns. If these two industries just happen to be the stomping grounds of mostly white men, among the least diverse of American industries....if those guys simply have better business results than women and African Americans....well, that's just how the cookie crumbles....

Except for one small issue: their results.

Results have been mediocre in the case of Silicon Valley: as a group, the limited partners in venture capital funds would have been just as well off investing in public markets, over a range of timeframes, according to returns calculated by Cambridge Associates (instead of earning the higher returns that taking on the greater risk of investing in start-ups should drive). And results have been sometimes disastrous in the case of Wall Street....their returns in an upmarket have been more than wiped out in downmarkets. And, you know, financial crisis.

Oh, and women have been molested...story after story has come out about harassment in Silicon Valley, and I have my own to share about Wall Street.

This perhaps should be no surprise, as there are any number of research studies demonstrating that levels of testosterone can be correlated with poor risk taking and that groups of men tend to make riskier decisions in times of stress when they believe they are being watched by male peers.

One might shrug and say that perhaps "meritocracy" might not work very well, but it's better than all of the alternatives.

But there is an approach that may work better, counterintuitive though it may seem. And that is focusing on and driving diversity, rather than letting the supposedly meritocratic chips fall where they may. For one type of diversity – gender diversity – established companies with more women in leadership have higher returns, lower risk, greater customer satisfaction, greater employee engagement and greater innovation than less diverse and inclusive companies. The better results hold true for start-ups as well: First Round Capital has reported 63% better returns for its investments in companies with women in leadership than in male-only.

So what if we admit that these "meritocracies" have been just mis-named "man-tocracies"? And that instead of building them the old way, we focus on building cognitively diverse organizations? What if we focus on building organizations that prize diversity of background, gender, skin color, orientation, education, nationality, experience? Yes, that means overruling the middle manager who wants to hire the fifth person this year who is just like himself, because he feels so sure that someone who looks, talks, and acts like him will do the best job.

I can feel you squirming. (And I am bracing myself for the comments.) I get it; this feels odd, because the concept of meritocracy feels so right...giving people the elbow room to run their businesses as they see fit feels so right.

Except that it's well past time to admit that individuals’ cognitive biases can be so strong that they can default to surrounding themselves with people like themselves, and thus negatively impact performance. In fact, the research shows us that this force is so great that demonstrably good performance is not enough to overcome gender bias. As a result, the progression of diversity in business has stalled, despite all of the research on its power and all the training companies provide on cognitive biases. And, again, financial crisis.

Thus, one might argue that focusing on diversity in this way is the real means of building a true meritocracy.....that making diversity a requirement in building a management team forces the individuals making the hiring decisions to overcome their own biases....and pull together a more highly performing team.

I know it feels weird. But it's worth consideration.

Interested in more information and in taking action? You can help fund #TimesUp's legal defense fund for individuals who have been harassed at work; you can join the women of Ellevate Network in working to advance women in business (themselves included); and you can learn more about topics like this, and other financial topics impacting women, by signing up for Ellevest's What the Elle newsletter.

Sallie Krawcheck is CEO and Co-Founder of Ellevest, an innovative tech-enabled investing and planning platform for women. She is Chair of Ellevate Network -- the global professional women's network that is working to advance women in business -- and of the Pax Ellevate Global Women's Index Fund. She is author of Own It: The Power of Women at Work.


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