The economics of inclusion: it pays

In 1955, Gary Becker, who went on to win the Nobel Prize for economics, earned a PHD from the University of Chicago, with a thesis entitled The Economics of Discrimination. Becker argued that discrimination was bad for business in that it raised costs.

When I started working at Bank of Montreal in the late 1960s, unconscious systemic discrimination was still keeping women out of the executive ranks: they were restricted to the lower levels of the organization without much appreciation for their talents, potential or opportunities for advancement.

I was lucky to have worked closely with two strong, influential women early in my career. I saw quickly that they were the equal of any man and that there was the potential to tap into far more female talent.

So, when we came to address the issue of women in the upper ranks of the bank, it was not just a do- good argument — the argument was also an economic one, just as Gary Becker had realized in the mid-1950s. Not tapping into the potential of the talented women in our company meant that we were under- leveraging a tremendous economic resource. That’s a huge disservice to the shareholders as well as to the women who were being held back.

In my view, talent meant everything, and gender meant nothing when it came to talent, so I started several initiatives at BMO to support the advancement of women in their careers and into leadership roles.

When I became president and COO in 1990, I said to our chairman and CEO, Matt

Barrett, “When you look at our work force, it’s primarily women, but women are hardly anywhere to be seen at the management level. This is really ridiculous. Seventy- four per cent of our employees are women. But at the executive level only six per cent are.”

To even begin to create a more equitable workplace, we first had to defeat several deeply ingrained stereotypes. First, the conventional wisdom that women joined the bank for a short time, then quit to have kids. Second, that women’s tenure in the bank was dramatically lower than men’s. Third, that their education levels were dramatically lower than those of men. Finally, that their performance levels were probably not at the same level as men.

We created the Task Force on the Advancement of Women in the Bank, and began the process of collecting data. The facts were compelling: women’s tenure at the bank was equal to, or better than, men’s, at 16 to 17 years on average. Their education level was equivalent to men’s: just as many female employees had undergraduate degrees as men, and many also had graduate degrees. Performance levels were also equal to or better than men’s.

Our research culminated in a detailed report that we published both internally and to the world in 1991. It concluded that discrimination against women in our culture was endemic. It wasn’t a deliberate, conscious kind of thing; it was just the way it had been for many, many years. Self- perpetuating. That may seem so obvious today, but it was pretty advanced thinking at the time and, more importantly, it was backed up by strong empirical evidence.

Endemic discrimination is not necessarily intentionally malicious or even conscious, although sometimes it is. People will naturally hire people who are like them. But the net effect is still the same: inequity, injustice and serious economic consequences, both for the affected individuals and for organizations and society at large.

We had to walk a very fine line, because the inevitable reaction when using data is, “You’re going have a quota system?” My standard response was, “No, because we’re never going to give up on merit as the principal criterion for who gets hired and promoted. If you cast the net wide enough to include women, you will find even more people who have the skills we’re looking for.”

Making change can be a slow, painful, process. I countered resistance by saying, “You’ve got to give everyone an equal chance. So, whenever you come to me with a recommendation for a promotion to a senior job, I want to see who the women candidates for that job are. These need to be legitimate candidates with the same skill levels as the men. Put those candidates down on a sheet of paper.” The idea was that forcing managers to go through the process of actively considering female candidates would start to have an impact.

We had done some very important work and then an amazing thing started to happen. Women at all levels in other banks went in to see their bosses, telling them, “If you don’t start doing something the way BMO has done, we’re out of here.” So instantly the other banks got the religion, which is a wonderful thing.

Today, no fewer than 40 per cent of senior roles at BM O are filled by women. To put that in perspective, in 2019, only 17.9 per cent of executive team members at other S&P/TSX composite index companies were women.

Catalyst, the leading global research and advisory organization working to advance women in business, found a clear and compelling link between companies with the highest representation of women on their top management teams and financial outperformance. On average, return on equity was 35.1 per cent higher and total return to shareholders was 34.0 per cent higher for these forward-thinking companies.

It was the right thing to do and it created value for shareholders. Today, the challenge for all organizations is to ensure that they are harnessing the skills and talents of the entire community and are not only diverse and inclusive, but equitable at all levels — right up to the C-suite. It’s an economic and social imperative.