Diversity Matters in Hiring

“It’s not that we’re biased, it’s just we don’t receive enough qualified applicants.” As a Founder of a diversity-driven investment platform, and having spent over a decade at some of the largest financial institutions like J.P. Morgan and Mitsui & Co., this is the number one reason I consistently hear from Hiring Managers when they’re confronted with the Diversity and Inclusion Problem. As a […]

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© 2020 by Aidos Inc. All Rights Reserved.
© 2020 by Aidos Inc. All Rights Reserved.

“It’s not that we’re biased, it’s just we don’t receive enough qualified applicants.”

As a Founder of a diversity-driven investment platform, and having spent over a decade at some of the largest financial institutions like J.P. Morgan and Mitsui & Co., this is the number one reason I consistently hear from Hiring Managers when they’re confronted with the Diversity and Inclusion Problem.

As a complementary article to Diversity Matters in Venture Capital, I want to focus on the Hiring Process today, and to provide some guidance for hiring managers and decision-makers who are finding it difficult to diversify their teams using traditional Hiring Funnels.

Note: As an avid reader of Charlie Munger, I am an astute student of Mental Models, which are critical for avoiding the mental traps of 200+ cognitive biases, some of which reveal the root cause (in the words of legendary hedge fund manager, Ray Dalio) of systemic racial and gender biases in the hiring process.

Hiring Funnels Do Not Produce Diverse Hires

Simply stated, traditional hiring funnels used widely in Corporate America do not produce diverse organizations by its inherent design from the screening to the interview process.

There are seven principal reasons why the current Corporate Hiring Funnel is flawed.

1. Top Talent is Hard to Find

As a hiring manager, you’re trying to source the Top 5% of Talent leveraging a multitude of recruiting platforms like their own website, LinkedInIndeedGlassdoor, and third-party recruiters like JW Michaels and Russell Reynolds.

According to a comprehensive study by Glassdoor, the average length of job interview processes in 2017 was 24 days across 25 countries, with the United States at this average.

This does not take into consideration internal company dynamics (e.g., hiring manager leaving, position becoming redundant) and the lengthy time it takes to screen and conduct the interviews with candidates, let alone screening for diverse candidates specifically.

2. Diverse Top Talent is Harder to Find

Source: Aidos Inc; Diverse Top Talent Leads to Better Business Outcomes.

According to a recent PWC Diversity & Inclusion Benchmarking Survey80% of financial services firms state Diversity and Inclusion as a firm-wide initiative.

Yet, from 2007 to 2015, the U.S. Government Accountability Office found that African-Americans representation in financial services firms’ management actually decreased from 6.5% to 6.3%, while Women’s representation remains unchanged.

3. Selection Bias is Systemic

In a seminal report by Harvard Business Review, researchers found that discrimination for applicants of color and female applicants has barely declined over the past 25 years due to systemic selection bias in the hiring process.

This led the researchers to recommend, among other things, anonymizing applicant information including names – studies have shown that WASP-sounding names like “Caitlin” and “Peter” receive more initial interviews by a wide statistical margin).

Indeed, this recommendation has been scientifically confirmed by many studies.

For example, a 3-year study of 5,000 resumes and 1,300 jobs in Chicago and Boston found “racial discrimination continues to be pervasive in cultures throughout the world”, with the following conclusion.

“Results found that résumés with white-sounding names received 50 percent more callbacks than those with black-sounding names, indicating that, all other things being equal, considerable racial discrimination exists in the American labor market.”

Let’s move on to the next source of bias during the hiring process: employee referrals.

4. Referrals Reinforce Biases

Source: Aidos Inc.; Referrals Reinforce Biases leading to Homogenous Organizations.

According to LinkedIn’s Ultimate List of Hiring Statisticsover 60% of employers consider employee referrals as the most effective source of attracting quality applicants.

While this may be true, referral networks often lead to very homogenous organizations with similar personalities and a lack of diverse thinking, leading to sub-optimal productivity and innovation compared with a more diverse organization.

Given that certain industries like Finance and Tech are Caucasian Male-dominated, referrals reinforce inherent biases leading to minorities and females continuing to be excluded.

5. Online Job Postings are Structurally Biased

Online job postings are the predominant method for companies seeking to hire non-executive candidates, but even the common language used in job postings today creates structural biases in the hiring process.

For example, a Glassdoor study found that using words like “hacker”“rockstar”“superhero”“guru”, and “ninja” – common words used by many Tech job listings – inadvertently prevent women from clicking the job descriptions.

A simple change to more neutral and descriptive titles like “engineer”“project manager” or “developer” was shown to remove this selection bias.

6. Screening Tools are “Caucasian Biased”

A recruiter spends an average of just 7 seconds looking at a resume, often leading to recruiters and hiring managers using cognitive patterns during the screening process that may be subconsciously biased.

As this Psychology Today article highlights, while people often claim they have no biases when confronted with this uncomfortable question, a clever psychological experiment provides objective contradictory evidence.

Source: Aidos Inc; Implicit Bias has been Scientifically Confirmed in Western Societies like the U.S. and the U.K., according to decades worth of experimental data.

The experiment involves showing participants words on a computer screen like “bad” and “good”, in which the participant must rapidly categorize as positive or negative.

“What results have consistently shown is that if a black face is quickly flashed before the words, individuals will be faster to correctly categorize negative words, while the same people will be quicker to correctly categorize positive words when they follow white faces.”

The study found statistically significant results that over 75 percent of Caucasians have an implicit bias against African Americans compared to European Americans.

Okay, so the screening, job listings, and referrals all have inherent biases that result in minorities and females being systemically excluded from moving to the next stage – the interview process.

7. Interviews Perpetuate Unconscious Biases

Source: Aidos Inc.; Traditional Interviews Perpetuate the Interviewers’ Unconscious Biases.

We as a society fail to understand – with the American media largely to blame for promulgating false cultural narratives like the “Asian model minority” – the true nature of #BlackLivesMatter in humanity’s journey towards Social Equality.

Minorities from Latino Americans to Indian Americans face similar, if not more challenging systemic racism (think Mexican Americans living near the Mexico-Texas border), both in their personal and professional lives.

Professionally, this is manifested during the interview process when the interviewers’ subconscious biases are fully expressed without behind closed doors (as interviews in Corporate America are often one-to-one, private conversations).

For example, speech patterns (pronunciation, accentintonation, drawl) often stray hiring managers to rank those candidates whose speech patterns match themselves or certain groups (British-accents), even if the candidate is quantifiably less qualified than another candidate, according to research published by Harvard Business Review.

As this study by leading psychologists at Brigham Young University demonstrates, British-accented speakers are viewed as “more intelligent and trustworthy” than Middle-Eastern-accented speakers while speaking the same content, confirming what many of us already know based on our personal experience in daily life.

Finally, confirmation bias is rampant during interviews, where hiring managers are unconsciously asking leading questions, often seeking information to confirm their already pre-existing opinions about candidates based on said biased screening mechanism above.

So, what is the solution to this systemic problem in Corporate America?

👨🏿‍🚀 Stay tuned for a follow-on insight piece by Aidos on potential solutions to diversifying the hiring process.

Follow Aidos to learn more about our mission to empower Exceptional Foundersirrespective of their gender and race, by providing them with access to early-stage capital as an alternative to traditional sources like venture capital or angel investors.

By Andrew Vo, CFA

Founder and CEO of Aidos

Related Link: Diversity Matters in Venture Capital

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