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The Value of Cognitive Diversity in Building Investment Teams

One of the most critical roles of a CIO is to build the best possible investment team: a team that can adapt, innovate and outthink competitors in the quest for alpha. Recently, there has been a great deal of academic research on team dynamics, particularly around the value of cognitive diversity in the workplace. The work of Scott Page, a professor of complex systems, economics and political science at the University of Michigan, has shown that a group with diverse thinking styles will perform better at problem solving than a group with higher intelligence but a uniform cognitive style. This makes sense. An overly homogeneous group brings a narrower range of problem-solving strategies, and their uniformity of approach is likely to maximize errors and dampen creativity. Ultimately, we are much more likely to develop our best ideas when we need to debate those with opposing points of view.

Cognitive diversity sounds great in theory, but is often relegated to a secondary goal in hiring practices across the asset management industry. Take my firm, Acadian Asset Management. Our investment process is based on analysis of data. As such, our researchers necessarily have a strong background in statistics and programming, in addition to finance or economics. We are not unique on this front. There is a growing sense in our industry that, given the advent of big data and the fact that almost all investment processes use computer-based analysis to some extent, a background in science, technology, engineering and mathematics (STEM) is increasingly beneficial to success in a financial analyst role.

This focus on technical qualifications might seem at odds with our goal of achieving cognitive diversity in our investment team. Yet I see, even within the context of a quantitative approach, a wide range of approaches to problem solving. There are members of the team who work from intuition, testing the ideas that their experience suggests to them. Others are more exploratory and experimental, playing with the data to help develop and then test their hypotheses. Still others are highly rigorous, defining specific problems and creating data sets and theoretical frameworks to test them. I have seen all of these approaches complement one another, and I find that different types of projects and different stages of research benefit from the ability to shift among these perspectives.

When interviewing prospective employees, it’s important to probe to discover the thinking style of each job candidate. One of our managers was famous for sudden left-field questions, asking candidates to determine the weight of his office if filled with water, or how many interior faces there are in a ten-by-ten Rubik’s cube. The point is not to get the answer immediately right. It is to see how the candidate approaches the problem. Do they write a formula, draw a diagram or visualize the solution in their mind? All of these are clues as to how they might engage with problem solving in the workplace.

More broadly, it’s useful to interview by asking a broad array of questions concerning a candidate’s investment experience and philosophy, and to ask consistent questions of all candidates for a given role, to avoid bias. And for reasons mentioned above, putting extra weight on diversifying personal qualities is key to seeking a mix of different educational, professional and personal experiences.

Additionally, it can be incredibly valuable to make use of personality assessment tools to help better understand how employees approach their work and work relationships. One example is the DISC assessment tool, based on the work of psychologist William Marston. This centers on four different behavioral traits and is designed to assess dominance, influence, steadiness and conscientiousness. We have found these to offer useful insight into working styles and how to interact with one another more effectively. People with a high D trait might come off as rude to someone with a more S service-oriented approach, for example. S people will be more effective if they can realize that D is just trying to be straightforward and efficient, rather than critical. It also may help D people to realize that they can increase the persuasiveness of their arguments if they temper their approach with people of other styles.

For investment teams to flourish, it’s vital to employ individuals who are plainspoken and decisive, along with those who are more collaborative and questioning. This approach to embracing multifaceted cognitive styles will, I believe, result in a more productive team and have a positive impact on investment performance.

This is not to say that the work ends once cognitive diversity is achieved. On the contrary, that is when the real work begins. These diverse points of view must still be heard. Google recently conducted research on what conditions make for the most effective team. In the end, it appeared to come down to two simple things: that team meetings were “safe” spaces, where everyone felt comfortable contributing, and that all team members were given the floor for roughly equal amounts of time. Creating a cognitively diverse team and a culture of candid yet civil debate is not always easy. I believe the benefits of a multifaceted approach to problem solving make this well worth the effort.

John Chisholm is CIO of Acadian Asset Management in Boston.