At the beginning of my career, the acronym CDO stood for Collateralized Debt Obligation. Today, as I approach the end of my career, the dominating use of the acronym is certainly very different. As far as modern day investment banking vernacular goes, the acronym is now primarily reserved for your firm’s Chief Diversity Officer.
A Chief Diversity Officer – as the title suggests – is primarily responsible for diversity in the workplace. This is not as simple as advising the addition of an Asian woman to the equity sales team, or a gay Latino to the bond trading desk. It’s a whole universe of pain.
In an industry where diversity is painfully lacking, the CDO has quickly become one of the most important jobs but empty jobs of all. Desperate to appear to be doing something, many banks have appointed a CDO it’s often about aesthetics. Not many CDO’s have an actual mandate to enact wholesale corporate change (which is sadly what is necessary at a lot of banks).
Like most jobs that start with ‘Chief…’, I have seen a varying range of quality in CDOs. Their job involves a lot of attending of industry diversity events and award ceremonies, the creation of internal workshops and (or simply maintenance) of internal societies, but little else. It’s easy money, if you can get it.
If the job of a CDO is to be done properly, it requires more than this. The role should be to create an environment where positive interactions can thrive. The only way to do that, however, is for the CDO to truly understand and engage the incumbent workforce, before trying to attract anyone new. If, like this writer, you belong to one of these minority groups in banking, ask yourself how many focus groups or 1-on-1 meetings you have had with your own CDO. I assume it cannot be many.
If banks really want half their executive committees to be represented by women and other minorities in 10 years’ time (i.e. actually reflective of wider society) the CDO needs to get a lot more muscular. It is up to the CDO, alongside the CEO and executive committee to create tangible goals and initiatives to make diversity a strategic priority. Diversity needs to become part of the fabric of a firm’s culture, and that is the most difficult part of a Chief Diversity Officer’s job.
There’s a past example of how CDOs could start doing something useful. - ESG (or Environmental Social and corporate Governance) investing. 10 years ago, this type of allocation was still very much viewed as a ‘nice to have’ in the portfolio. It was about aesthetics, a useful marketing ploy to sway certain investor allocations their way, but little more. Today, many of the dedicated ESG funds have been tremendous outperformers. There’s no reason why firms that champion diversity can’t achieve the same outcome. – Countless case studies point to its benefits for productivity and creativity, widening skillsets and perspectives, all of which ultimately lead to increasing profitability.
Until then, it’s worth bearing in mind that the original CDO or Collateralized Debt Obligation market was actually created as far back as the late 1980s. It didn’t take off until the mid-noughties, when usage exploded with sub-prime mortgage backed securities used as collateral during the U.S. housing boom. As we all know, this ended in cataclysmic failure. Let’s hope for the sake of the future of the banking industry, the new CDOs become famous for their successes rather than their sizeable failings, like their acronym-namesake.
Brennan Huff is a pseudonym
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