Compound Opportunity: Explaining Racial & Gender Inequity in Corporate Leadership (Part 1 of 2)

My father is an accountant, a very good one. He loved to share life lessons through numbers. One of his favorites was the Rule of 72, which demonstrates the tremendous effect of compound interest over the course of time. But, the Rule of 72 is applicable to far more than one’s finances. Just as a small financial investment made early in life can lead to ever-expanding returns, early workplace opportunities lead to greater recognition and rewards as our careers advance. This concept which I refer to as “compound opportunity” is a great advantage to those who are granted these early opportunities; yet, when these opportunities are withheld unjustly or simply delivered disproportionately, the effects can lead to a systemic inequity that becomes extremely challenging to reverse.  

What Is the Rule of 72?

The Rule of 72 is a simple way to determine how long an investment will take to double given a fixed annual rate of interest. By dividing 72 by the annual rate of return, investors obtain a rough estimate of how many years it will take for the initial investment to double.

How the Rule of 72 Works

For example, the Rule of 72 states that $1 invested at an annual fixed interest rate of 10% would take 7.2 years ((72/10) = 7.2) to grow to $2. In reality, a 10% investment will take 7.3 years to double ((1.10^7.3 = 2).

Source: Investopedia

The Rule is 72 is an easy way to explain to someone, no matter how young or unfamiliar with math, the incredible power of compound interest and why it makes sense to begin saving as early as possible. If you invest $1,000 at age 20 and get a 10% annual return each year for 50 years, your investment will be worth $117,000 at age 70. By contrast, if you did not invest that $1,000 until age 35 you end up with only $28,000. Does this make the 20 year old a better investor than the 35 year old? Absolutely not. In fact, if the 35 year old generated a 13% return instead of 10% every year, demonstrating better investment prowess, the 35 year old’s nest egg will still never catch the 20 year old’s by age 70.

A similar concept can be applied to an individual’s career trajectory. Let’s look at the hypothetical career paths of two candidates: a white man and a Black woman.

In this example, the white man and Black woman start at the organization in Year 0. They go through a similar career progression in terms of title; however, the white man is promoted through these roles at an accelerated rate. This ultimately leads to a more senior role at the end of a 25-year career. Similar to compound interest, the earlier the opportunity provided, the greater the long-term benefit. This is compound opportunity. You can see that as the Black female employee falls behind in responsibilities, experiences and promotions, it becomes virtually impossible to catch up, just as the 35 year old investor can never make up the value creation generated by the 20 year old investor.

When companies are recruiting for senior executives, they identify a set of capabilities they are looking for, including management and technical capabilities. They select the candidate whose experience best reflects the scale and scope of those capabilities. Let’s use an example:

Role Requirements:

The law of compound opportunity means that people of color and women who have been given less responsibility and opportunity over the same time period will appear to be “unqualified” for this opportunity. But are they truly “unqualified” or are they “under-credentialed?” A lack of credential should not imply a lack of capability, especially when we know that that credential has been unfairly withheld.

So how do we correct for this? Stay tuned and read my next post:
Correcting for the Inequity of Compound Opportunity (Part 2 of 2).