McKinsey’s 2015 report on diversity is often cited in banking HR circles. It looked at 366 public companies and found that those in the top quartile for ethnic and racial diversity in management were 35% more likely to have financial returns above their industry mean. A later study by Credit Suisse analyzed 2,400 companies and revealed that those with at least one woman on the board had a higher return on equity than those that had no female representation at all.
There are many more studies that build the business case for diversity and their popularity is obvious – it often takes the lure of profits for commercial enterprises to make the shift towards a more equitable workplace and society. But studies such as these also cause consternation among researchers.
For one, there is the causation/correlation debate: are companies investing in diversity and inclusion (D&I) initiatives that give them better ‘stats’ because they are doing better generally?
Some researchers will also point out that studies exist that show that diversity does not always mean performance will be improved – only no one wants to publish those studies. Given the painfully slow rate of change towards diversity, it feels almost dangerous to even acknowledge they exist.
Creating and promoting an environment where inclusivity is natural may be more challenging than ticking boxes, but ultimately it will be more beneficial for society and business- Todd Pittinsky, Stony Brook University
Todd Pittinsky, a professor at Stony Brook University, and author of ‘Us + Them’, is one of those researchers dubious about many of the stats, not because he does not believe that diversity has a positive impact on business and society, but rather he does not think that business performance is where the focus should lie.
“What happens if you hire for diversity and you’re one of the cases where performance doesn’t improve?” he asks. “If we consider diversity as a profit driver only and it turns out not to be in particular cases, that leaves room to just go back to old ways without asking the bigger question: ‘Why is diversity failing here? What are we missing?’”
Some of the banks leading the way in diversity agree that the business case is useful to consider, but it can eclipse the work that needs to be done. For permanent change to take place in the finance industry, it is inclusion, not just diversity, that needs to be fostered. And that requires new initiatives that lie beyond simply hitting quotas.
The business case for diversity specific to banks is obvious.
“As a financial services firm our differentiator is talent,” says Susan Reid, global head of diversity and inclusion at Morgan Stanley. “We want the best and the brightest, and we want the best and the brightest to want to join our firm.”
The best and brightest are not limited to one gender or ethnicity.
Having a diverse workforce is also essential for winning clients. In wealth management, gender diversity in particular has moved to the front of discussions around attracting, serving and retaining clients. According to recent Boston Consulting Group data, almost three quarters of women in the UK felt their financial adviser did not understand them.
“As women stand to represent more than 60% of the wealth transfer that will occur in the UK by 2025, that needs to change, and change fast,” says Oliver Gregson, UK head of JPMorgan Private Bank.
He also points out that it is not just wealth transfer that will create more female wealth clients, but also wealth creation: “Where is wealth creation coming from? Women. Women entrepreneurs are starting businesses twice as fast as men in the UK.”
Banks also point to pressure from shareholders on diversity.
Fiona Cannon, director of inclusion and diversity and of responsible business at Lloyds Banking Group, points out that banks cannot afford not to be diverse – particularly at senior levels: “[Without] diversity in our senior management tiers, we [would] face several undesirable outcomes, including reputational damage due to our inability to reflect our customer base at a senior level, potential criticism from current and future investors and a lack of diverse perspectives in our senior-level decision making.”
If this seems somewhat unquantifiable, Cannon points out that, should one want to, it is possible to put a figure on the markets that open up once diversity is embraced.
For example, the net disposable income for all households with at least one disabled member in the UK was estimated at £212 billion in 2017. So engaging with employees and clients around disability, ensuring services for clients and office facilities are supportive of all physical disabilities has an obvious potential monetary benefit.
Similarly, with up to 75% of the wealth transfer set to end up in the hands of women, it is clear that embracing gender diversity would benefit any financial services firm involved in wealth management.
There is no doubt that talking about the business case for diversity opens up the conversation about the topic and can encourage swifter change, but Pittinsky says it can also detract from the real benefits that D&I can bring.
“The focus on business case and hitting quotas has led to the hiring of armies of diversity consultants that focus on weeding out negative biases and advising companies on how to better adjust their composition of ethnicities and genders,” he says.
That is helpful, but only up to a point he adds: “It pays just to realize that most people, which will include employees, clients and suppliers, want a diverse society with equal opportunity so no business case needs to be made. From this mindset, we could more honestly look at where diversity is working or not. And where we would see real diversity happening and its clear benefits would be where there is engagement.”
In this way, Pittinsky says, the question for any CEO expands from: ‘How can we recruit from across demographics and genders?’ to ‘How do we foster positive engagement and openness so that our culture doesn’t become a ‘them and us’, but rather one unit working together?’.
One example he offers is of a financial services company hosting a minority recruitment event.
“It seems to make sense,” says Pittinsky, “but in this instance, one candidate actually turned down a job offer because he was concerned that if his first interaction with the firm was focused on his ethnicity, then he may end up being pigeon-holed down the line.”
Over-emphasizing diversity to bump up numbers quickly rather than finding new ways of creating engagement can be counter-productive.
Pittinsky adds: “Creating and promoting an environment where inclusivity is natural may be more challenging than ticking boxes, but ultimately it will be more beneficial for society and business.”
Essentially it is the ‘inclusion’ part of D&I that needs to be given full attention; the banks that are serious about diversity have recognized this.
“It’s not about hitting a representation number. Representation alone does not impact the bottom line,” says Cynthia Bowman, chief diversity and inclusion officer at Bank of America Merrill Lynch (BAML).
She adds that the bank does not regard diversity as a business case at all: “We’re not having to justify diversity. It’s beyond a business case. It’s just embedded in how we operate.”
Much of this approach comes from BAML’s chief executive, Brian Moynihan, who considers D&I as part of business as usual – even including D&I as part of management reviews.
It is a sentiment echoed by other financial services firms that are making strides in diversity. At Lloyds, it is I&D and not D&I, and it sits in the chief executive’s function, not the HR department.
At Morgan Stanley, Reid says chief executive James Gorman is the champion for diversity: “It starts at leadership. Diversity has to be woven into every aspect of the business – even how you interact with community. If it’s treated as separately, it will not work.”
Fortunately inclusion is not as intangible as one might think and can typically be measured by surveying employees about how engaged they feel. Do they feel comfortable at the bank? Do they feel supported?
In 2014, Lloyds set specific targets to increase engagement levels of its black, Asian and minority ethnic (BAME), disabled and lesbian, gay, bisexual and transgender (LGBT) colleagues to 70% by 2020, which it has almost reached already. Internal networks, affinity groups, events, improved services and inclusive healthcare packages all play a role in making all employees feel supported and comfortable.
Equally important is the fostering of openness across the whole organization rather than just minorities. Bank of America, for example, introduced Courageous Conversations, which brings up challenging topics for discussion in an informal and optional capacity. In December, the bank hosted a conversation with employees and its National Community Advisory Council about social justice and racial equality. The council brings together independent community leaders, representing leading organizations across the US in the areas of civil rights, consumer advocacy and environmental policy.
Engagement is also crucial when it comes to clients. It is not enough for clients to see that 50% of employees are women, or to have the choice of a relationship manager or banker that mirrors their own background or gender. Banks are instead recognizing that D&I initiatives that go beyond the obvious are a way to forge better client relationships. Lloyds’ uses Twitter to host Q&As with its senior management around topics such as being gay in the workplace and it has earned the appreciation of LGBT customers. Indeed, as banks struggle with content that is appropriate for social media, sharing D&I initiatives can be a useful bridge, appealing to clients, shareholders and employees.
Sharing D&I events with clients also adds value. Bank of America invited 90 clients to bring their daughters to an event with Reshma Saujani, founder and CEO of the non-profit Girls Who Code. “We ask the question: ‘What D&I content would our clients be interested in and how can we share insights and best practices?’” says Bowman.
Banks also need to be more innovative in their hiring strategies for diversity. Many banks have understood that tapping Ivy League universities that too often lack diversity can no longer be the only approach. HSBC, for example, identifies schools in underprivileged areas in the UK for outreach for internships and support on a graduate path. JPMorgan also offers a school outreach programme to catch students that may not have considered themselves as ‘a fit’ for banking. Its programme follows students through university, offer internships and supports them in graduate trainee roles.
But hiring into more experienced positions, particularly when looking to address the gender gap, is proving more challenging. It is widely acknowledged that wealth and asset management have even less diversity than investment banking. According to Cerulli Associates, only 14% of the broker and financial adviser population in the US are women, for example. With a future where the majority of clients are women, the industry has been late to develop a pipeline of female talent.
D&I initiatives can go a long way to tackling that gap. Re-entry programmes are one solution.
Several banks including UBS, JPMorgan, Citi, Morgan Stanley, HSBC and Bank of America run programmes in which women (and men) who have been out of the workplace, often looking after children, can receive training that can lead to full-time positions at the bank.
|Tina Fordham, Citi|
JPMorgan Private Bank has recruited several female financial advisers out of its re-entry initiative. UBS began its own re-entry programme last year called Career Comeback. It seeks to add women who have been out of work for at least two years into senior full-time positions.
“We have spoken to hundreds of women, and the one thing that unites all of their stories was that, regardless of why they took the break, the experience of returning to corporate life has been disappointing,” says Carolanne Minashi, head of diversity at UBS.
“Either recruiters are not interested or line managers do not understand. To say there is not a pipeline for female advisers would be something of a red herring. There are plenty of women who meet our hiring needs – the industry just has to let them know it values and welcomes them.”
That is where agile working initiatives can also benefit companies seeking to attract women.
Indeed Lloyds’ Cannon admits that it may be hard for any financial services company to narrow the gender gap unless agile working practices, such as job sharing, working from home and varied shift patterns, are embraced. While women work as long hours as men in the workplace, they still tend to be the ones taking care of children and dependants, and therefore need greater flexibility.
Agile working is more likely to be adopted in Europe than the US, US banking executives admit, but here the business case may just be compelling enough for them to change their minds. Lloyds, for example, introduced a home-working initiative in one area of its business that increased productivity and resulted in a 10% uplift of answered calls.
Julia Bear, an assistant professor and gender researcher at Stony Brook University, says agile working may even be able to solve pay inequality, which continues to plague the financial services industry. She points to studies on pay equity in the pharmacy industry.
“In that sector, overtime is controlled and all employees works shifts – and you will find there is no gender pay gap whatsoever,” she says. “In financial services, men, who are typically not the caregiver, can put in 17 hours in the office and, in being seen to be doing so, are often rewarded with higher pay than their female co-workers. Agile working would change that scenario as women would be acknowledged for working from home... We would hope.”
There seems to be a misconception that caregiving is detrimental to a company in terms of productivity, and inclusion efforts by banks should seek to break down those misconceptions. Bear’s latest research shows that even in hiring, women tend to be offered lower salaries than men if they are thought to be the caregiver at home.
Pay inequality is a prime example of why ticking boxes for diversity is not enough. Banks may be able to boast a diverse workforce, but are they paying them equally?
To answer this question, Natasha Lamb at Arjuna Capital, is pressuring US financial services companies to publicize their pay gap.
Unsurprisingly there is pushback. Banks argue that it is too complex to accurately compare the hundreds of different roles in their institutions by pay and gender, yet asked if they do this already internally, they admit that they do. What it comes down to it, banks will often confess under duress, is that they do not want to be the first to publish.
“The lack of transparency is an issue,” says one D&I representative. “Women can’t say for sure they are not paid equally but they sense it. If you don’t have the data then you just can’t fix it.”
She says the consumer goods sector could provide an example for the financial services sector to follow and gives Ikea as an example.
Ikea Switzerland has achieved pay parity, earning it the Edge Lead certification.
Edge is the global business certification standard for gender equality, with Lead certification being the highest level of gender equity possible.
An increasing number of companies globally are seeing Edge certification as a means to commit to the path to greater diversity and pay equity. These include some financial companies, chiefly investment managers and insurers that are in the early stages of certification. Banks have yet to get on board.
“It’s important for financial services firms to grasp that an equitable society and workplace is what consumers, shareholders and employees expect,” says Tina Fordham, chief global political analyst at Citi. “It’s not just women. Younger men expect greater diversity, and while there is a lot of talk happening around it, the needle still isn’t shifting enough – particularly in the US.”
For this reason, she says, while inclusion initiatives are crucial for diversity to become part of ‘business as usual’, not enough headway has been made to stop pointing to the business case as well.