Events of the last few months, from the pandemic to protests ignited by the killing of George Floyd in the US, have thrust racial, ethnic and gender inequality into the spotlight.
Financial institutions are rethinking their approach to diversity and inclusion: indeed, over 70% of respondents to a survey during a recent Euromoney webinar said that their institution is doing just this.
In addition to pledging funding to minority communities, banks and other financial firms are assessing how they may be supporting the status quo through their business operations, and therefore what they need to change.
We’ve been looking at how our performance metrics may have meant we have been selecting without considering up-and-coming leaders who may not have the same networks as others- Brandee McHale, Citi
Adebola Osakwe, global head of inclusion and diversity at global investor KKR, says: “Within finance, those bulge-bracket institutions that have had policies in place for years are fine-tuning their actions – and for those in the US that means a more intentional focus on black and African-American employees. For lack of a better term, we’re seeing a ‘reboot’, a doubling down now around D&I.”
Osakwe, who joined KKR five years ago to spearhead a global inclusion strategy, adds that the private equity sector broadly lags large investment banks, but points out that her firm has made particular efforts over the last few years to address diversity and inclusion among employees, supply-chain and portfolio companies.
In recruitment, for example, KKR has reintroduced analyst roles so that it can hire diverse talent at an earlier stage to be trained and developed.
“Some communities lack access and networks and therefore may not be putting themselves in your applicant pool,” says Osakwe. “You have to do more to find them and bring them on board and prepare them, so we reintroduced an analyst programme.”
She adds that the firm is making sure the new recruits are competitive and supported.
Brandee McHale, head of community investing and development at Citi, says there is a tendency in the financial sector – often unconscious – to favour recruits from certain universities instead of considering those who may not have had access to networks or support to attend such institutions, but may well have just the skills for the job.
“We’re subconsciously taught that people are special if they go to certain schools,” says McHale.
Citi has been running its Pathways to Progress programme that works with those who don’t have access to networks to prepare for careers.
McHale also points out that the firm is redesigning its screening process for selecting non-profit organizations to work with: “We’ve been looking at how our performance metrics may have meant we have been selecting without considering up-and-coming leaders who may not have the same networks as others.”
It may seem that monitoring for diversity is fairly simple, but Osakwe points out that it is much more difficult to make sure boxes are being more than ticked.
“You can look at hiring and attrition rates and seniority of employees, for example,” she says, “but it is more challenging to measure for inclusiveness. We run an engagement survey to see if individuals feel a sense of belonging, whether their managers are helping them progress etc, and then seeing if the answers are different for minorities and seek to understand what’s at play.”
While hiring and retention tends to be the main point of focus when it comes to enacting a D&I strategy, increased awareness of systemic racism and inequality has led financial institutions to look further.
Nandita Bakhshi is president and chief executive of Bank of the West, owned by BNP Paribas. She points out that there are many ways a financial institution can be impactful through its businesses – including influencing clients.
“We have to work with clients because we cannot do this alone,” she says.
BNP Paribas Asset Management seeks to influence greater board diversity through its shareholder engagement- Nandita Bakhshi, Bank of the West
She points to a sustainability linked loan that BNP Paribas made to professional services firm WSP where the interest rate decreases as gender-targets are hit (among other environmental, social and governance key performance indicators).
Shareholder engagement is another means for financial institutions to influence clients.
“BNP Paribas Asset Management seeks to influence greater board diversity through its shareholder engagement,” Bakhshi says.
Also, if financial institutions are truly embracing ESG, she adds, inclusion naturally becomes embedded.
Micro-finance and inclusive finance offer financial institutions another opportunity to bring equity to bear through their business lines.
Bank of the West has been working with Grameen America, for example, opening a branch to help women in Fresno, California.
“Some 76,000 women are living below the poverty line in Fresno,” says Bakhshi, and the bank together with Grameen is supporting low-income women in the city to become entrepreneurs. Bakhshi continues: “This pandemic has impacted individuals of colour and women and small businesses disproportionately. If we are to have a recovery that is sustainable and resilient, then we have to be inclusive.”
Over at Citi, McHale highlights the bank’s initiatives to support minority communities by allowing minority-owned banks to access Citi’s ATM network at no charge.
Financial firms have thousands of employees, and that accountability has to cascade down. There are many ways to ensure that happens through performance measurement, culture setting and messaging, as well as compensation- Adebola Osakwe, KKR
McHale stresses that the coronavirus crisis is an opportunity to effect deep change.
“We are so quick to rush to a product or an initiative or programme, but we need to use this moment to change our mindset and then work from there,” she says. “It is a really uncomfortable topic, and it requires a recognition that institutions are made up of individuals. We need to ask ourselves how we are consciously or subconsciously maintaining the status quo.”
That starts by acknowledging that the playing field is not level for everyone.
“It’s not helpful trying to be colour-blind or talking about equality rather than equity if we want to change that status quo,” says McHale, adding that this is the first time in her decades-long career when she has heard people use the term ‘racism’ without being afraid.
“If average black family wealth in the US continued to growth at same pace it has over the past three decades and you held white household growth constant, it would take 228 years for black households to catch up to white households. It’s shocking.
“We need to change our mindset and be intentional and bring a sense of urgency to addressing these inequities,” she adds.
Momentum of outrage
Osakwe says she hopes this point in time is not a moment “but a movement”.
“It is now clear there was a real awareness in some communities that was not realised in others. For some, what happened to George Floyd was not new,” she says. “To others, the nonchalance was a shock, and there is a hopefulness that the diversity of outraged individuals will create momentum.”
To ensure that momentum builds – at least in the financial sector – Osakwe stresses the need for accountability.
“Financial firms have thousands of employees,” she says, “and that accountability has to cascade down. There are many ways to ensure that happens through performance measurement, culture setting and messaging, as well as compensation.”
Indeed, it makes economic sense for firms to do so. As Bakhshi points out, data shows that companies with diverse boards perform better.
Osakwe adds that clients of KKR also recognize the outperformance.
McHale adds: “Considering by 2040 the US will be a minority-majority, then even beyond the desire for social justice, ensuring inclusiveness is embedded across every business line makes sense.”
She points out that in addition to employee, client and board pressure for deeper action, regulators such as the Office of the Comptroller of the Currency (OCC) are also beginning to discuss their role in ensuring D&I moves beyond the realm of ticking boxes.
“Change does not come in 12-month budget-cycle increments,” says MacHale. “We have to take a long view here and we have to take it together.”
The webinar this article was based on can be viewed here: Diversity and Inclusion in the financial sector – the time for change?
Covid-19 and the new work-from-home environment has afforded a greater conversation about gender imbalance, while the global protests against racism have shone a brighter spotlight on racial inequity. Euromoney asks the C-suite and D&I leaders within the financial sector how their firms are examining their diversity and inclusion policies, practices and programs for greater impact and systemic change?
Join Nandita Bakhshi, President & CEO at Bank of the West, BNP Paribas, Adebola Osakwe, Global Head of Inclusion & Diversity at KKR, and Brandee McHale alongside Euromoney’s ESG Contributing Editor, Helen Avery.