The business case for diversity and inclusion has helped those advocating for cultural change in the financial services industry. As companies face unprecedented challenges due to the global pandemic, it is more important than ever before to have diverse representation in management decision-making.
I recently spoke with three APCO Worldwide colleagues with long track records of leadership and accomplishment on what has worked and what actions are needed from financial services leaders: APCO International Advisory Council members Beth Brooke, former global vice chair of public policy and global sponsor for diversity and inclusiveness at Ernst & Young, and Wendi Strong, former executive vice president and chief communications officer at USAA, and Marcia Page, co-founder and executive chair of Värde Partners and member of the board of APCO Worldwide.
As change agents, they all started with the business case and data linking diversity and inclusion with superior performance. McKinsey found that companies in the top-quartile for gender diversity on their executive teams were 21 percent more likely to have above-average profitability and for ethnic/cultural diversity, top-quartile companies were 33 percent more likely to outperform on profitability compared to bottom-quartile companies, which tend to underperform on profitability compared to peers.
There is no shortage of stated commitment to diversity and inclusion at financial services firms, but progress remains slow. The industry is still playing catch-up with a much-changed landscape. Our APCO colleagues offered three main prescriptions for accelerating change in the next 10 years: CEOs need to set the tone at the top, organizations need to embrace system thinking and data around talent management, and brand-builders need to instill empathy to create more inclusive growth.
1. Tone at the top. The message to the organization needs to come from the CEO. Even with diversity and inclusion programs and trainings, without the company’s leader out in front on this as a strategic and bottom-line priority, other executives, and staff at all levels won’t take it seriously or move ahead with initiatives that could spur real organizational change. Leadership is especially needed during times of crisis, because organizational priorities are leader-dependent, and it takes a diversity of managerial talent to rebound stronger.
2. Talent pipeline. There is power in data, and research shows that financial organizations need to address systemic issues for diverse talent to rise. This starts with how companies recruit and how they engage with high school and college students. It continues with checks and balances to reduce unconscious bias in hiring, performance reviews, and promotions. Finally, leading organizations need to commit to rigorous multi-year succession planning to ensure diversity among rising leaders and senior executives running the business.
3.Empathy and inclusion. Companies cannot expect to be authentic or retain the best talent if employees feel they must hide their true selves at work. They won’t be able to innovate or appeal to diverse customer groups if they don’t empathize with the lived experiences of diverse communities. Communicators have a special obligation to be help organizations become engines of empathy towards others in the workplace and the marketplace.
It has been a little over a decade since the global financial crisis and great recession. Brooke noted that, “the glaring lack of diversity in the financial industry was a contributing factor in the crisis. That created a pivot and a need to get serious on diversity and inclusion.”
The COVID-19 crisis will again test organizational agility and the response of the financial services industry. I have always been interested in the intangible value of team collaboration and diversity of backgrounds and perspectives that help organizations see around corners and deliver better strategic thinking and outcomes. Financial firms can provide a real service to systemic change and equity in the executive ranks by applying their quantitative skills to the value of collaboration as a metric for diversity and inclusion, over the long-term, in stressed market situations and economic recoveries.
The business case is there
C-Suites and corporate boards are being swayed by the growing data on the business impact of diversity and inclusion – and by feedback and pressure from the marketplace, whether it be customers, employees or investors.
“Progress has been made because leaders today believe it has a business impact,” Brooke said. She believes the needle has moved on how the industry approaches diversity of all types, such as, gender, ethnicity, gender identity, sexual orientation, and individuals with different abilities. “Companies embrace the business case for diversity and inclusion with concrete actions to attract the best talent and drive a more innovative workplace.”
Investors are paying attention
Financial services companies have set data-driven targets to appoint women and minorities to the executive ranks, in the C-Suite and on boards of directors, but progress has been slow. “There’s a glacial pace of change in financial services—it would take 30 years to get to 30 percent women in executive positions based on current trend,” Page said.
“We can change the curve of the industry, but it has only been in the past couple of years that the pace has increased,” Page continued. “Putting more attention on unconscious bias and the power of data to tell the story of how bias impacts hiring and promotions led to a lightbulb moment for the industry.”
Financial institutions are hearing from their clients, who are doing more due diligence and asking more sophisticated questions on the diversity and inclusion practices of the firms that handle their money. As a result, institutional investors are taking a more active interest in talent diversity at the companies in which they invest, particularly focusing on the gender breakdown in management.
Interestingly, the most downloaded ESG data on the Bloomberg Terminal is information on board independence and female representation in the workforce, in management positions and on the board. “Our research, and the research of others, shows that the inclusion and promotion of women is positively correlated with good company performance,” a large investor explains in Bloomberg’s report.
Financial inclusion for a diverse customer base
Financial services organizations simultaneously need to recognize they need an employee base that reflects the gender and racial diversity of the customers they serve. For example, in the United States, women control $11 trillion of investible assets, and financial services firms must catch up to ensure that female perspectives are included in every decision.
But this is not just about gender – a diverse and representative workforce also includes individuals with different educational backgrounds, different physical and mental abilities, and socioeconomic experiences. “Take financial security,” Strong said. “Internally, financial services leaders often define it as retirement, but for many of their customers it actually means having money in the bank to pay the rent, put food on the table, or in case their car breaks down.”
Strong continued that “change comes when a company’s leadership develops conviction around the importance of creating a more diverse organization to be more successful. If you want to be successful, you must change your employee makeup as your customers change. If you are talking to the board of directors, you need to bring numbers to the table and show the research that your employee base does not look like your customer base.”
Continue reading part two of this article: D&I In Financial Services: Views from Three Industry Leaders.