Big banks have to increase diversity in hiring, as does the entire financial services industry, according to a newly released report by the majority staff of the U.S. House Financial Services Committee, chaired by Rep. Maxine Waters, a Democrat from California.

The basic finding of the committee report, "Diversity and Inclusion: Holding America's Large Banks Accountable," is that bank boards and senior executives are not diverse. And banks do not even track how much they spend or invest with diverse firms, Wednesday's hearing noted. These and other findings were further explored in a subcommittee hearing held Wednesday morning.

The report did find that banks are better integrated at the entry level than is the typical U.S. company. For example, whereas 58 percent of bank employees are white, the average across all U.S. companies is 63 percent. Twelve percent of workers at both types of business are black, while 12 percent of bank employees are Asian, compared with 6 percent of workers in all companies. Banks have a smaller share of Latino workers—11 percent, versus 16 percent across all U.S. companies.

Gender-wise, the report found that 49 percent of employees in banks are male and 51 percent female. In all U.S. companies, 53 percent are male and 47 percent are female.

However, at the executive level, 29 percent of bank leaders are women, while 71 percent are men. Even more telling: Whites make up 81 percent of the executive suite.

The report also found that bank diversity numbers "have remained static between 2015 and 2018." It highlights three challenges going forward:

the competition for diverse talent,
the absence of a consistent definition of diversity and inclusion, and
data collection and self-identification problems.

The report recommends that Congress take corrective action with legislation that would:

require banks to share diversity and inclusion data with their regulators and the public,
require banks to track and make efforts to increase their spending with diverse firms, and
require banks to publicly disclose the diversity of their boards.

View from Industry

The hearing featured several representatives of organizations that serve the financial services industry. Kenneth E. Bentsen Jr., president and CEO of the Securities Industry and Financial Markets Association, highlighted a 2018 SIFMA survey of members, which include broker-dealers, investment banks, and asset managers. He stated in his prepared remarks that:

All participants reported having a diversity strategic plan. In the United States, 95 percent of organizations' strategic plans explicitly address gender, gender identity, race, and ethnicity.
Representation of women in the financial services industry is 44 percent. The overall industry hire rate for women is comparable to the rate for men, as is the overall turnover rate, indicating that while both populations are growing, the share of women in the industry relative to men has remained steady. Likewise, the share of women is projected to increase by 2 percentage points over the next five years and 3 percentage points over the next 10 years, making the ratio of men and women equal.
People of color make up roughly one-third of the overall population of the U.S. financial services industry. The overall industry hire rate for people of color exceeds that for whites by more than 5 percentage points, while the turnover rate is about 2 percentage points higher for people of color than for whites, indicating that the percentage of people of color relative to whites in the industry has been increasing.
In addition, 94 percent of firms examine pay equity, with 67 percent of respondents saying their organization conducts such an analysis at least once a year. Eighty-two percent of respondents said that adjustments are made as part of an annual review process, and a similar number said they have a formal remediation process to address pay-equity risks.

Another witness in the hearing was Subha Barry, president of Working Mother Media, who spent 26 years working for large financial institutions. She noted in her prepared remarks that:

Working Mother Media's recent Gender Gap research shows women are a third less likely to realize what relationship capital is and the importance of monetizing it. Women and people of color aren't coached or made aware that leveraging relationship capital is absolutely critical in early career. They start out with this disadvantage.
This shows up in the lack of sponsorship for women and people of color. Seventy-three percent of white women and 83 percent of multicultural women cite the lack of sponsors as the main reason they haven't moved into critical profit-and-loss (P&L) jobs.
A 2015 S&P 500 analysis found that 90 percent of new CEOs were promoted or hired from line roles with P&L responsibilities.

She reiterated that last point in the question-and-answer session, stating that if people aren't given P&L responsibilities, it will be difficult for them to rise to the top.

From: ThinkAdvisor

Instant Insights /

Financial Services Industry Must Do Better on Diversity

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