When organisations talk about diversity, equity and
inclusion (DE&I), the conversation is often a bit two dimensional. There’s
regulatory pressures, a quota to fill, the threat of reputational damage. This
kind of thinking misses the point of diversity and is why many firms today are
still streets behind.
It’s not just the financial services (FS) industry where
efforts are flagging. There’s a broader trend of big companies pulling back on
diversity initiatives: Microsoft
fired its DE&I team last month, while Google, Meta, Tesla, DoorDash and
X have all cut
their diversity teams by 50+%. These decisions draw an interesting parallel
with FS, where the DE&I score has fallen back to 2021 levels, according to
Reboot.
As firms continue to look for the best talent that will lead
them through increasingly volatile landscapes, embracing diversity in the right
way is becoming paramount.
The problem: Why are some FS firms not fully committing?
DE&I gained significant momentum in 2020, spurred on by
global events like the pandemic and the Black Lives Matter movement. These
heightened the awareness of systemic inequalities, prompting more companies to
prioritise diversity as a core value.
The initial enthusiasm meant that FS firms rushed to
implement diversity initiatives as quickly as possible, without taking the time
to thoroughly understand the root of the issue. Indeed, in Reboot’s
2023 report:
- 48% of respondents said senior leaders didn’t fully understand the impact of racism
- 40% said their CEOs weren’t committed to addressing racial discrimination
- 43% said leadership feared backlash from within or outside the workplace
Reboot went on to show that FS’ DE&I score declined from
67/100 in 2022 to 65/100 in 2023. It’s a relatively small decline, but the
question is why is it declining at all?
Clearly, the focus has been on compliance, not genuine
change, so it’s unsurprising when you hear that between 2021-2023, ethnic
minority representation in senior roles only grew by 3%, or that the
number of women in CFP roles has only risen 0.4% in three years. Yes, these
show continuous improvement, but the progress is painfully slow.
There are three big reasons why some FS firms aren’t fully
committing:
1. Diversity indicators don’t show up on paper, making diverse candidates hard to identify. Firms want the best, most relevant talent, so their focus tends to stay on traditional credentials like degrees and experience
2. Their search firm is coming back with the same shortlist of candidates every time, keeping them out-of-touch with fresh perspectives or alternative talent pools
3. There’s a weak enforcement environment. The Financial Conduct Authority (FCA) has more bark than bite, and only really targets the big firms. Like the organisations it’s meant to be monitoring, the FCA seems more concerned with lip service than action
Because of these reasons, FS firms have stayed stuck in
stage two of what HBR calls the
five stages of DE&I maturity. Here, the focus is on compliance; to move
through the stages and make diversity a tactical, integrated and sustainable
initiative, firms need to do more than just meet the rules.
The solution: Tearing the paper ceiling and breaking class
barriers
For decades, FS firms have been tapping into the same
limited pool of talent – hence why white men from higher socio-economic
backgrounds (SEBs) are 30x more likely to
succeed in FS.
The move towards skills-based hiring brings a lot of hope.
The old tactic of hiring based on work history, qualifications or the
university on someone’s degree is innately exclusionary to diverse groups. For
example, in the UK, black
students are more likely to drop out from higher education than other
ethnic groups, showing how hiring based on degree level alienates a significant
portion of available talent.
Similarly, someone who comes from a completely different
sector, like software development, may not have the specific experience firms
are looking for, but they could tick boxes in other areas where firms genuinely
need to improve – in the case of our hypothetical software developer, these
areas could be cybersecurity, tech savviness or navigating complex regulatory
requirements.
Hiring based on skill is much more equitable. The industry
is already making great strides here, with 87%
of finance employers in 2024 using skills-based hiring to recruit. The more
the industry sheds its unconscious biases and old-school methodologies, the
more diverse and capable its workforce becomes, leading to innovation, improved
performance and a stronger financial sector.
How social mobility can fuel diversity in financial services
When you grow up in a particular area, your social circle
will determine your path. This creates cultural pockets in the country where
people are culturally disadvantaged when it comes to entering fields like
financial services.
Research
highlights that 52% of CEOs in the UK workforce come from higher SEBs, and
the figure rises to 89% for senior leaders in FS. It’s a stark difference that
reveals just how entrenched these socio-economic divides are in the
industry.
Bridging these divides isn’t just about driving equity –
it’s about ensuring the future of financial services. Firms that keep returning
to their little black book of names, or only consider hiring someone if they
have a degree, are cheating themselves out of the best talent. If everyone on
their shortlist is a 55-year-old man from a white collar background with the
same degree, will they have enough technology skills or diversity of thought to
keep the business thriving in an unpredictable, and increasingly digital
landscape?
If you improve social mobility, you then start seeing more
diversity – whether ethnic, gender, psychological or class – and when a broader
range of people are entering the industry, firms will have their pick of
forward-thinking, resilient leaders. This calls for the sector to end its
reliance on methodologies that perpetuate class divides, and instead become
more open to pursuing the best talent, wherever it lies.
It’s time to do better
DE&I must become more than a performative metric. Firms
need to embrace genuine diversity through proactive measures, like
skills-based hiring and the dismantling of unconscious biases.
Though it’s an important part, DE&I isn’t just about the
greater good – it’s about corporate success. As technology advances, and skills
gaps widen, and talent wars wage on, missing out on the diversity of thought
out there keeps FS firms two steps behind.
If your organisation is looking for exceptional senior
leaders – the ones your competitors aren’t looking at – contact me directly
and we’ll set aside time for a call.
