Seat at the table: D&I across UK financial services

March 2022  |  FEATURE | LABOUR & EMPLOYMENT

Financier Worldwide Magazine

March 2022 Issue

Although UK financial services (FS) are not historically known as trailblazers in terms of their promotion of diversity and inclusion (D&I), the sector’s lack of enlightenment in this regard has evolved substantially in recent years.

Now considered a sector priority, discussions around D&I have travelled well beyond any doubt as to its merits toward virtually universal agreement that building and maintaining a diverse and inclusive workforce is an essential requirement for FS firms.

However, although such ideals are of course laudable aspirations, the reality is that progress remains slow across the sector, particularly at senior levels. As noted by the ‘Pipeline Women Count’ report, in 2020 only five percent of FTSE350 chief executives were women, while the ‘2021 Women in Finance Charter Annual Review’ reports that, in the same year, there was, on average, 32 percent female representation in senior management among charter participants – an increase of less than 1 percent each year from 2017.

In terms of ethnic minorities, the situation appears to be going into reverse. According to the findings of the ‘Green Park Business Leaders Index 2021’, there has been a decline in the number of black leaders and the ‘black pipeline’ to senior management for FTSE100 companies. Moreover, further evidence suggests that ethnic minority individuals struggle with access to progression opportunities, with fewer than 1 in 10 management roles in FS held by black, Asian or other ethnic minority people.

Levels of social mobility are also problematic across FS in the UK. In 2020, research commissioned by the City of London Corporation and authored by the Bridge Group found that there has been limited progress in this respect. In a deep dive analysis of eight FS firms, including regulators, it was revealed that 89 percent of senior roles were held by people from higher socioeconomic backgrounds.

“To date, FS sector‑based initiatives have largely taken a targets, transparency and accountability focused approach to exerting peer pressure for change,” states the July 2021 Bank of England, Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) discussion paper ‘Diversity and inclusion in the financial sector – working together to drive change’. “These initiatives have led to some progress and also create spaces for FS firms to share challenges and successes.

“Nonetheless, despite years of discussion and many research studies, the conversation about diversity and inclusion in many ways is still in its infancy,” continues the paper. “Most effort to date has focused on gender and we are a long way from bringing discussions about other aspects of diversity to the table in the same way, let alone talking about the challenges experienced where different diversity characteristics interact.”

Further evidence of FS D&I inertia is provided by ‘The Future of Diversity, Equity, and Inclusion 2021’ – a survey report by Affirmity and the HR Research Institute – which states that serious inequalities and a lack of inclusion remain prevalent across UK FS. The report cites various issues as key challenges facing the sector.

First, just two-fifths of companies have ‘mature’ D&I initiatives. One of the main reasons many FS firms have failed to cultivate diverse workforces and leadership teams is that their overall initiatives are weak. This is either through lack of support and development or because they are only in the beginning stages.

Second, there has been progress in overall workforce diversity – but not enough. The majority of FS firms agree or strongly agree their workforces are more diverse than two years ago. However, somewhat fewer agree or strongly agree their workforces reflect the demographics of today’s marketplace.

Third, many companies seem to lack enough gender diversity in their leadership ranks. Women make up roughly half of the workforce yet are often underrepresented in the leadership ranks, a situation commonly referred to as the ‘glass ceiling’.

Fourth, many companies appear to lack enough ethnic diversity in their leadership ranks. Around one third of survey respondents stated that ethnic minorities comprise no more than 20 percent of their companies’ leaders, suggesting ethnic minorities are underrepresented in leadership ranks.

Fifth, survey respondents commonly spend little time on D&I issues. Around two fifths of survey participants indicated that the percentage of their average workweek devoted to D&I issues, programmes or policies is no more than 20 percent of their designated role.

Sixth, a variety of factors influence the effectiveness of D&I initiatives. The three most commonly cited barriers to effectiveness are a lack of metrics to identify insufficient D&I, a lack of understanding of the potential benefits and a failure to prioritise at top leadership levels.

Finally, less than half of companies know how effective their D&I programmes are. Roughly half of respondents agree or strongly agree that they know how effective their D&I programmes are. These low numbers align with the view of many HR professionals that a lack of metrics is a barrier to effective initiatives.

“Many firms lack mature and effective D&I programmes,” summarises the survey report. “Those that do have productive D&I programmes tend to share a range of characteristics and practices. In short, they achieve their status by working at it.”

In the view of Sarah Mant, a senior associate at Penningtons Manches Cooper LLP, firms that appreciate, encourage and reward staff equally will make them feel valued and empowered, enhancing their work experience. “That said, the benefits of D&I go far beyond employee wellbeing,” she adds. “A diverse workforce is underpinned by wider-ranging experiences and mindsets – boosting innovation, bringing more creativity to the table and better enabling firms to understand and respond to varied markets, scenarios, needs and requirements.

“Diverse perspectives are more able to recognise risk and error, strengthening firms and reducing their vulnerability to the frailties of human decision making,” she continues. “A firm seeking diversity will also have a greater pool of talent to recruit from and, ultimately, stand more chance of retaining that talent.”

Changing cultures

Today, more open and important conversations are increasingly taking place around D&I, with a raft of government, industry and not‑for‑profit initiatives aimed at improving gender, ethnic and socioeconomic representation at senior levels in FS across the UK.

These initiatives include: (i) the Women in Finance Charter, a commitment by HM Treasury and signatory firms to work together to build a more gender‑balanced financial sector; (ii) the Hampton‑Alexander Review (published in 2021), a business‑led initiative supported by the UK government to increase the representation of women in senior roles in FTSE350 firms; and (iii) the Social Mobility Employer Index, an initiative tracking UK employers on the actions they are taking to ensure they are open to accessing and progressing talent from all backgrounds.

“We want FS firms to think about how they can advance D&I through improving their policies, governance arrangements, accountability, remuneration arrangements and disclosure,” states the Bank of England, RPA and FCA discussion paper. “However, we recognise that these improvements will only deliver real change when they are embedded in culture.”

Additionally, it is imperative that D&I evangelists have a seat at the table. “Commitment from the top is essential, since a pressing issue is the need for people with power and authority to join the conversation and be on board,” adds Sharron Levine, director of the Office of Minority and Women Inclusion at the Federal Housing Finance Agency. “This includes the right people leading effective and meaningful conversations which, in turn, increases the likelihood of a successful D&I strategy.”

All that said, some disagreement exists as to the best strategy to deploy. According to a survey of senior FS executives by The Inclusion Initiative at the London School of Economics (LSE), simply assembling a superficially diverse team without consciously pursuing inclusion habits can have detrimental effects, such as insincere virtue signalling. The survey also suggests that gains from D&I cannot be reaped unless compliance mechanisms, such as quotas and monitoring, are supported with real culture change.

“Some of the executives surveyed raised frustration that their firms engaged in virtue signalling when it came to D&I, while others were still sceptical that diversity was good for business,” says Dr Grace Lordan, director of The Inclusion Initiative at LSE. “However, every leader I met held a belief that the voices of all talent around their table should be heard and leveraged.

“This will only come when financial services have managers across all levels of seniority who embrace an inclusive leadership style because they are certain it is better for their own objectives,” she continues. “Until diverse and inclusive leadership is embraced by managers at all levels, we are stuck in a compliance phase with audits and monitoring. I do hope the next decade sees us moving from compliance to culture change.”

D&I amid COVID-19

In times of crisis, new opportunities often emerge. This is especially true of the coronavirus (COVID-19) pandemic, which has challenged FS firms to rethink entrenched approaches, learn to serve their customers digitally, rework trusted financial models and shift to virtual workplaces.

FS leaders now have the opportunity to apply that same ingenuity to tackle the longstanding challenge of workplace D&I. Embedding hiring and team-building practices is increasingly critical to brand reputation, staff motivation and positive results.

“The pandemic and the need to adapt to remote working has shown that, contrary to prior popular belief, it is possible for FS firms to cope with remote and flexible working patterns,” concurs Ms Mant. “Employees with childcare or carer responsibilities or who otherwise felt unable to adhere to the strict ‘City 9-5’ no longer need to leave the sector. It can accommodate their needs.

“The flexibility demanded by the pandemic has more generally put this and all areas of diversity into focus,” she continues. “As people return to the office, the challenge will be to ensure there are not different career paths for those who take advantage of flexible patterns and those who do not.”

D&I evolution

Unquestionably, serious inequalities have been present in virtually all sectors of UK society for many years, with FS just one of many playing catch-up. Nonetheless, the sector, in concert with financial regulators such as the RPA and FCA, is steadfastly addressing its shortcomings on the D&I front.

Moreover, there is clear momentum for change. Additionally and encouragingly, both FS firms and regulators increasingly have the vocabulary and skills to conduct open and constructive conversations around gender, race, background and ability.

“Regulators have put the spotlight on D&I,” says Ms Mant. “Enhanced diversity data collection, monitoring, audit and disclosure obligations have been mooted and individuals will be held to account. How far regulators go remains to be seen, but standards of behaviour, non-financial misconduct and approach to D&I will become more relevant to the assessment of fitness and propriety, and the role of the senior manager in creating and maintaining a healthy culture will be in focus.”

For the moment, however, despite all the positivity and appetite for change, with many entrenched attitudes and behaviours still in situ, it is clear that, for FS in the UK, the D&I journey still has a long way to go.

© Financier Worldwide

BY

Fraser Tennant