Major organisations pushing for more diversity from financial firms

The business benefits of diversity are hard to argue. Companies that champion ethnic and gender diversity perform demonstrably better than national industry averages.

A 2015 McKinsey and Company study revealed a direct linear relationship between equality and financial returns in businesses. For every ten per cent increase in ethnic and gender diversity within a senior management team, US-based organisations enjoy a 0.8 per cent hike in earnings.

Meanwhile, gender diversity provides significant returns in the UK, where firms can expect revenue to climb 3.5 per cent for every ten per cent rise in female senior executives.

Big brands encourage diversity among suppliers and partners

Financial institutions that may previously have been slow to diversify their ranks now face added pressure from clients to focus on equality. Executives speaking to the Independent said major organisations are beginning to include diversity targets when inviting suppliers to pitch for their business.

Iain Anderson, executive chairman of communications group Cicero, said one Wall Street firm informed him that 15 per cent of the scorecard for choosing a partner would be based on a supplier’s commitment to diversity.

“It was the hardest measure I have so far seen. We would never have seen something like that quantified in such a way, even five years ago,” he explained.

While Mr Anderson works in communications, the drive for diversity has affected numerous firms in financial services and related fields, including banking, law, auditing and consulting.

“When I go into a pitch for banking or accountancy services, I always ask about the diversity of the team,” said Kathryn Mikells, chief finance officer of Diageo, the world’s largest distiller.

Virgin Money’s board is 40 per cent female and at least one member must be ethnically diverse. A spokesperson for the company said prospective investment bank partners are always checked to see if they have signed the Women in Finance Charter.

Financial services firms show diversity progress

Initiatives such as the Women in Finance Charter continue to promote gender equality, with a further 26 signatories joining the government-led initiative in November.

Now, more than 160 organisations have pledged a commitment to the charter, representing over 600,000 employees in Britain. Of these businesses, three-quarters aim to have 30 per cent of senior roles held by women by 2021.

The share of female directors at FTSE 100 firms has climbed from just 12.5 per cent in 2011 to 27.7 per cent today, the Hampton-Alexander Review found. The report wants to see this figure increase to 33 per cent by 2020.

There is also positive news for ethnic diversity, which reached its highest level across FTSE 100 banking and finance firms for four years in 2017, according to Green Park research. A total of 15 per cent of professionals in the industry’s leadership pipeline are from non-white backgrounds, compared with just five per cent for firms on the index overall.

Furthermore, three financial services businesses ranked in the top ten FTSE 100 companies for ethnic and gender diversity. Standard Chartered, Old Mutual and Royal Bank of Scotland came in second, sixth and tenth respectively.

Has diversity progress stagnated?

Despite the business benefits of diversity and rising client expectations, progress appears to have stalled in some financial services firms, especially at the very highest levels.

Early reports from the government’s gender pay gap registry revealed the financial sector has the biggest disparity between median male and female salaries in the UK – 31 per cent, according to one analysis.

The proportion of ethnic minority board members has also remained broadly similar in the sector for several years, with minimal growth from 8.3 per cent in 2013 to 8.8 per cent in 2017.

Raj Tulsiani, CEO of Green Park, said financial services is facing challenging times, with new market competitors and the disruptive nature of technological change.

“As a sector, it needs to rebuild trust with customers and demonstrate that it understands what they need from their financial services providers,” he explained.

“Failing to recruit from the widest possible talent pools will hardly help them to succeed in those endeavours.”

Target areas for financial services

While the bigger picture looks positive, pockets of inequality clearly remain.

For example, the Investment Association recently released results from its Diversity Project that found just one per cent of investment managers are black. Green Park found no executive directors of Chinese or East Asian descent across any of the top 20 FTSE 100 firms, let alone within financial services.

Diversity initiatives have also traditionally targeted gender and race inequality, with other groups – such as people with disabilities – often feeling under-represented.

Overall, the consensus appears to be that, although financial services is making great strides in diversity, there is still a long journey ahead for the industry.

But the future looks bright, with major organisations pushing for greater equality and the government setting tough targets at some of the country’s biggest businesses.

Companies must also do their part to proactively look at their recruitment and talent management strategies to ensure their leadership pipeline sufficiently represents Britain’s multicultural communities.