How Employers Can Strengthen Their Diversity & Inclusion Efforts in Financial Services

Why Is Diversity, Equity, and Inclusion Important in Finance?

An inclusive and diverse work culture is essential in the finance industry. As the industry undergoes rapid changes, new skills and a diverse workforce are needed.

Diversity is a broad spectrum that encompasses human attributes, perspectives, identities, and backgrounds. Inclusive workplace culture refers to a dynamic state of operation that fosters respect, value, safety, and full engagement of individual groups.

To achieve a successful, diverse, and inclusive environment, each of these factors must be deliberately encouraged and leveraged. The business case for promoting diversity and inclusion in finance is strong; studies indicate that diverse and inclusive cultures lead to increased profitability, creativity, and innovation.

According to PwC Global's recent survey, 85% of financial services CEOs report a positive impact on business performance through promoting diversity and inclusion. The 2019 McKinsey & Co. study also reveals that top-quartile companies for racial and ethnic inclusion outperformed fourth-quartile companies by 36% in profitability.

The benefits of adopting a diverse and inclusive workforce in Finance

• More comprehensive decision-making: Diverse backgrounds and experiences give rise to different perspectives, enabling financial institutions to make better decisions when risk profiling, identifying opportunities, and allocating resources.
• Improved customer service: Satisfying customers from diverse cultural backgrounds can challenge traditional decision-making approaches and require a novel understanding of their needs. A workforce that mirrors their customer base enables financial institutions to build trust and subsequently strengthen their customer relationships.
• Enhanced innovation: Diversity and inclusion encourage innovative solutions and ideas, which can, in turn, help financial institutions stay competitive in a rapidly-changing industry.
• Attracts and retains top talent: Prioritizing diversity and inclusion sets financial institutions apart and attracts and retains top talent. By valuing unique skills and rewarding varied perspectives, employees feel appreciated, encouraged, and engage more actively in their work.

Key actions your organization can take to advance DEI

We’ve summarized the main learning points from the 2021 CFA Institute study ACCELERATING CHANGE DIVERSITY, EQUITY, AND INCLUSION IN INVESTMENT MANAGEMENT, with an emphasis on those that are practical, are actionable from the outset, and cover the key areas for long-term development. 

Key Takeaways on Foundational Concepts

• Leadership support is critical: Informed support from leadership at all levels, starting from the CEO, is essential for the success of DEI training. Clear communication about the purpose of the training and its expected outcomes can increase the chances of success.
• A robust training communications plan is necessary: To ensure an effective voluntary training program, a comprehensive communication plan is needed, which includes repeat sessions every two years, at a minimum, and may still take time for most employees to participate.
• Measuring success with metrics: Participation rate and session evaluation results are the most commonly used metrics to evaluate the success of DEI training. The expectation is that employee engagement survey results will be positively impacted over time due to the training, though impact is less direct. Feedback can decline if expectations are raised by a greater focus on DEI before strategies start to have an impact.
• Pacing yourself is crucial: Book clubs, discussion groups, and recommended resources can help with DEI learning; however, a quick-fix mentality can lead senior leaders to skip over rudimentary steps leading to overstressed and overwhelmed employees.

Key Takeaways on Communication 

• Ongoing communication is essential: DEI dialogues work best as part of regular organizational communications. After biases, communication is the second most popular area of focus for organizations, as the anti-racism protests made silence an unacceptable option.
• Uncomfortable conversations can be important: Organizations found that they could not wait for everyone to be at ease with these issues, but courageous conversations can still be organized in an inclusive way.
• Storytelling can help: Sharing stories facilitates exploring topics that organizations had not fully grasped before, like what we mean by a diverse group of employees. Storytelling can pique interest in learning about being an ally.
• As demand for diversity, equity, and inclusion (DEI) data increases, it is crucial to develop talking points that can be used internally and externally. This is especially important for colleagues who interface with clients.

Key Takeaways on Talent Acquisition:

• Consider skills and potential: Rather than simply hiring experienced talent, it is important to focus on the basic skills required to do the job. After that, mapping the actual role to on-the-job training programs and bench strength of the team can help identify what is needed.
• Broaden the recruitment pool: Targeting high school and early university students can encourage women to pursue STEM disciplines and potentially consider financial services as a career path. Additionally, brief early contact with sophomores and juniors can be valuable to attract them to the company.
• Educate students: Investing in education for students can help bring talented candidates into the industry. Industry collaboration, using volunteers such as employees already working with high school students, can be an effective approach.

Key Takeaways on Talent Development

• Look for unrecognized potential: While high-potential programs tend to focus on rapidly advancing employees who already perform well, it's also worth considering tailored interventions for personnel who have been stuck in their roles for extended periods.
• Develop structured and rigorous programs: Employ rigor in sponsor and mentorship programs. Use Individual Development Plans (IDPs) and matching tools to enhance the accountability and intentionality of the work.
• Strategically select sponsors: Sponsorship programs tend to be more successful when the sponsor and sponsored employee are in the same business line and the sponsor has visibility into the sponsored employee's work. Successfully run sponsorship programs can be monitored through data on promotion and performance.
• Cultivate alumni: While turnover is further unavoidable, a "boomerang" path can be beneficial for the employee and the organization. Former employees can be converted into brand ambassadors and welcomed back later if they are maintained.

Key Takeaways on measurement and accountability 

• Public reporting: Some organizations shared DEI metrics on their websites to showcase their work to stakeholders, highlighting the link between diverse teams managed inclusively and better analysis and decision-making.
•  Building trust: Collecting employee census data can be challenging, but trust is crucial for increasing response rates. Clear communication is key to helping employees understand the purpose and use of the data.
• DEI dashboards: Many organizations are using DEI dashboards to track metrics like retention, representation, hiring, turnover, promotions, and manager-initiated moves. While the administrative database dashboard may involve complex data management functions, the data visualization and analytics dashboard should be intuitive and simple, focusing on clear visuals and key figures.
•  Prioritizing metrics: Too many diversity data points can be counterproductive, so it's important to prioritize a small set of key metrics for senior leadership focus while the DEI team analyzes the data in detail.

Key Takeaways on Networks

• Align policies: To create a more inclusive culture, revised policies and practices (organizational inclusion) must be effectively communicated and implemented to produce changes in individual behavior (behavioral inclusion). Changing policies alone will not change the culture; behavioral and organizational inclusion must both be promoted.
• Link policies to an overall plan: A comprehensive, strategic DEI plan that includes organizational changes in people policies is more likely to change the culture than simply changing policies without reference to a wider plan.
• Use resource groups effectively: Employee and business resource groups (ERGs and BRGs) can be highly influential in implementing a DEI program, with BRGs typically having direct input into business strategy. ERGs and BRGs focus on specific employee communities and can be sources of leadership talent.
• Support resource groups: To avoid member fatigue and overstretched resources, both ERGs and BRGs must be well supported, especially when current events directly impact their communities.

Areas of Improvement

One area for improvement is addressing unconscious bias, which can be done by utilizing AI to identify and minimize bias in recruitment and promotion processes, as well as reviewing job requirements for inclusivity.

Another key component is accountability, with financial institutions needing to set targets for and measure progress towards diversity and inclusion. This can include establishing executive pay and bonuses linked to D&I outcomes.

Additionally, diversity of thought should also be encouraged alongside demographic diversity, with financial institutions creating an open culture that values diverse perspectives and empowers all employees to share their ideas.

Further progress can be made by enhancing representation at the senior levels and increasing support for underrepresented groups. This can be achieved through targeted development programs, coaching, and mentoring.

Lastly, industry-wide collaboration can also help ensure that best practices are shared across organizations and sector-wide standards are developed. To embed diversity and inclusion in the company culture, creating a comprehensive strategy, communication plan, and reflecting it in decision-making processes can achieve this goal.

Conclusion

Effective DEI programs rely on three key components for success - committed and trained leadership with aligned governance that is accountable, informative communication in both directions with employees, and a DEI plan that is embedded in the overall business strategy. These components ensure that such programs have a positive impact on changing behavior and are integrated into operational structures.

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