A Better Path to Boosting Diversity in Financial Services

Last year’s protests over racial inequity underlined the problems that women and underrepresented minorities in financial services face in reaching the C-suite, says a new report by Russell Reynolds Associates. To make true progress, says the study, financial services companies must focus on improving diversity and inclusion in their high middle management ranks.

August 9, 2021 – In many ways, the racial awakenings of 2020 opened the eyes of banking executives and their boards to a reality that diverse employees have known and experienced for decades: Getting to the C-suite is tougher for women and underrepresented minorities throughout financial services than for their white and male counterparts, according the report by Russell Reynolds Associates’ Robert Voth, Fawad Bajwa and Art Hopkins. The authors say that a recent search for a chief risk officer at a Fortune 100 diversified financial services company is a prime example.

“Extensive research identified hundreds of potential executives within risk, compliance and ancillary roles who potentially met the minimal technical competences and experiences defined as necessary by U.S. regulatory bodies, human resources and the risk committee of the board,” the report said. Of this target environment, more than 25 percent identified as female or non-white male. When all research was assessed and layered over the minimum career skills, technical qualifications and experiences required by the client and regulators, the number dropped to 10 percent.

The solution is not to lower qualifications, according to Russell Reynolds Associates. “Even if the regulators relaxed their qualifications to consider executives from companies one-eighth the size, or for a line of business credit risk executive to be promoted three steps at once, the chances of failure for that executive, the financial institution and their customers, would be substantial,” the firm said.

This is not atypical. Data from the Women in the Workplace study shows the rapid drop-off of non-white males at every point of career progression in American companies. White men represent just 36 percent of entry-level employees, but 68 percent of C-level executives. Men of color (who drop from 16 percent to 10 percent) and white women (31 percent to 19 percent) lose out as their careers move forward – but neither so badly as women of color, who represent 17 percent of entry-level employees, but only three percent of C-level leaders.

Related: Why Delaying Succession Plans in Times of Crisis Can be Risky

“Virtually every major employer throughout banking has targeted minority candidates in the recruiting process, hired diversity, equity and inclusion professionals to try and improve inclusion and belonging in the workplace, and had senior executives make public commitments to the value of a diverse workforce,” the Russell Reynolds report said. “Despite these efforts, the challenges facing women and professionals of color on the way to the C-suite continues to be significant enough to get them to switch banks or drop out of the workforce all together. Companies throughout financial services have solutions to diversity and inclusion in their hands, yet fail to successfully train, retain and accelerate the development and retention of diverse executives who sit in their very ranks.”

Improvements are not happening fast enough. This despite workplace diversity being one of the most important predictors of sales revenue, profitability, employee engagement, innovation and other key metrics, findings empirically verified throughout the years by researchers in academia and industry, according to Russell Reynolds. “The casual recognition and token programs banks have taken these past decades need to be replaced by unvarnished conversations that result in a clear acknowledgment of the problems organizations are facing,” the report said. You may think your company is doing enough, but studies show you are not, and what you are doing is not working well enough to really move the needle.

Rather than play the zero-sum game of stealing diverse talent from one another, financial services companies need to focus their energy and efforts on improving diversity and inclusion in their high middle management ranks. There is no excuse for failure, says Russell Reynolds Associates.

What Can Leaders do to Improve Existing Efforts?

  • Don’t Ignore Great Opportunities.

The report says that leadership teams often can hire a great diverse employee but pass because they don’t have an immediate role to fill. This limited thinking and lack of creativeness stunts the building of inclusive cultures and strong diverse benches. Strong candidates will add value to your organization starting on day one. Additionally, these star diverse candidates – today one level below your convenient need– will be out of reach when you decide you are ready.

  • Create a Diversity Accelerator Program.

Too many organizations provide the same opportunities to every employee regardless of their needs and capabilities, according to the Russell Reynolds Associates report. “A diversity accelerator program is a plan of action that focuses rapid training, education, and mentorship for high-potential diverse executives,” the study said. “These are easily designed, implemented and executed with clear metrics around success, and they have been shown to deliver exceptional returns for all involved.”

  • Dedicate Senior Management to Mentorship Programs.

Companies often hire talent as the next generation of leaders, then fail to treat them like it. The unique path women and diverse males take to the C-suite are best shared by those who have blazed those paths before them; their battle scars, lessons learned, and pride of success are felt and believed on an intrinsically different level. These interactions also provide an opportunity to assess these up-and-coming employees and garner a clear understanding of their strengths and capabilities.

  • Revamp Your Recruiting Programs.

Passively waiting for diverse candidates to apply for jobs isn’t enough – companies must actively seek out diverse talent where they are. Companies need to develop and implement diversity-specific recruiting programs designed to identify and attract high-potential executives before they reach the C-suite at your competitors. Aggressively recruit them to ensure inclusiveness throughout the company.

Stay tuned as Hunt Scanlon Media’s next issue of Executive Search Review is dedicated to the financial services sector!

Related: Executive Search Firms Adapting to the New Normal

Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; and Stephen Sawicki, Managing Editor  – Hunt Scanlon Media

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