Big banks have to increase diversity in hiring, and that goes for the entire financial services industry, according to a newly released report by the majority staff of the House Financial Services Committee, chaired by Rep. Maxine Waters, D-Calif.
The report had several findings, which were further explored in a subcommittee hearing held Wednesday morning.
The basic findings of the committee report, Diversity and Inclusion: Holding America’s Large Banks Accountable, were that bank boards and senior executives were not diverse. In fact, not only do banks not spend or invest much with diverse firms, Wednesday’s hearing noted it wasn’t something that was tracked.
That said, the staff also found banks were better integrated than U.S. companies overall, although this was more “visible” at the entry level. For example, whereas 58% of bank employees are white, the average in U.S. companies is 63%. Twelve percent of workers in both groups are black, while 12% of bank employees are Asian, compared with 6% of workers in all companies. Banks had a smaller share of Latino workers — 11%, versus 16% at all U.S. companies.
Gender-wise, the staff found that in banks, 49% of employees were male and 51% female. In all U.S. companies, 53% were male and 47% were female.
The executive level consisted of 29% women, 71% men. Even more telling: Whites made up 81% of the executive suite.
Other findings were that bank diversity numbers “have remained static between 2015 and 2018,” according to the report.
The committee report highlighted challenges going forward:
- The competition for diverse talent;
- The absence of a consistent definition of diversity and inclusion; and
- Data collection and self-identification problems.
The staff recommended that Congress take corrective action with legislation addressing these three areas:
- Require banks to share diversity and inclusion data with their regulators and the public;
- Require banks to track and make efforts to increase their spending with diverse firms; and
- Require banks to publicly disclose the diversity of their boards.
View From Industry
The hearing featured several representatives of organizations representing the financial services industry. Kenneth E. Bentsen Jr., president and CEO of the Securities Industry and Financial Markets Association, highlighted a 2018 SIFMA survey of members, which include broker-dealers, investment banks and asset managers, stating in his prepared remarks that:
- All participants reported having a diversity strategic plan. In the United States, 95% of organizations’ strategic plans explicitly addressed gender, gender identity, race, and ethnicity.
- Representation of women in the industry was 44%. The overall industry hire rate for women is comparable to the rate for men, as is the overall turnover rate, indicating that while both populations are growing, the share of women in the industry relative to men has remained steady. Likewise, the share of women is projected to increase by two percentage points over the next five years and three percentage points over the next 10 years, making the ratio of men and women equal.
- People of color make up roughly one-third of the overall U.S. industry population. The overall industry hire rate for people of color exceeds that for whites by more than five percentage points, while the turnover rate is about two percentage points higher for people of color than for whites, indicating that the percentage of people of color relative to whites in the industry has been increasing.
- In addition, 94% of firms examine pay equity, with 67% of respondents conduct such analysis at least once a year. Eighty-two percent of respondents said that adjustments are made as part of an annual review process and a similar number said they have a formal remediation process to address pay equity risks.
Another witness was Subha Barry, president of Working Mother Media, who had spent 26 years working for large financial institutions. She noted in her prepared remarks that:
- Working Mother’s recent Gender Gap research shows women are a third less likely to realize what relationship capital is and the importance of monetizing it. Women and people of color aren’t coached or made aware that leveraging relationship capital is absolutely critical in early career. They start out with this disadvantage.
- This shows up in the lack of sponsorship for women and people of color. Seventy-three percent of white women and 83% of multicultural women cite the lack of sponsors as the main reason they haven’t moved into critical P&L jobs.
- A 2015 S&P 500 analysis found that 90% of new CEOs were promoted or hired from line roles with P&L responsibilities.
The last point she reiterated in the question and answer session, stating that if people aren’t given profit and loss responsibilities, it will be difficult for them to rise to the top.
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