Diversity in Finance: 5 Reasons DEI Strategies Are Failing in the Finance Industry

How to Build an Effective DEI Program

Diversity in finance is one of today’s leading challenges in the industry. While headline figures show initiatives tackling the finance sector’s historic, white male culture, dig deeper and we still find an industry that lacks diversity. Why are so many financial firms failing in their DEI strategies? Should your firm do more? What can you do better?

Diversity, equity, and inclusion (DEI) describe strategies and policies geared toward the variety of employees in the workplace, across genders, nationality, race, ethnicity, experience, and social background (and others). Equity is the delivery of fair and equal opportunities for all. Inclusion refers to how employees feel valued and listened to within their team and organization.

A diverse workforce brings a range of perspectives, ideas, and experiences. This is crucial to business success in globalized markets. Indeed, the business case for strong DEI is clear.

For example, research from McKinsey shows that financial service firms with greater diversity perform better.

Those companies in the top quartile for gender diversity are:

  • 21% more likely to outperform on profitability
  • 27% more likely to demonstrate superior value creation

Those companies in the top quartile for ethnic diversity are:

  • 33% more likely to have industry-leading profitability

Across all performance metrics, more highly diversified firms outperform with:

  • Greater productivity
  • Higher employee engagement
  • Better innovation
  • Greater customer retention
  • Lower employee turnover

However, despite this undeniable evidence, the financial industry is underperforming in its DEI strategies. In a DEI report by the U.S. House of Representatives Committee on Financial Services in 2020, all 44 of America’s largest bank holding companies acknowledged that they need to improve their DEI.

Unmasking the DEI Challenge in the Financial Industry

The financial industry may point to statistics that demonstrate it has made great strides in DEI:

  • A 2021 study by McKinsey & Co found that women fill 52% of entry-level roles.
  • The U.S. House of Representatives Committee on Financial Services found the proportion of employees of people of color employed in financial firms is representative of our society.

However, when we look at the broader workforce, we get a different picture:

  • Representation of ethnic minorities crashes by 80% between entry-level and C-suite
  • Women are almost 20% less likely to be promoted to management roles
  • Fewer than 3.5% of financial advisors are Latino or people of color

McKinsey & Co’s report ‘Racial Equity in Financial Services‘ found that:

  • The proportion of white men in the C-suite is 112% higher than at entry level
  • The ratio of white women in the C-Suite is 30% lower than at entry level
  • The proportion of men of color in the C-Suite is 60% lower than at entry level
  • The ratio of women of color in the C-Suite is 90% lower than at entry level

Financial firms are talking a good DEI story, but the statistics show that actions are falling short of their promises.

Why Financial Firms Are Failing to Deliver on Their DEI Promise

To understand the problem, it is important to note that the lack of diversity in financial firms is not a recent phenomenon. White males have traditionally dominated the industry, and there has been a lack of diversity in leadership roles and boards.

This also means that few women and people of color are at the top, which leads to a lack of diversity in hiring practices. This can be partly attributed to the fact that many companies mainly hire from within their networks, which tend to be white males.

Consequently, while most financial firms have committed to diversity, equity, and inclusion, many fail to deliver on this promise. We’ve identified five reasons why this is the case:

1.     A Lack of Support from the C-Suite

Often, DEI initiatives are the remit of middle management, who delegate down the line. What is needed is leadership by example. It’s crucial that the C-suite actively sponsors DEI initiatives. By not being involved on the frontline, top-level executives signal that the work is of low priority.

2.     A Lack of Financial Support

How do you know how vital your DEI program is? Look at the budget allocated to it. Like any strategy, your DEI program must have adequate financial backing to succeed. Without this, you won’t have the money to spend on training, workshops, external speakers, etc.

3.     DEI Programs Are Reactive, not Proactive

Often, DEI initiatives are put into place because of poor practice that has been identified or poor behavior that has taken place. This reactive nature gives the impression that DEI is not a top priority but merely a box-ticking exercise. When this is the case, employees do no more than tick the boxes they are asked to.

4.     Poor Communication of DEI Expectations

Many firms are poor at communicating their expectations for DEI. A strategy is created, but employees are not let in on the ‘secret.’ The lack of understanding about why a DEI program is needed and the benefits it will bring to all makes it difficult for employees to engage with it.

5.     Unconscious Bias Is Not Challenged

Everyone has biases developed through upbringing, background, education, etc. Few of us understand our own biases. Discussions that challenge people to recognize their own unconscious biases rarely occur, and this means that such inherent biases remain intact ─ we may talk the talk, but we don’t walk the walk.

Fixing DEI in the Financial Industry: The Key Takeaways

There is much at stake when it comes to DEI. A better employee mix helps an organization improve its productivity, revenues, and profits. It leads to greater expression of thought, sharing of ideas, and more effective innovation.

The financial industry knows it must do more, but many firms’ DEI initiatives and programs fall short of their goals. What must be done to correct this can be summed up as follows:

  • Ensure that DEI strategies are communicated openly to employees. Get them involved and help them to understand the goals and benefits of greater DEI.
  • Make sure that a reasonable budget is allocated to the DEI program and that leadership of DEI is visibly made from the top down.
  • Executives must be fully engaged in the DEI program, and the program should be proactive ─ tackling issues before they arise.
  • Create a DEI program that is not only proactive but personal, too. Include emotional intelligence training for employees, and help them recognize and understand their biases. This will allow employees to take deliberate and positive actions rather than unthinking responses.
  • Put DEI at the heart of your hiring strategy. Measure how diverse your organization is today and where you want to be. Create your hiring goals and partner with relevant staffing agencies that can genuinely help you to achieve them.

When speaking with Mason Stevenson on the HR Exchange Network podcast, Kris Rides, Founder, and CEO of Tiro Security said:

“If you truly value diversity in your team, you need to dedicate time and money to it… I’m biased, of course, but hiring a specialist recruiter that can give you options is a good investment of your money and shows that you are serious about what you are doing.”

To hear more about our CyDEI initiative and boost your DEI by hiring the best people in cybersecurity from a highly diversified talent pool, contact Tiro Security today.

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