Why diversity and inclusion is a real business risk
21 February 2017
By Jon Terry
Financial services is all about understanding and taking risks within a firm’s appetite. But an exception is the risks associated with diversity and inclusion, which haven’t generally been recognised sufficiently and have been under-managed.
This is perhaps because diversity and inclusion has historically been seen as HR’s domain – important, certainly, but not a board-level, strategically critical issue. Not anymore. There’s a growing awareness that creating an inclusive workplace for all (irrespective of gender, ethnicity, background, preferences and beliefs) plays a powerful role in shaping the views of stakeholders. For financial services, though, it’s about to become even more critical.
In April 2017, mandatory gender pay reporting comes into force in the UK. Financial services doesn’t have the best record when it comes to gender and pay; according to our latest Women at Work Index, the gender pay gap in the financial services sector is 34%, double the national average of 17% (mainly because most of the senior positions are held by men). This means that women in the sector earn 66p for every £1 earned by their male colleagues. This is a serious reputational risk, which will influence how stakeholders (including prospective and current employees, customers and regulators) view financial services firms. This makes diversity and inclusion a business issue rather than an HR issue – a business risk that demands to be actively measured, monitored and managed.
So what is the diversity and inclusion reputation of financial services firms? We’ve recently completed a study of 39 firms in the UK to assess this in four areas:
- Strategy – the extent to which diversity and inclusion policies and strategies are referenced and data published
- Leadership – the tone from the top
- HR processes – the recruitment and progression policies for under-represented groups, and
- Other initiatives, including communication and training.
The results show that banks generally perform much better on diversity and inclusion than their counterparts in insurance and asset and wealth management. But while a few individual firms stand out, there’s plenty of room for improvement across the whole sector.
Having a poor reputation risks putting off customers and potential employees. Firms can also expect increasingly challenging questions from investors, damaging headlines, and the attention of regulators and governments keen to promote diversity as a way of challenging ‘groupthink’.
As our report, Opening up on diversity: Getting to grips with the reputational risks, points out, there are also significant benefits to be gained from getting diversity strategy and policy right, not least in opening up a rich seam of potential talent who perhaps wouldn’t traditionally consider a career in Financial Services. Our latest CEO Survey highlights the extent to which business leaders are struggling to find and keep the best talent – 72% of CEOs in the sector see limited availability of skills as a threat to their business.
The good news is that 85% of CEOs are keen to promote diversity and inclusion within their organisation. This is a very good start. The next step is for senior management to recognise diversity and inclusion as a reputational risk, which should be built into business planning and managed with the same strategic focus and emphasis on monitoring that’s afforded to other major business risks. Managing risk is where financial services firms are at their best – so don’t let this major risk slip through the net.