6 minute read 21 Apr 2021
businesspeople walking in pedestrian crossing

Three ways FS boards can advance diversity, equity and inclusion

By Tapestry Networks

Professional services firm

Tapestry Networks creates an environment where leaders learn from one another, explore new ideas, and collaborate to solve problems.

6 minute read 21 Apr 2021

Global financial leaders explore three good practices for firms to accelerate progress in advancing their DEI agendas.

In brief
  • Boards must hold management accountable, setting targets toward progress.
  • A much-needed mix of policies, programs, and behavioral changes will create an inclusive culture.
  • DEI succeeds when firms believe in and want to drive forward.

The moral, social, and business cases for diversity are clear. However, making the business case has not provided the impetus to change that some may have hoped for. According to the 2020 Global Gender Gap Report by the World Economic Forum, at the current rate of progress, Europe won’t reach gender parity for 50 years, and it will take 100–150 years in North America. A study published in 2017 suggests we are even further behind in achieving racial equality: rates of hiring discrimination against African Americans haven’t declined in 25 years. Internal and external stakeholders will continue to scrutinize senior executives and board directors if progress remains slow.

In March 2021, Tapestry Networks and EY convened directors and senior executives from among the largest global banks and insurers in their virtual Bank and Insurance Governance Leadership Network to explore best practices for embedding diversity, equity, and inclusion (DEI) into human capital management.

The issue and efforts to address this are not new to financial services, but in the past year, the disproportionate impact of COVID-19 on women and communities of color and the global Black Lives Matter movement have made prioritizing racial justice and employee and leadership diversity more urgent. This sense of urgency comes at a time when the network is continuing its focus on environmental, social, and governance (ESG) issues that have been demanding greater attention from large financial institutions, as well as from clients, investors, and society in general.

Participants believe faster progress on DEI is possible. As firms ponder the next steps, they must confront long-standing cultural challenges and find ways to encourage inclusivity and equity. The Tapestry session discussions focused on rethinking approaches to DEI, recognizing that diversity is not sustainable without inclusive cultures and a strong role for the board as being key.
 

1. Start thinking differently about approaches to DEI

Progress requires intention, leadership, and accountability

Given the slow progress in improving diversity measures within large financial institutions, some participants suggest leaders need to start thinking differently about the approach to DEI. They note that change is imperative, and board recruiting is now focusing on diversity. A director said, “Diversity begets diversity when you get a diverse board, then when you recruit other people who are diverse, they can see it’s because you actually recognize the value they bring to the table. It becomes a totally different value proposition.”

As boards become more diverse, board cultures need to adapt. And, as competition for diverse board talent has escalated, boards have had to adjust their recruiting strategies to consider a broader set of qualifications and experience.

Boards are positioned to “push from the top,” as one director put it, and drive change across their organizations. As a result, they can influence a firm’s approach to DEI in a variety of ways. Participants said that firms should set targets and enforce accountability for achieving them. As one director said, “Surely corporations should be leading on this rather than allowing themselves to be pressured into it by stakeholders and shareholders. Boards have to want to drive this themselves.”

Boards are positioned to “push from the top,” as one director put it, and drive change across their organizations. As a result, they can influence a firm’s approach to DEI in a variety of ways.

2. Diversity is not sustainable without inclusive cultures

Will progress advance under the “new normal” or become more challenging?

Participants identified steps financial institutions have taken, or are considering, to more effectively embed DEI across their organizations. The first is setting goals and tracking and reporting on progress. As one executive said, “Measurement needs to be an enormous part of what we do.”

Management and the board gain insight into how inclusive the culture is by looking at data such as the representation of different groups at different levels, turnover, time in the role before advancement, employee referrals for new candidates, etc. Another executive added, “When it’s all put together, you might think your data is pretty good and your firm is in a good place, but you might not be looking at it correctly.” A director commented, “Our institution set targets, and we are putting metrics into compensation plans. That’s something you will see across the industry soon.”

While diversity is relatively easy to measure and track, equity and inclusion can be much more challenging, and much more important to sustaining change. A participant said, “We often hire people for their diversity, and then our strong culture encourages them to behave in ways that strip away the very reasons we hired them.”

Indeed, for many participants, the biggest challenge in sustaining progress on DEI relates to retaining and developing people so that they can assume leadership roles. A participant noted, “There is talent everywhere. It’s inclusion once you get people in the door that is the hard part.” To keep top talent from chasing opportunities outside the firm, institutions need to create an inclusive culture in which talented people are happy and believe they have opportunities to advance.

To drive progress on DEI, leaders need to define and inculcate a more inclusive culture.

Firms also need to re-examine roles and reporting structures, and to consider how diversity and inclusion efforts tie into board oversight and oversight of ESG more broadly. As one participant said, “It’s about understanding how culture and inclusivity are or are not working, and how we can create strategies and capabilities for an inclusive culture.”

One executive added, “I think the pandemic created a huge opportunity to get talent from different places, to build a more diverse pipeline.” This includes establishing rotational programs that help in identifying and developing diverse talent.

It’s about understanding how culture and inclusivity are or are not working, and how we can create strategies and capabilities for an inclusive culture.
Banking Director

3. Position boards to push firms to improve

It’s critical for boards to ensure the right people are in place and are focused on promoting DEI

Boards can influence the firm’s approach to DEI in a variety of ways. One director said, “The great thing about boards is they can push from the top.” An executive added, “Boards have the ability to drive people into chief sustainability officer roles, and they can ensure it is someone who is taking a very balanced approach to all aspects of ESG for the enterprise.”

“It’s no longer acceptable not to have diversity at the board level, and you can see that companies have realized that,” observed one participant. As boards become more diverse, and to realize the benefits that diversity offers, board cultures need to adapt. As the competition for diverse board talent escalates, boards have had to adjust their recruiting strategies to include a broader set of qualifications and experiences.

Succession planning is another area where boards and senior management can focus their efforts. With the right people in place, boards need to hold everyone accountable for progress. A director said, “The people on the board need to call each other out and call management out on these things. We need leaders who actually want to make a difference in this area because it is real and matters to them.”

Boards can also influence important third-party relationships. A director said, “One thing a board can do that can really help is influence our vendors, our law firms, our auditors, our investment bankers we can really push for better diversity there also. We’re the client, and if the clients don’t say it, they will never improve.” As one executive asserted, ultimately, progress will come from “leaders who are brave enough to speak, but also smart enough and humble enough to listen.”

Ultimately, progress will come from “leaders who are brave enough to speak, but also smart enough and humble enough to listen.”
Insurance Executive

Summary

To advance DEI, financial service boards and the C-suite will need to make bold decisions to push for change. Diversity needs to start at the board and senior management level; however, it can only succeed with employee, customer, and investor support. If firms remain vigilant to ensure that business practices are fair, they can start to change the culture and capture future opportunities.

About this article

By Tapestry Networks

Professional services firm

Tapestry Networks creates an environment where leaders learn from one another, explore new ideas, and collaborate to solve problems.

About this article

By Tapestry Networks

Professional services firm

Tapestry Networks creates an environment where leaders learn from one another, explore new ideas, and collaborate to solve problems.