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The recently created Subcommittee on Diversity and Inclusion of the House Financial Services Committee held a hearing today to examine data and research about the social and economic benefits that can be achieved when organizations implement robust diversity and inclusion strategies. “Diversity and inclusion isn’t just the right thing to do—it’s good for business and our economy!” exclaimed Representative Joyce Beatty, the chair of the subcommittee.
The subcommittee’s memo pointed out that “Although the United States is becoming more demographically diverse, the financial services industry, especially at leadership levels, remains mostly white and male.” According to McKinsey “Women in the Workplace 2018,” progress on gender diversity at work has stalled. “To achieve equality, companies must turn good intentions into concrete action.” Unfortunately, the consulting firm’s research found that “Since 2015, the first year of the company’s study, corporate America has made almost no progress improving women’s representation. Women are underrepresented at every level, and women of color are the most underrepresented group of all, lagging behind white men, men of color, and white women.”
Dr. Richard Guzzo, Partner at Mercer and co-leader of Mercer’s Workforce Sciences Institute, testified at the hearing, “Good for the Bottom Line: A Review of the Business Case for Diversity and Inclusion”that finding a link between diversity and near-term business results is not simple. “the evidence from rigorous academic research on this very issue—and here I am summarizing the results of studies involving thousands of firms around the world—is that the relationship between Board diversity and financial results ranges from nonexistent to very slightly positive at best.” However, he explained that “that the diversity of a consulting services company’s client-facing teams positively impacts the success of those teams. Success here is defined as year-over-year revenue growth. In this case, teams with a larger percentage of non-white members grow revenue at higher rates. Also note that it is not only diversity of race/ethnicity that matters but also diversity of experience (tenure).”
Guzzo mentioned that “workforce diversity is not just about hiring, but also its about retaining and about promoting talented diverse professionals into positions of leadership.”
In her testimony, Victoria Budson, Co-Director, Women and Public Policy Program, Kennedy School, Harvard University, emphasized that for “America to most effectively compete in the global marketplace, we need to draw on talent from the full talent pool, not just half of it. American women today are more highly educated than men across many levels of the education spectrum, from associates and bachelors degrees to masters and doctoral degrees. She cited impressive statistics that “Women earn the majority of all of these postsecondary degrees, and approximately 3 million more women are currently enrolled in postsecondary education than men.” 57% of college students are women, and among the top ten business schools in the United States, women make up more than 40% of the MBA student population.” Unfortunately, however, the financial services industry has not made full use of these improvements.
She stated that “According to the latest Bureau of Labor Statistics data, only 34% of personal financial advisers and 41% of financial analysts are women.” Worse yet, “even when women are more equally represented in entry-level roles, they are not making it to the top of the organizational hierarchy.” Women are only about 20% of senior leadership positions in the U.S. Financial Services Industry, and the figures are even lower for women of color, who are nearly totally absent in the C-suite. Having more female participation in the U.S. labor force, especially in the financial services industry would be beneficial to the overall economy.
According to Adrienne Trimble, President of the National Minority Supplier Development Council “The bottom line is that CEOs have to drive this [diversity and inclusion] initiative within their corporations. Sometimes, it’s just asking the question: how diverse is your team, and how are all of your consumers reflected in product and/or service strategies? Diverse supply chains are better equipped to address consumer preferences in a direct way. Diverse firms tend to hire diverse workers at a much higher rate. That decreases unemployment in under-served communities, typically those with high populations of people of color.”
Senior Executive Vice President and Chief Strategy Officer of Exelon Corporation, William Von Hoene, stated that “serving heterogeneous communities, facing a complex and rapidly changing business landscape, and confronted with the potential for significant financial demise by standing still – Exelon has found diversity and inclusion to be indispensable to its financial success and future growth.” Importantly, six years ago, has focused on measuring the company’s progress on diversity. Six years ago, “We began tracking our progress just as we do other key metrics, such as safety, operational excellence and financial performance. In the six years since, we have increased diversity in our workforce from 34 percent to 41 percent. Diversity at the management level has increased from 30 percent to 37 percent. Board representation by women and people of color increased 7 percent.”
He acknowledged that “It is of course impossible to measure with precision the financial impact of our diversity and inclusion focus over this period, but our results over the past six years align with what the McKinsey and Deloitte reports teach us about the success of companies who make diversity and inclusion part of their culture.” He described that in the last 6 years the company’s total shareholder return has increased 120 percent, and that the company’s share price is up 73 percent. “Our utility performance, led almost entirely by CEOs who are diverse, is in the top quartile or decile of virtually every metric by which utility performance is measured across the nation.”
- The diversity and inclusion strategy must have the support of the CEO and the board with the requisite budget and personnel necessary to execute an enterprise-wide strategy.
- The D&I strategy must be linked to individual and group performance standards and be tied to executive compensation.
- Companies have to move beyond diversity on candidate slates and mandate diversity on interview teams. Moreover, executive search firms must be held accountable for the diversity of the candidate slates they submit to their corporate clients.
- Companies must be transparent about hiring rates, promotion rates, compensation, and advancement to senior management by employees of color. It should not require public pressure by advocacy groups for companies to be transparent about equality.
- If companies want to continue to earn consumer trust, they must make public-facing disclosures about where they stand on diversity and inclusion.
May 1, 2019 at 07:30PM
Forbes – Entrepreneurs