DE&I - Why are some FS firms phoning it in?

When organisations talk about diversity, equity and inclusion (DE&I), the conversation is often a bit two dimensional. There’s regulatory pressures, a quota to fill, the threat of reputational damage. This kind of thinking misses the point of diversity and is why many firms today are still streets behind.

It’s not just the financial services (FS) industry where efforts are flagging. There’s a broader trend of big companies pulling back on diversity initiatives: Microsoft fired its DE&I team last month, while Google, Meta, Tesla, DoorDash and X have all cut their diversity teams by 50+%. These decisions draw an interesting parallel with FS, where the DE&I score has fallen back to 2021 levels, according to Reboot.

As firms continue to look for the best talent that will lead them through increasingly volatile landscapes, embracing diversity in the right way is becoming paramount. 

The problem: Why are some FS firms not fully committing?

DE&I gained significant momentum in 2020, spurred on by global events like the pandemic and the Black Lives Matter movement. These heightened the awareness of systemic inequalities, prompting more companies to prioritise diversity as a core value.

The initial enthusiasm meant that FS firms rushed to implement diversity initiatives as quickly as possible, without taking the time to thoroughly understand the root of the issue. Indeed, in Reboot’s 2023 report:

Reboot went on to show that FS’ DE&I score declined from 67/100 in 2022 to 65/100 in 2023. It’s a relatively small decline, but the question is why is it declining at all?

Clearly, the focus has been on compliance, not genuine change, so it’s unsurprising when you hear that between 2021-2023, ethnic minority representation in senior roles only grew by 3%, or that the number of women in CFP roles has only risen 0.4% in three years. Yes, these show continuous improvement, but the progress is painfully slow.

There are three big reasons why some FS firms aren’t fully committing:

Because of these reasons, FS firms have stayed stuck in stage two of what HBR calls the five stages of DE&I maturity. Here, the focus is on compliance; to move through the stages and make diversity a tactical, integrated and sustainable initiative, firms need to do more than just meet the rules. 

The solution: Tearing the paper ceiling and breaking class barriers

For decades, FS firms have been tapping into the same limited pool of talent - hence why white men from higher socio-economic backgrounds (SEBs) are 30x more likely to succeed in FS.

The move towards skills-based hiring brings a lot of hope. The old tactic of hiring based on work history, qualifications or the university on someone’s degree is innately exclusionary to diverse groups. For example, in the UK, black students are more likely to drop out from higher education than other ethnic groups, showing how hiring based on degree level alienates a significant portion of available talent.

Similarly, someone who comes from a completely different sector, like software development, may not have the specific experience firms are looking for, but they could tick boxes in other areas where firms genuinely need to improve - in the case of our hypothetical software developer, these areas could be cybersecurity, tech savviness or navigating complex regulatory requirements.

Hiring based on skill is much more equitable. The industry is already making great strides here, with 87% of finance employers in 2024 using skills-based hiring to recruit. The more the industry sheds its unconscious biases and old-school methodologies, the more diverse and capable its workforce becomes, leading to innovation, improved performance and a stronger financial sector.

How social mobility can fuel diversity in financial services

When you grow up in a particular area, your social circle will determine your path. This creates cultural pockets in the country where people are culturally disadvantaged when it comes to entering fields like financial services. 

Research highlights that 52% of CEOs in the UK workforce come from higher SEBs, and the figure rises to 89% for senior leaders in FS. It’s a stark difference that reveals just how entrenched these socio-economic divides are in the industry. 

Bridging these divides isn’t just about driving equity - it’s about ensuring the future of financial services. Firms that keep returning to their little black book of names, or only consider hiring someone if they have a degree, are cheating themselves out of the best talent. If everyone on their shortlist is a 55-year-old man from a white collar background with the same degree, will they have enough technology skills or diversity of thought to keep the business thriving in an unpredictable, and increasingly digital landscape?

If you improve social mobility, you then start seeing more diversity - whether ethnic, gender, psychological or class - and when a broader range of people are entering the industry, firms will have their pick of forward-thinking, resilient leaders. This calls for the sector to end its reliance on methodologies that perpetuate class divides, and instead become more open to pursuing the best talent, wherever it lies.

It’s time to do better 

DE&I must become more than a performative metric. Firms need to embrace genuine diversity through proactive measures, like skills-based hiring and the dismantling of unconscious biases. 

Though it’s an important part, DE&I isn’t just about the greater good - it’s about corporate success. As technology advances, and skills gaps widen, and talent wars wage on, missing out on the diversity of thought out there keeps FS firms two steps behind. 

If your organisation is looking for exceptional senior leaders - the ones your competitors aren’t looking at - contact me directly and we’ll set aside time for a call.