Financial Services Face a Long-Overdue Reckoning of Its Diversity, Equity, and Inclusion Efforts

Group of diverse professionals

Black History Month recognizes the achievements and rich cultural heritage of Black people while also confronting a painful history of inequality and injustice. This year’s Black History months carries significant weight as we heed the call to fight for racial justice in our communities and workplaces. We’re starting the month off with thoughts from Citisoft’s COO, Tom Secaur, on inequality in financial services. Tom’s words were originally published in our Outlook 2021 paper and we will be continuing this uncomfortable, but critical, conversation in our upcoming webinar on 2021 trends shaping our industry.

The scale and impact of crises that transformed everyday life in 2020 was unprecedented. We faced the tragedy of a global pandemic, the upheaval of widespread lockdowns, ongoing political strife, and a future that has never looked so unclear to so many. Embedded in all of this has been an undercurrent of social and civil unrest. In response to ongoing protests, diversity, equity, and inclusion (DEI) efforts have sprung up across many facets of our lives from schools to sports to business and well beyond. While it’s disappointing that it took the tragic deaths of Black individuals to get us to the point of having uncomfortable conversations about race and equality, this is where we are and where we go next is the key.

Given the readership of our usual content, we’ll focus on our industry and the steps that must be taken to do our collective part in pushing forward some necessary DEI efforts. By almost any metric, the asset management industry has done a less than an adequate job in pushing for diversity and inclusion.

A study by the Knight Foundation published in 2019 states that of the $69 trillion in assets under management (AUM), firms owned by minorities and women accounted for only 1.3% of that number. The study notes that these firms are largely ignored by US public pension plans, which allocates the vast majority of its investment assets to white, male-dominated companies. In a 2018 survey, the SEC identified 1500 firms with more than 100 employees in our industry and asked them to complete a diversity assessment report. The SEC received a total of 38 responses (out of 1,367 that were distributed, which equates to roughly 2.7%) to its survey, which intended to assess and highlight areas specific to organization commitment to DEI, implementation of employment practices to promote workplace DEI, considerations of supplier diversity in procurement and business practices, and practices to promote transparency of organizational DEI. A McKinsey study from 2019 shows that companies in the top quartile of gender diversity in their executive ranks is 25% more likely to achieve above-average profitability. The same study, encompassing 1000 companies in 15 countries, also showed that those firms in the top quartile in ethnic diversity were 36% more likely to outperform their peers. And yet, despite clear data supporting the success of firms that invest in gender and racial diversity, getting wide swaths of our industry to report the ethnic makeup of their firms is akin to pulling teeth. It is quite interesting that while asset managers embrace ESG investing and taking various corporations to task over their environmental, social, and governance standards, they are showing slow progress themselves in moving the needle within their own firms. It’s time to look in the mirror as ESG policies should be a two-way street.

What steps can be taken now to improve upon these metrics and move towards a more inclusive industry? There isn’t a single metric governing the diversity of a particular firm. Firms that do an admirable job reflecting gender and ethnic diversity in their board and executive ranks, may do a poor job with diversity and inclusion with entry level, manager, and senior manager levels. All firms must take it upon themselves to tackle this issue in a transparent manner.

Taking another look at the Knight Foundation study, the industry would be well-served to scrutinize the role of investment consultant firms that have historically excluded minority and women-owned asset managers from their request for proposals. Some industry observers have called for the SEC to require investment consultants to include minority and women-owned asset management companies in any competitive new mandates from US public pension plans. This would be strikingly similar to the NFL’s “Rooney Rule,” in which league teams are required to interview ethnic minority candidates for head coaching and senior operations jobs. While the effectiveness of the Rooney Rule has been hotly debated for years, it would be a step in the right direction.    

We have recently seen an uptick with some of our long-standing clients taking a proactive approach and encouraging diversity across their suppliers. Citisoft was grateful to receive a detailed supplier diversity and inclusion assessment from a client recently. The assessment measured the gender and ethnic breakdown of our firm across several levels—ownership, senior leadership, board of directors, and consulting staff. Additionally, we were asked to provide details across recruiting, DEI policies, supplier diversity (within Citisoft), policies and metrics to measure our program, community engagement, and charitable giving.

This assessment highlighted several areas in our own firm where we have work to do if we are to assist in moving the needle in our industry. To that end, we have developed a Corporate Social Responsibility (CSR) policy that captures our responsibility and commitment to business ethics, core values, diversity and inclusion, racial equality, gender and LGBTQ equality, and religious freedom. We have launched internal forums focused on advocacy and social justice, formalized our approach to charitable giving and volunteerism, and set proactive goals specific to talent acquisition and recruitment. We have a long way to go, but we are committed to doing our part as an anti-racist firm to move the conversation forward and ensure that Citisoft is a welcoming partner, employer, and advocate in this movement.

While we have seen signs and actions that our industry will embrace change, the question still must be asked—why did it take several, back-to-back-to-back, gut-wrenching tragedies to wake us up to the racial strife and conscious/unconscious bias that permeates our world? Why has it seemingly been okay to accept and endure centuries of setbacks and inaction that have negatively impacted specific members of our society across the spectrum of race, religion, gender, and sexual orientation?

We don’t have answers for that unfortunately; we can only hope that the siren cry has been heard, and that we all do our part to incrementally move the discussion forward and take meaningful action to push our industry and society towards a more equitable and just future.