Diversity & Inclusion in Financial Services

The Central Bank of Ireland (CBI) has a sharp focus on diversity and inclusion (D&I) and has conducted several inspections in recent years, the most recent being a thematic review of D&I in insurance companies in July 2020 [1]. And there is a good reason for this. Much research has been done to show that there are significant financial, reputational and operational (staff and culture) rewards for organisations that embrace diversity and inclusion.

The CBI has found that in general there remains a lack of diversity at the most senior levels across the financial services industry [2]. And with the recruitment of talent remaining a key challenge in the insurance industry, it is noteworthy that millennials are attracted to companies that have a strong diversity and inclusion focus [3].

What is diversity and inclusion?

Diversity is the collective mixture of differences and similarities that includes for example, individual and organizational characteristics, values, beliefs, experiences, backgrounds, preferences and behaviours. This includes sex, age, class, ethnicity, religion and ability.

Inclusion refers to the achievement of a work environment in which all individuals are treated fairly and respectfully, have equal access to opportunities and resources, and can contribute fully to the organisation’s success.

And why is this important?

Better financial performance: Research has shown that organisation’s with inclusive cultures are:
- Twice as likely to meet or exceed financial targets;
- Three times as likely to be high performing;
- Six times as likely to be innovative and agile and
- Eight times as likely to achieve better business outcomes [4]
Reduce group think: A lack of diversity within a company’s decision-making structures can create blind spots and lead to groupthink that impacts negatively on an organisation’s culture and profitability. People of similar backgrounds have similar skill sets and points of view and might miss angles or potential problems that a more mixed group might catch.
For example cyber-security is an important skill that’s missing from most Irish boards. The average age of most boards, over 50, means that board members are not digital natives and may not comprehensively understand the risks of hacking and cyber attacks on corporate assets.
Reduce overconfidence: Different perspectives from a diverse group can help guard against overconfidence and promote internal challenge.
War for talent: In the war for talent, companies invest a huge amount of time and money into hiring, training and retaining staff. Over 250 financial services companies have either moved to Ireland or expanded due to Brexit. While some were only holding companies, it still has had an effect on candidate supply and put pressure on an already pressurised market [5]. Deloitte’s Human Capital Trends Report 2019 [6] indicates there is a greater importance being placed by individuals on being part of an inclusive organisation. Organisations that take diversity and inclusion seriously will experience better recruitment outcomes, positive employee engagement and lower turnover.
Relate to customers: Diversity increases an organisation’s skills and expertise and provides deeper understanding of customers’ needs. This is especially so in insurance because it is a relationship-based business and, as any salesperson will say, people buy people. It stands to reason that the best people to sell insurance are often those that customers relate to.
Reputation: A company seen to be at the forefront in its approach to diversity and inclusion will be viewed as progressive. In the eyes of regulators, customers and employees, this can only be a good thing.

How to promote the Diversity and Inclusion Agenda:

Leadership & Accountability: Inclusion usually comes from the top. Leaders should set the tone of an inclusive culture, create open forums for discussion and lead by example in demonstrating that diversity and inclusion are important, for example by actively participating and providing feedback throughout such forums. Proper consideration should be given to diversity in senior recruitment and succession planning. It is not enough to have a Diversity Policy - it must be applied in a meaningful way.
Identify metrics and targets: Set meaningful targets to drive diversity and inclusion in talent acquisition, performance management and succession planning, then track and communicate progress regularly.
Training to managers on bias: Provide training to hiring managers on how unconscious bias impacts behaviour and how to disrupt those behaviours in the recruitment process and in day to day working life.
Address the gender pay gap: The CBI has identified significant gender pay gaps through its inspections. The causes of this are not well understood. Firms should put proper investigation into the root causes of this and implement action plans to address the issue. This will help properly embed diversity and inclusion within the industry.
Tie bonuses to Diversity and Inclusion: Tie bonuses of management to the success in meeting diversity and inclusion targets and attendance at relevant training.

References

[1] 2020 Thematic Assessment of D&I in insurance firms, Central Bank of Ireland.
[2] 2020 Demographics of the Financial Sector Report, Central Bank of Ireland.
[3] 2018 Millennial Survey, Deloitte.
[4] High Impact Diversity and Inclusion, Maturity Model and Top Findings, Bersin, 2017.
[5] Salary Survey 2020 Analysis, Brightwater.
[6] Global Human Capital Trends Survey, 2019: Leading the social enterprise, Deloitte.