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JOURNAL OF FINANCIAL SERVICE PROFESSIONALS | JANUARY 2019

Diversity Continues to Challenge the Financial Services Industry: Benefits, Financial Performance, Demographics, Impediments to Progress, and Best Practices by James J. Tucker III, PhD, CPA Scott Jones, PhD

Vol. 73, No. 1 | pp. 56-71

ABSTRACT

Financial service firms continue to invest

substantial resources in diversity-related

efforts to achieve a more diverse workforce.

Nevertheless, progress has been slow, and

gains have been marginal. This study exam-

ines recent progress of the financial services

industry regarding diversity and a number

of related issues through which firms must

navigate and manage. These issues include

the benefits of a diverse workforce, financial

performance, recruiting and retention chal-

lenges and best practices, the benefits of an-

alyzing firm-specific employee demographic

data, and the conflicting views surrounding

the decision to publicly disclose this data.

Introduction PricewaterhouseCoopers (PwC) global sur- vey of 410 financial services CEOs found that an overwhelming majority recognize

the importance and value of diversity in enhancing business performance, strengthening customer satis- faction, and fostering innovation.1 The ongoing ef- forts and commitments of resources by U.S. financial service firms to achieve a diverse workforce are well established. For example, the diversity policy of Pru- dential Financial, Inc. includes the following: At Prudential, we strongly believe that talent

comes in every color, gender, origin, religion, sexu- al orientation, and physical capability imaginable. For this reason, we actively seek out employees, vendors, and business associates from a deep and diverse pool of accomplished professionals….2

One of Prudential’s diversity initiatives includes employee networks, called Business Resource Groups (BRGs). BRGs promote individual professional de- velopment, while helping the company achieve its business objectives. Open to all employees, these net- works address issues common to a variety of audienc- es. Started in 1993, these BRGs include:

• Abled & Disabled Associates Partnering Together • Asian/Pacific Islander American Association • Black Leadership Forum • Employee Association of Gay Men, Lesbians, Bi-

sexuals & Transgenders

JOURNAL OF FINANCIAL SERVICE PROFESSIONALS | JANUARY 2019

Diversity Continues to Challenge the Financial Services Industry: Benefits, Financial Performance, Demographics, Impediments to Progress, and Best Practices

James J. Tucker III and Scott Jones

Purpose and Organization of the Study The purpose of this study is to review the progress of the U.S. financial services industry in increasing workforce diversity and to examine a number of di- versity-related issues through which firms must navi- gate and manage. Specifically, this study examines:

• key definitions, research methodology, and the sources of data and statistics

• benefits of a diverse workforce • financial performance of firms with diverse leadership • industry- and sector-wide employee demograph-

ics with a focus on diversity • recruitment and retention challenges faced by firms • best practices used to address these challenges • benefits of analyzing company-specific employee

demographic data • issues surrounding the decision to publish firm-spe-

cific demographic data • examples of published firm-specific demograph-

ic data

Data and Statistics—Key Definitions— Research Methods The underlying source of data and statistics in this study was provided by the Equal Employment Opportunity Commission (EEOC).8 The EEOC re- quires private employers with 100 or more employees, and all federal contractors with 50 or more employees, to submit data on racial/ethnic and gender character- istics. Most of the data and statistics used in this study were first published by the EEOC and later analyzed by the Government Accountability Office (GAO) to prepare a report entitled “Financial Services Indus- try—Trends in Management Representation of Mi- norities and Women and Diversity, 2007–2015.” The report was prepared for Congress regarding the efforts of the financial services industry to increase workforce diversity. A number of GAO’s charts and figures ap- pear in this study in their original form or in formats reconfigured by the authors as referenced. Several GAO graphs and charts also include data from the Department of Education Integrated Postsecondary

• Hispanic Heritage Network • Prudential Military Veteran’s Network3

Citigroup’s Talent and Diversity Annual Report 2017 states that Citigroup is “…committed to being a truly diverse company where employees come to work every day at a place that recognizes and cele- brates our diverse backgrounds and experiences. To this end, we are setting representation goals around diversity, and our leaders are being held accountable for continued progress towards these goals.”4

Citigroup’s many diversity initiatives include un- conscious bias training, specifically targeted diversity recruiting, and 150 employee network chapters that serve and support ten different demographic employ- ee affinity groups.5

Institutional investors also stressed the impor- tance of diversity. Blackrock, Inc.’s influential chair- man and CEO Larry Fink oversees the management of $6.1 trillion in funds. Fink’s 2017 annual letter to CEOs recently was the focus of much media at- tention, as he called for corporations to place greater emphasis on social responsibility including diversity. The letter states: …We also will continue to emphasize the impor-

tance of a diverse board. Boards with a diverse mix of genders, ethnicities, career experiences, and ways of thinking have, as a result, a more di- verse and aware mindset. They are less likely to succumb to groupthink or miss new threats to a company’s business model. And they are better able to identify opportunities that promote long- term growth… . Companies must ask themselves: Are we working to create a diverse workforce?6

Another influential institutional investor, The Vanguard Group, Inc., recently stated in its Invest- ment Stewardship 2017 Annual Report: Companies should be prepared to discuss…their

plans to incorporate appropriate diversity over time in their board composition. While we believe that board evolution is a process, not an event, the demonstration of meaningful progress over time will inform our engagement and voting going forward.7

JOURNAL OF FINANCIAL SERVICE PROFESSIONALS | JANUARY 2019

Diversity Continues to Challenge the Financial Services Industry: Benefits, Financial Performance, Demographics, Impediments to Progress, and Best Practices

James J. Tucker III and Scott Jones

vestments, and offer financial advice • monetary authorities including central banks10

The GAO report includes a category “manage- ment-level positions” defined as “senior-level managers” and “first- and midlevel managers.” Senior-level man- agers include CEOs, CFOs, and managing partners. The first- and midlevel management category includes (1)middle managers that report to senior managers and typically lead major business units, and (2)managers who report to middle managers and oversee day-to- day operations, such as a team or branch managers.11 Minority representation is divided into four catego- ries: African-American, Asian,12 Hispanic, and Other that includes Native Hawaiian, Pacific Islander, Native American or Native Alaskan, and two or more races.13

Research efforts of the GAO included interviews with representatives from three financial service firms regarding the preferred educational requirements needed to enter the field. The GAO also interviewed representatives from 13 financial service firms that were actively involved in workforce diversity, attend-

Education Data System.9 EEOC data show the finan- cial services industry employed 3.28 million people in 2017 and 3.41 million in 2015—a 3.96 percent in- crease for the 9-year period. The EEOC classification system for the financial services industry includes the following five sectors:

• insurance carriers and related activities including carriers and insurance agents that provide pro- tection against financial risks to policyholders in exchange for the payment of premiums

• credit intermediation and related activities in- cluding deposit credit institutions—commercial banks, thrifts, credit unions, nondepository cred- it institutions, and mortgage bankers and brokers

• funds, trusts, and other financial vehicles includ- ing investment trusts, investment companies, and holding companies

• securities, commodity contracts, and other finan- cial investments composed of a variety of firms and organizations that bring together buyers and sellers of securities and commodities, manage in-

FIGURE 1 The Benefits of Diversity

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Attract Talent

Enhance Business

Performance

Strengthen Our Brand

and Reputation

Innovate Enhance Customer

Satisfaction

Collaborate Internally/ Externally

Serve New And Evolving

Customer Needs

Leverage Technology

Compete in New Industries/

Geographies

Source: PwC 18th Annual Global CEO Survey—Key talent findings in the financial services sector. Findings are based on interviews with 410 financial services CEOs in 62 countries.

Having a strategy to promote diversity and inclusion helps financial service organizations

JOURNAL OF FINANCIAL SERVICE PROFESSIONALS | JANUARY 2019

Diversity Continues to Challenge the Financial Services Industry: Benefits, Financial Performance, Demographics, Impediments to Progress, and Best Practices

James J. Tucker III and Scott Jones

looking for a broader range of skills when recruiting than in the past. Financial service CEOs now increasingly look to their diversity strategy to acquire the talent needed to grapple with numerous challenges; these include the rapid digital transformation of business processes, more com- plex regulation, changing customer expectations, and opportunities to participate in emerging international markets.15 A recent PwC report noted: Indeed, diversity doesn’t just broaden the talent

pool, it also creates a positive impression of the organization that is attractive to people from all sections of the population—90 percent of finan- cial services CEOs who have a strategy to promote diversity believe it helps them to attract talent.16

It is no surprise that firms’ strategic efforts to achieve a diverse workforce have moved up the board- room agenda. As Figure 1 highlights, 75 percent or more of financial services CEOs who have adopted a strategy to promote diversity believe it is helping them to enhance collaboration, innovation, and cus- tomer satisfaction; strengthen brand, reputation, and

ed a conference on diversity in the financial services industry, and interviewed representatives of organiza- tions that advocate for women and minorities.14 State- ments and observations made during these interviews appear throughout the study as referenced. Since these representatives and advocates are actively involved in diversity efforts, their statements and observations may not be representative of all financial services CEOs, some of whom are not actively involved in diversity efforts. In addition, the authors examined a number of social responsibility reports as well as research studies that examined the relationship of diversity and finan- cial performance and innovation.

Research on the Potential Benefits of Workforce Diversity Many financial services organizations had seen di- versity efforts primarily as a way to broaden brand recog- nition and reputation in prior years, but now many CEOs view diversity as a key way to bridge skill gaps. Eighty percent of financial service CEOs recently surveyed are

FIGURE 2 Specific Races/Ethnicities in Management Positions in the Financial Services Industry, 2007 and 2015

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� Other � Asian � Hispanic � African American

*Total percentage of minorities in 2007 = 17.3. **Total percentage of minorities in 2015 = 21.

FIGURE 3 Minorities in First- and Midlevel Management and Senior-Level Management Positions in the Financial Services Industry, 2007 and 2015

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� Minority senior level (total in 2007 = 10.6; total in 2015 = 12.3) � Minority first- and midlevel (total in 2007 = 18.7; total in 2015 = 22.4)

JOURNAL OF FINANCIAL SERVICE PROFESSIONALS | JANUARY 2019

Diversity Continues to Challenge the Financial Services Industry: Benefits, Financial Performance, Demographics, Impediments to Progress, and Best Practices

James J. Tucker III and Scott Jones

diverse workforce when potential clients inquire about racial and gender diversity (e.g., institu- tional investors)19

Research on Workforce Diversity and Financial Performance The GAO indicates that research on the role of diversity in financial performance is not conclusive.20 Such a conclusion is similarly found in other published studies, but some studies add additional evidence indi- cating that diversity does play a role in financial per- formance in certain situations, specifically involving innovation and local adaptation strategies. Roberson et al. examined diversity-related research studies and concluded that there is consistent evidence that gender and racial diversity at the board level is re- lated to firm performance, and that the specific influ- ence of diversity is dependent on the strategic context the firm operates within. Some studies suggest there is an interaction between the need to innovate and diversi- ty, citing that banks with innovation-oriented strategies show performance is enhanced by diversity. Evidence

overall business performance.17, 18

Other potential benefits of workforce diversity and diversity-linked corporate social-impact initia- tives include:

• improved quality of decision making—less likely to succumb to “groupthink”

• financial performance—greater employee engage- ment levels that have been shown to yield year-over- year increases in net income and earnings per share

• risk mitigation—proactively address diversity and other social issues to reduce the risk of regulatory actions and negative consumer reactions

• innovation—a diverse management is more like- ly to identify the needs of underserved popu- lations, enabling firms to explore new business models and technologies

• access to financing—firms with strong social purpose have increased access to capital

• customer relatability—workforce diversity helps the firm better understand and relate to diverse customers; firms should look like their customers

• potential client inquiries—ability to present a

FIGURE 4 Specific Races/Ethnicities at Various Management Levels in the Financial Services Industry, 2007 and 2015

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2007 2015 2007 2015

� Other � Asian � Hispanic � African American

Minority first- and midlevel Minority senior-level

JOURNAL OF FINANCIAL SERVICE PROFESSIONALS | JANUARY 2019

Diversity Continues to Challenge the Financial Services Industry: Benefits, Financial Performance, Demographics, Impediments to Progress, and Best Practices

James J. Tucker III and Scott Jones

with above-average total diversity (measured as the average of the six dimensions of diversity: migration, industry, career path, gender, education, and age) had both 19 percent higher innovation revenues and 9 per- cent higher earnings before interest and taxes (EBIT), on average. After examining the six dimensions of di- versity used in the study and firm performance, the authors concluded that a broad-based approach to di- versity that values multiple aspects of diversity is most beneficial in terms of innovation outcomes.25

Overall, there appears to be a consistent body of evidence that supports the contention that better fi- nancial performance is associated with firms that take a strategic approach to achieving diversity and lever- aging diversity in decision making. Merely hiring for the sake of diversity is not associated with increased performance. Perhaps investors are thus sufficiently justified to call for diversity, and in fulfilling that call, companies follow through with strategic purpose. Giv- en the benefits that may be realized in the financial services sector by strategically focusing on diversity, it is surprising that post-financial crisis diversity is only

also suggests the role of innovation extends beyond the boardroom. Banks with high and low diversity across managerial levels is consistent with enhanced perfor- mance for innovation-focused strategies.21

A study of the financial services industry by Lins et al. showed that more socially responsible firms fared better during the 2008–2009 crisis than those with low scores on social responsibility during the crisis, and that the difference was not attributed to either financial strength or corporate governance variables. The rationale is that there is an added element of trust accruing to socially responsible firms during periods of low trust of business organizations in general. The study confirmed this relationship by looking at both internally and externally focused management social responsibility policies. Both internal policies (Em- ployee Relations and Diversity) and external policies (Community, Human Rights, and Environment) were important in explaining better-than-average financial performance during the 2008–2009 crisis.22

A comprehensive report by McKinsey and Com- pany concludes that there is a statistically significant relationship between diverse leadership and financial performance.23 Inclusion and diversity initiatives im- prove performance because they:

• make it easier for companies to attract top talent • improve quality of decision making • increase innovation and insight • increase employee satisfaction • increase image

The McKinsey and Company report probably best sums up the relationship between diversity and financial performance. The company attributes the relationship to a firm’s ability to link inclusion and diversity initiatives to strategic goals and the ability to adapt to local opportunities.24 A 2018 study surveyed more than 1,700 compa- nies across eight countries in a variety of industries and company sizes. The study focused on diversity in man- agement positions and found that the most diverse en- terprises were also the most innovative, as measured by the freshness of their revenue mix. In fact, companies

FIGURE 5 Minority and White Women and Men in Management Positions in the Financial Services Industry, 2007 and 2015

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� Minority Women � White Women � Minority Men � White Men

JOURNAL OF FINANCIAL SERVICE PROFESSIONALS | JANUARY 2019

Diversity Continues to Challenge the Financial Services Industry: Benefits, Financial Performance, Demographics, Impediments to Progress, and Best Practices

James J. Tucker III and Scott Jones

agement-level positions in the financial services indus- try increased from 17.3 percent to 21.0 percent—a total increase of 3.7 percent for an average annual increase of 0.41 percent. Management-level representation of minorities increased for Asians 2.3 percent, Other 0.8 percent, and Hispanics 0.7 percent. African-American representation decreased 0.2 percent.28

To better distinguish minority representation in senior-level management from first- and midlevel management, Figure 3 is presented. From 2007 to 2015, minority, senior-level representation increased from 10.6 percent to 12.3 percent—a total increase of 1.7 percent for an average annual increase of 0.18 per- cent. First- and midlevel management representation increased from 18.7 percent to 22.4 percent—a total increase of 3.7 percent, for an average annual increase of 0.41 percent.29

Figure 4 reveals that representation of minori- ties in senior-level management positions increased 0.9 percent for Asians, 0.6 percent for Other, and 0.6 percent for Hispanics. African-American repre- sentation decreased 0.4 percent. Representation in first- and midlevel management positions increased

marginally improved. In the next section, employee demographic trends are discussed in more detail.

Employee Demographics in the Financial Services Industry—Progress Report 2007–2015 In 2010, the GAO reported “…Diversity in man- agement in the financial services industry did not change substantially from 1993 to 2008, and diver- sity in senior positions was limited.”26 To provide an update on the industry’s progress, the analysis below examines changes in employee demographics in the financial services industry during the 9-year period from 2007–2015. In 2007, the U.S. minority popula- tion was 62.85 million or 20.9 percent of the total U.S. population. In 2015, the U.S. minority population was 73.63 million or 22.9 percent of the total U.S. popula- tion—a 2 percent increase over the 9-year period.27

Representation of Minorities in Management Figure 2 reveals that over the 9-year period from 2007–2015, the total percentage of minority-held, man-

FIGURE 6 Minority and White Women and Men in Various Management Positions in the Financial Services Industry, 2007 and 2015

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2007 2015 2007 2015

� White Men � White Women � Minority Men � Minority Women

First- and midlevel management Senior-level management

JOURNAL OF FINANCIAL SERVICE PROFESSIONALS | JANUARY 2019

Diversity Continues to Challenge the Financial Services Industry: Benefits, Financial Performance, Demographics, Impediments to Progress, and Best Practices

James J. Tucker III and Scott Jones

sectors from 2007 to 2015. Banks and other credit institutions had the greatest overall level of minori- ty representation during the 9-year period presented. Funds and trusts experienced the largest percentage point increase (4.3 percent); the banks and other credit institutions had the lowest percentage point increase (3.1 percent).

Comparison of Women and Minority Representation in Financial Services Firms of a Different Size Figure 8 indicates that the larger the firm (as measured by number of employees), the greater the representation of minorities from 2007 to 2015. Re- search studies suggest that larger firms have greater resources to address workforce diversity and have incentives to increase diversity to comply with legal obligations.34 However, representation of all women was nearly equal in firms of different sizes, averaging 45.2 percent of management-level positions during this period (Figure 9).35

for Asians 2.6 percent, Other 0.9 percent, and His- panics 0.7 percent. African-American representation decreased 0.3 percent.30

Management-Level Representation of Women and Men Figure 5 provides insight into the representa- tion of women and men. Minority women increased management-level representation by 1.5 percent (9.2 percent to 10.7 percent), while white women expe- rienced a 1.5 percent decrease (35.9 percent to 34.4 percent). Minority men increased representation by 2.2 percent (8.1 percent to 10.3 percent); white men experienced a 2.3 percent decrease (46.8 percent to 44.5 percent). However, the total representation of all women (45.1 percent) and all men (54.9 percent) was unchanged from 2007 to 2015.31

Trends in First- and Midlevel Management and Senior-Level Management The representation of minorities and white women and men in senior-level and first- and mid- level management is presented in Figure 6. Over the 9-year period ending in 2015, representation by white men and white women in first- and midlevel management decreased 1.8 percent and 2.0 percent respectively. During this same period, representa- tion by minority men increased 2.2 percent, while minority women increased 1.6 percent. Regarding representation in senior-level management, white men and white women each decreased by 0.9 per- cent; minority men increased 1.5 percent, and mi- nority women increased 0.3 percent.32

Representation of Minorities in Four Sectors within the Financial Services Industry Management-level minority representation in each of four sectors within the financial services in- dustry is presented in Figure 7.33 Minority represen- tation in the industry increased in each of the four

FIGURE 7 Minorities in Management Positions Within the Financial Services Industry, 2007 and 2015

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� Banks and other credit institutions � Securities and other activities � Insurance � Funds and trusts

JOURNAL OF FINANCIAL SERVICE PROFESSIONALS | JANUARY 2019

Diversity Continues to Challenge the Financial Services Industry: Benefits, Financial Performance, Demographics, Impediments to Progress, and Best Practices

James J. Tucker III and Scott Jones

graduate degrees as compared to minority men. As not- ed earlier, minority women occupied slightly more man- agement-level positions as compared to minority men. However, the gap between minority men and minority women earning college degrees is much wider than the gap between minority men and minority women hold- ing management-level positions in the financial services industry (Figure 5). Although minority men earn sig- nificantly fewer degrees, they hold about the same num- ber of management-level positions.39

The largest source of potential talent by those earn- ing degrees is women. Well over half of all bachelor’s and master’s degrees and about 45 percent of MBA degrees were earned by women (Figure 14); in 2015, women held about 45.1 percent of management-level positions (Fig- ure 5). The percentage of undergraduate and graduate degrees earned by all women was generally unchanged during the period from 2011 to 2015 (Figure 14).40

Recruiting a Diverse Workforce

Recruitment Challenges Approximately 70 percent of financial service CEOs now see the limited availability of key skills

Comparison of Representation of Minorities and Women in the Financial Services Sector, Professional Services Sector, and the Overall Private Sector Figure 10 presents a comparison of minority repre- sentation in three different sectors to provide a broader perspective on trends in diversity. A visual review of Fig- ure 10 reveals a similar pattern in the relative ratios of senior-level positions to first- and midlevel positions in each sector. From 2007 to 2015, all three sectors expe- rienced increases for minorities in both senior-level and first- and midlevel positions. In 2015, the professional services sector had the highest minority representation in both management-level categories, followed by the overall private sector and the financial services sector.36

Although representation of minorities in the fi- nancial services sector was slightly less than the other two sectors, Figure 11 reveals that representation of all women was significantly higher in the financial ser- vices sector as compared to the other two sectors, espe- cially for first- and midlevel management positions.37

Recruitment of Women and Minorities: Potential Talent Pools, Recruiting Challenges, and Best Practices

Talent Pools for Recruitment Students earning an undergraduate or gradu- ate degree are an important external talent pool of potential employees. Representatives from financial service firms stated that although the MBA degree is still highly desirable, recruiters have broadened their focus to seek students with a variety of degrees. Al- though approximately one-third of those completing an undergraduate or graduate degree were minorities from 2011 to 2015 (Figure 12), only 17.3 percent (2007) to 21 percent (2015) of management-level po- sitions were held by minorities (Figure 2).38

The talent pool of minority men and women earn- ing undergraduate and graduate degrees increased from 2011 to 2015 (Figure 13). Minority women earned a sig- nificantly greater percentage of both undergraduate and

FIGURE 8 Minorities in Management Positions in Financial Services Firms of Different Sizes, 2007 and 2015

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100-249 250-999 1000-4999 5000+

� 2007 � 2015

JOURNAL OF FINANCIAL SERVICE PROFESSIONALS | JANUARY 2019

Diversity Continues to Challenge the Financial Services Industry: Benefits, Financial Performance, Demographics, Impediments to Progress, and Best Practices

James J. Tucker III and Scott Jones

that they were now recruiting from a broader base of schools, rather than a select few. Most firm representa- tives stated that an effective recruitment strategy was to

and diverse, hybrid types of talent as a threat to their growth prospects.41 Representatives from financial service firms and industry representatives described a number of issues and challenges to recruiting a di- verse workforce. Some challenges identified in prior research still persist, including negative perceptions of the industry and lack of awareness of career paths in the industry. Other challenges identified include strong competition for diverse talent from within the industry and with other industries, lack of visible support from top management, reluctance to recruit from a broad group of colleges, and the perception of the industry as male-dominated (Table 1).42

Recruiting Best Practices Firm and industry representatives stated that they are increasingly hiring students from a variety of aca- demic backgrounds, including arts and sciences and technology. One firm representative explained that she was interested in candidates with critical thinking skills, and that required technology skills could be taught as a part of employee training. Also, several firms noted

FIGURE 10 Minorities in Various Management Positions in the Financial Services Sector, Professional Services Sector, and the Overall Private Sector, 2007 and 2015

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Financial Services Sector Professional Services Sector Overall Private Sector

2007 2015 2007 2015 2007 2015

FIGURE 9 Women in Management Positions in Financial Services Firms of Different Sizes, 2007 and 2015

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JOURNAL OF FINANCIAL SERVICE PROFESSIONALS | JANUARY 2019

Diversity Continues to Challenge the Financial Services Industry: Benefits, Financial Performance, Demographics, Impediments to Progress, and Best Practices

James J. Tucker III and Scott Jones

corroborated by two minority, former employees of large financial services firms who stated that there were fewer mentors and role models in organizations that have few women and minorities in leadership positions.46 Many of the biases that hold women and minority groups back are unconscious. There may be a tendency among senior managers to hire or promote people like themselves or people who have similar lifestyles.47 Unconscious bias in promotions can negatively impact women and minori- ties, resulting in greater turnover. Unconscious bias may also be triggered by the perception that women will put family first, or positions requiring long hours will not suit women. Several firms commented that employee resistance, particularly from middle-managers, poses a challenge to diversity and inclusion efforts.48

Retention Best Practices The diversity management practice of establish- ing a firm-wide network of different demographic employee affinity groups to support and promote individual professional development was strongly en- dorsed by individual firms and industry representa-

establish relationships with student organizations that represent diverse groups. To recruit women and minori- ties who have already earned college degrees, some firms establish relationships with professional organizations that represent women and minorities. Several firms and industry representatives stated that firms should inten- tionally seek out and recruit diverse candidates.43 For example, CitiGroup, Inc. is committed to interview at least one woman or racial/ethnic minority when hiring managing directors and directors. In 2017, 71 percent of interviews for these Citigroup positions in the U.S. included at least one diverse candidate.44

Retention of Women and Minorities: Challenges and Best Practices

Retention Challenges Financial services firms and industry representatives discussed a number of challenges to retaining women, and they agreed that it is difficult to retain women and minorities if representation of women and minorities is lacking in management positions (Table 2). This view was

FIGURE 11 Women in Various Management Positions in the Financial Services Sector, Professional Services Sector, and the Overall Private Sector, 2007 and 2015

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� Senior-level � First- and midlevel

Financial Services Sector 2007 2015

Professional Services Sector 2007 2015 Overall Private Sector

JOURNAL OF FINANCIAL SERVICE PROFESSIONALS | JANUARY 2019

Diversity Continues to Challenge the Financial Services Industry: Benefits, Financial Performance, Demographics, Impediments to Progress, and Best Practices

James J. Tucker III and Scott Jones

demographic data may indicate that the workforce has become more diverse, employees may not feel like the workplace has become more diverse.

tives. For example, Wells Fargo’s Enterprise Diversity and Inclusion Council led by its CEO and president has established supportive networks and teams at the business, regional, and local levels of the organiza- tion.49 Another personal support policy directed at individual women and minorities is the provision of staff mentors and sponsors. A number of firm repre- sentatives stated that they have instituted programs to help managers avoid unconscious bias and to facil- itate inclusion. Also, firms stressed the importance of family-friendly policies and work-life balance.50

Importance of Obtaining Employees’ Views, Opinions, and Feedback Representatives of three financial services firms described the importance of obtaining employees’ views about the organization, including their feelings about diversity and inclusion.52 For example, one firm representative stated that in order to be successful at fostering workforce diversity, employees must be giv- en the opportunity to express their views on work/life balance, opportunities for advancement and promo- tion, and inclusion. He noted that while workforce

FIGURE 12 Percentages of Undergraduate and Graduate Degrees Earned by Minorities, 2011 and 2015

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FIGURE 13 Percentage of Undergraduate and Graduate Degrees Earned by Minority Women and Minority Men, 2011 and 2015

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Bachelor’s Master’s Master’s of Business Administration

2011 2015 2011 2015 2011 2015

JOURNAL OF FINANCIAL SERVICE PROFESSIONALS | JANUARY 2019

Diversity Continues to Challenge the Financial Services Industry: Benefits, Financial Performance, Demographics, Impediments to Progress, and Best Practices

James J. Tucker III and Scott Jones

Two financial services industry advocates and one diversity advocate agreed on the importance of sur- veying employees about the day-to-day diversity issues they face. Research suggests that diversity-management practices alone are insufficient for improving workplace performance; productivity gains are more likely to be achieved if management promotes inclusion and seeks employees’ input before making important decisions.53

The Value of Assessing Workforce Demographics All financial services firm representatives agreed that it was useful for firms to analyze demograph- ic data to assess the diversity of their workforce and identify trends that may need to be addressed. They felt that their analysis of the demographic data height- ened self-awareness and provided greater insight into the impact and progress of their diversity efforts. For example, Citigroup, Inc., created a holistic data dash- board that allows hiring teams and business leaders to take a data-driven, quantitative approach to hiring, retaining, and promoting high performers from un- derrepresented groups at all levels. This has enabled

the company to look at diversity gaps across the entire organization.54 Specifically, assessment of workforce demographics may better enable managers to:

• analyze and identify trends in diversity of new hires, employees leaving, and newly promoted staff and managers

• identify women and minorities that have high turnover rates and proactively take steps to help retain these groups

• identify “leaks” in the internal management re- cruitment pool of professionals and salespersons to determine why women and minorities leave before progressing to management

• establish benchmarks and metrics to measure progress in achieving diversity55

The Decision to Publicly Disclose Firm- Specific Employee Demographic Data and Social Responsibility Reporting Firm representatives and organizations that advocate for diversity differed in their views on whether firm-spe- cific employee demographic data should be publicly dis- closed on websites or diversity indexes. Advantages and disadvantages of public disclosure of firm-specific em- ployee demographic data, as perceived by firm represen- tatives and diversity advocates, are presented in Table 3. Not surprisingly, firms that felt that they had made sig- nificant progress in their diversity efforts appeared more willing to publish their firm-specific demographics for the reasons noted in Table 3; firms that felt they had not achieved the desired level of diversity believed that there are significant disadvantages to publishing the data.56

Firm-Specific Employee Demographics and Social Responsibility Reporting Most large organizations now report regularly on their initiatives, programs, and other efforts that focus on social issues and responsibilities. Early in the evolution of this reporting, the focus primarily was on environmental sustainability, which led to these reports often being re- ferred to as “sustainability reports.” As organizations used these reports to report on a wider range of social issues,

FIGURE 14 Percentages of Undergraduate and Graduate Degrees Earned by Women, 2011 and 2015

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n ta

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f D

e g

re e

s b

y W

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� Bachelor’s � Master’s � Master’s of Business Administration

JOURNAL OF FINANCIAL SERVICE PROFESSIONALS | JANUARY 2019

Diversity Continues to Challenge the Financial Services Industry: Benefits, Financial Performance, Demographics, Impediments to Progress, and Best Practices

James J. Tucker III and Scott Jones

Conclusion U.S. financial services firms and influential insti- tutional investors strongly endorse the goal of achiev- ing a diverse workforce. Although research on the relationship of diversity and financial performance is inconclusive, it generally supports the assertion that better financial performance is associated with firms that take a strategic approach to achieving diversity and leveraging diversity in decision making. Over the 9-year period from 2007 to 2015, the total percentage of minority-held, management-level positions in the financial services industry increased from 17.3 percent to 21.0 percent—a total increase of 3.7 percent for an average annual increase of 0.41 percent. Although financial services firms continue to invest substantial resources in diversity-related ef- forts, this study suggests that the industry’s progress in increasing workforce diversity has been slow, and gains have been marginal over the 9-year period. From

other labels appeared such as “social responsibility report” or “environment, social, and governance (ESG) report.” Two organizations have developed ESG reporting princi- ples to provide structure, uniformity, and guidance in the preparation of these reports.57 Many firms now regularly publish their progress and achievements regarding diver- sity in these reports, including employee demographics. As noted previously, firm representatives differed in their views on whether firm-specific employee demograph- ic data should be publicly disclosed. Nevertheless, the pressure exerted by influential institutional investors on management to provide transparency regarding diversity policies and employee demographics will only increase in the future. Two examples of firms that disclose demo- graphic data are Goldman Sachs and JP Morgan Chase.58

TABLE 2 Retention of Women and Minorities: Challenges and Best Practices

Retention Challenges • Difficulty retaining women and minorities at

organizations that lack women and minorities in management positions

• Employee resistance, especially at the mid- dle-management level

• Unconscious bias in promotions sometimes fueled by the perception that women will put family first, or positions requiring long hours will not suit women

• Fewer mentors and role models for women and minorities in firms that have fewer wom- en and minorities in leadership positions51

Retention Best Practices • Establish employee network affinity groups • Train managers and employees to achieve

greater inclusion and avoid unconscious bias • Establish management-level accountability • Offer staff mentors and sponsors • Implement and monitor family-friendly pol-

icies and stress the importance of work-life balance

TABLE 1 Challenges and Best Practices for Recruiting Women and Minorities

Recruiting Challenges • Difficulty getting firm leadership to support

recruiting from a broad group of schools and academic majors, rather than only business majors from a small group of elite schools

• Strong competition for diverse talent within the industry

• Increasing competition with technology firms for talent

• Difficulty in recruiting in some geographic locations

• Lack of visible support from senior management • Inadequate collection and use of demograph-

ic data to identify strengths and weaknesses in diversity management

• Negative reputation of the industry • Perceptions of the industry as male-dominated • Lack of awareness of career paths45

Recruiting Best Practices • Engage in broad-based recruiting from a

variety of academic disciplines and majors including liberal arts and science

• Establish relationships with students and professional organizations

• Intentionally seek out and recruit diverse candidates

• Offer programs to increase awareness including more on-campus education and public relations

JOURNAL OF FINANCIAL SERVICE PROFESSIONALS | JANUARY 2019

Diversity Continues to Challenge the Financial Services Industry: Benefits, Financial Performance, Demographics, Impediments to Progress, and Best Practices

James J. Tucker III and Scott Jones

could not identify any particularly promising new devel- opments in management practices or market conditions that would dramatically increase the industry’s progress toward greater representation of women and minorities. Representatives of three financial services firms described the importance of obtaining employees’ views about the organization; including employees’ opinions and feelings about the diversity and inclusion issues they face in the workplace. Research suggests that when management promotes inclusion and seeks employees’ input, produc- tivity gains are more likely to be achieved. All financial services firm representatives agreed that it was useful for firms to analyze demograph- ic data to assess the diversity of their workforce and identify trends in hiring, promotions, turnover rates, and “leaks” in the internal management recruitment pool. Although representatives and advocates dif- fered in their views on whether firm-specific employ- ee demographic data should be publicly disclosed, the pressure exerted by influential institutional investors on management to provide transparency regarding diversity policies and firm-specific employee demo- graphics will only increase in the future. n

James J. Tucker III, PhD, CPA, is associate professor of accounting at the Lerner College of Business and Eco- nomics, University of Delaware. He received his PhD from the Pennsylvania State University and his B.S. from the University of Delaware. He is member of the American Institute of Certified Public Accountants and was a staff member of Deloitte. He has published over 30 articles in business journals including the Journal of Financial Ser- vice Professionals, Journal of Accountancy, Compensation and Benefits Review, and the CPA Journal. He is a recipient of the Kenneth Black, Jr. Journal Author Award sponsored by the Foundation for Financial Service Professionals. He may be reached at [email protected].

Scott Jones, PhD, is a professor of accounting and associ- ate dean in the department of Accounting & Management Information Systems at the University of Delaware’s Le- rner College of Business and Economics. Dr. Jones is also a member of the board of directors and chair of the Audit Committee of Junior Achievement of Delaware. Dr. Jones has published articles in journals that include the Journal

2007 to 2015, Asians experienced the largest increase in management-level positions, while African-Amer- ican representation slightly decreased. Total overall representation by all women was unchanged. Also, the larger the firm (as measured by number of employees), the greater the representation of minorities. Although, approximately one-third of those com- pleting an undergraduate or graduate degree were mi- norities from 2011 to 2015, only 17.3 percent (2007) to 21 percent (2015) of management-level positions were held by minorities; minority women earned a clear ma- jority of these degrees. Even though minority men earn significantly fewer college degrees, they hold about the same number of management-level positions. Financial services firms face numerous challenges in their diversity efforts. Even with innovative developments in diversity-related management practices, achievement of increased representation has been marginal. The authors

TABLE 3 Perceived Advantages and Disadvantages of Publicly Disclosing Firm-Specific Employee Demographic Data

Perceived Advantages • Highlights the firm’s diversity efforts • Inclusion in diversity indexes may highlight

employee diversity • Demonstrates progress in achieving diversity

which could contribute to more successful recruiting and retention efforts

• Visibility of public disclosure of employee de- mographic data creates incentives to improve workforce diversity

• Provides institutional investors, especially socially focused fund managers, with infor- mation regarding workforce composition

Perceived Disadvantages • Sharing data with diversity indexes are of lim-

ited value because they do not indicate wheth- er a firm has made progress on diversity

• Reputations of firms that are lacking in diver- sity could be damaged, making it even more difficult to increase workforce diversity

• Publishing the data of financial services firms that are lacking in diversity could reinforce the negative perceptions of the industry held by many women and minorities

JOURNAL OF FINANCIAL SERVICE PROFESSIONALS | JANUARY 2019

Diversity Continues to Challenge the Financial Services Industry: Benefits, Financial Performance, Demographics, Impediments to Progress, and Best Practices

James J. Tucker III and Scott Jones

Diversity. 1, 2. (24) McKinsey & Company. (January 2018), Delivering through Diversity. 23, 24, 27, 28. (25) R. Lorenzo and M. Reeves, “How and Where Diversity Drives Financial Performance.” Harvard Business Review, January 30, 2018. (26) GAO-18-64, 6. (27) Statista.www.statista.com/statistics/183489/population-of-the-us- by-ethnicity-since-2000/. (28) GAO-18-64, 10. (29) GAO-18-64, 11. (30) GAO-18-64, 12. (31) GAO-18-64, 14. (32) GAO-18-64, 16. (33) The GAO did not include the monetary authorities sector; this sector was included in another GAO report (GAO-13-238), p. 17. GAO-18-64, 18. (34) GAO-18-64, 21, 22. (35) GAO-18-64, 23. (36) GAO-18-64, 24. (37) GAO-18-64, 25. (38) GAO-18-64, 26, 27. (39) GAO-18-64, 14, 28. (40) GAO-18-64, 29. (41) PricewaterhouseCoopers LLP. (2017). PwC 18th Annual Global CEO Survey – A New Take on Talent, 3. (42) GAO-18-64, 32. (43) GAO-18-64, 34. (44) CitiGroup Inc. (2017). Citi 2017 Talent and Diversity Annual Report, p.6. (45) GAO-18-64, 32, 33. (46) GAO-18-64, 35. (47) PricewaterhouseCoopers LLP. (2017). PwC – Making Diversity a Reality. 12. (48) GAO-18-64, 35. (49) Wells Fargo. (2018). Wells Fargo – Diversity and Inclusion, 1. (50) GAO-18-64, 35-38. (51) Ibid. (52) GAO-18-64, 39. (53) Ibid. (54) CitiGroup Inc. Citi 2017 Talent and Diversity Annual Report, 6. (55) GAO-18-64, 38-40. (56) GAO-18-64, 40. (57) The most widely-used ESG reporting standards are those is- sued by the Global Reporting Initiative (GRI) which was founded in Boston in 1997. Another ESG reporting standard-setting orga- nization is the Sustainability Accounting Standards Board (SASB) which was founded in 2011 in San Francisco. (58) Goldman Sachs, (2017); Goldman Sachs 2017 ESG Report, 30. JP Morgan Chase, (2017); JP Morgan Chase–Diversity and Inclusion, 6.

of Business Finance and Accounting, Journal of Business Ethics, Advances in Management Accounting, and The Ac- counting Review. He received the PhD from Drexel Univer- sity. He can be reached at [email protected].

(1) PricewaterhouseCoopers LLP. (2017). PwC 18th Annual Global CEO Survey – Key Talent Findings in the Financial Services Sector, 7. (2) Prudential Financial. (2018). Diversity – Prudential’s Business Resource Groups, 7. (3) Prudential Financial. (2018). Diversity and Inclusion: The Pow- er of the People, 7. (4) Citigroup, Inc. (2017). Talent and Diversity Annual Report 2017, 2. (5) Citigroup, Inc. (2017). Talent and Diversity Annual Report 2017, 3. (6) Black Rock. (2017). Larry Fink’s Annual Letter to CEOs – A Sense of Purpose, 4. (7) The Vanguard Group, Inc. (2017). Investment Stewardship 2017 Annual Report, 8. (8) Government Accountability Office (GAO). Financial Services Industry – Trends in Management Representation of Minorities and Women and Diversity 2007-2015. This report hereafter will be re- ferred to by the GAO report number: “GAO-18-64.” (9) GAO-18-64, 2. (10) GAO 18-64, 4. (11) GAO-18-64, 5. (12) The EEOC and GAO group all Asian minorities into one cat- egory – “Asian.” (13) GAO-18-64, 12. (14) GAO-18-64, 2, 3. (15) PricewaterhouseCoopers LLP. (2015). PwC – Making Diversity a Reality, 4. (16) PricewaterhouseCoopers LLP. (2015). PwC – Making Diversity a Reality, 5. (17) PricewaterhouseCoopers LLP. (2017). PwC 18th Annual Global CEO Survey – Key Talent Findings in the Financial Services Sector, 7. (18) Since the survey includes only financial services CEOs who have adopted a strategy to promote diversity, their beliefs may not represent those of all financial services CEOs, some of whom have not adopted a strategy to promote diversity. (19) Deloitte. (2018). On the Board’s Agenda – US. 3. (20) GAO-18-64, 8. (21) Quinetta Roberson, Oscar Holmes, and James Perry, “Trans- forming Research on Diversity and Firm Performance: A Dynamic Capabilities Perspective,” Academy of Management Annals 11, No. 1 (2017): 191, 194, 204. (22) Karl Lins, Henri Servaes, and Ane Tomayo, “Social Capital, Trust, and Firm Performance: The Value of Corporate Social Re- sponsibility during the Financial Crisis,” The Journal of Finance LXXII, No. 4 (August 2017): 1785-1824. (23) McKinsey & Company. (January 2018), Delivering through

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