After influential campaigns, investor pressure and research pointing to higher returns by more gender-balanced firms, why are banks still male? Silvia Pavoni investigates.

Equality

At a seminar organised by The Banker in 2016, after the women on stage discussed issues around career progression and the gender pay gap, a man in the audience raised his hand and commented: “It’s time to get a lot angrier – if that was happening to me, as a man, I wouldn’t tolerate it.”

It was a point that resonated with many. Whether it is because of nature or nurture, men and women tend to behave differently and, psychologists argue, this leads to different outcomes when one of the two genders dominates the work environment – and such is the case with banking.

Studies have shown that gender diversity brings better financial performance, and many influential voices, from chief executives to policy-makers, have come out in favour of the cause. Heavyweight asset managers are now rejecting all-male boards and are beginning to question the wider absence of women on others.

Problem of perception

Yet many say progress is stalling, and fingers are being pointed at the stubborn issue of human bias. Anecdotal evidence abounds. Despite Bank of England governor Mark Carney’s championing of the cause, one deputy governor, Ben Broadbent, only recently used the term “menopausal” to describe a UK economy that is “past [its] peak and no longer as potent” (he later apologised).

And Joanna Place, the Bank of England's chief operating officer and deputy governor, recalls once, when she had to take a difficult decision, a man advised her to "show the committee that you’re cross". "Well, I am cross and I’m taking action that demonstrates it; I do not have to bang my fist at the table and shout,” she says.

This is mirrored by accounts from many other women who believe a work culture and business etiquette traditionally geared towards men are keeping female colleagues from banks’ senior ranks. The UK’s freshly revealed gender pay gap shows the magnitude of the problem.

At government request, companies have begun to disclose remuneration data for their male and female staff. Finance has one of the highest gender pay gaps among all sectors (about the same level as insurance and second only to construction), which is explained by men occupying the vast majority of higher paying jobs. There are also questions over equal recognition for equal performance.

I wouldn’t want people who aren’t ready to be catapulted in a position because the industry is trying to tick a box and meet the quotas

Karen Frank

Banks’ hourly pay gaps go from 17.1% for Merrill Lynch Bank of America’s UK operations to HSBC’s 59%, the worst in the country – more than half of the bank’s employees are women but they occupy only 29% of senior managers roles. This is repeated across the banking sector internationally.

Prejudice has only recently being examined and called out. Caroline Coutin, head of diversity and inclusion at BNP Paribas, says the first round of its programme to highlight promising junior employees in 2015 told an unpleasant story. While the bank had recruited equal numbers of men and women, only 30% of people put on the list by their managers were women. She says: “You have to conclude that either [the] recruitment process is nonsense, or that there are stereotypes on which we have to work to efficiently spot talent.”

No overnight solution

However, a solution to this problem in unlikely to happen overnight. Karen Frank, head of Barclays’ private bank and overseas services, says: “The gender pay gap is so wide because the actual availability of senior women at my level in Europe is very small. It’s almost impossible to make up quickly for 20 years in which we did not invest in women’s careers.”

If perception may be costing women higher compensation and promotions, it also comes at a cost for employers. A 2016 Credit Suisse study of 3400 of the world’s largest companies concluded there was a positive correlation between the presence of women in leadership positions and companies’ financial performance.

In particular, the research reported that financial services companies with less than 10% of women in senior management positions achieved an average 9.5% return on equity, compared with 12.6% by firms that had more than 15% of female decision-makers. There is no specific analysis on firms with higher numbers of women in senior positions, however.

Every employee group is a dynamic pool of individuals, it requires sustained commitment, over time, by senior management – [gender balance] will certainly have my attention, as a top priority

Clare Woodman

Gender diversity makes sense to investors from a governance perspective too, as they begin to vote against all-male boards. Powerful names such as BlackRock and JPMorgan Asset Management, along with others that have a total of $11,000bn in assets under management, have joined the 30% Club, the global organisation that advocates for that percentage of women on the boards of FTSE 100 companies.

As these targets come within reach (the number is currently 28.9%, up from 12.5% in 2010), ambitions will grow, say the co-chairs of the organisation’s investor group, Deborah Gilshan, environmental, social and governance investment director at Aberdeen Standard Investments, and Clare Payn, head of corporate governance North America at Legal & General Investment Management.

From 2018, Legal & General will vote against chairs or the chair of the nomination committee of FTSE 350 companies with boards that are not at least 25% female. As the business-led Hampton-Alexander Review in the UK recommended that women occupy 33% of boards of those companies by 2020, and 33% of FTSE 100 and FTSE 250 leadership teams by the same time, asset managers’ voting policy will likely be updated further. Ms Payn says 2020 “is not too far away and the turnover on boards is not high – so companies should really be thinking now about that [33%] level”.

Removing environmental biases

There has been some progress and greater acceptance of the issue. But the game, many say, remains too often one-sided as bias, even if unconscious, is hard to correct. Iris Bonhet, professor at the Kennedy School of Government at Harvard University and a Credit Suisse board member, says the US spends typically between $8bn and $14bn a year in diversity training but that the few experiments that have been run to evaluate its effectiveness found it had no impact. She believes it is easier to de-bias environments rather than minds.

For example, since major symphony orchestras in the US began auditioning musicians unseen, behind a curtain, the proportion of women musicians in the orchestras has gone from 5% in the 1970s to almost 40% in recent years. This is why some banks have begun removing names from applicants’ CVs, avoiding language that could be deemed to appeal to men in job ads (such as ‘industry leaders’ or ‘fast-paced environment’) and ensuring interview panels include women. Many of them report encouraging results by introducing these simple tweaks.

Furthermore, analytical tools can help correct the pay gap once women join banks. At Virgin Money, for example, managers can see the gender effect of their bonus allocations and anything that materially falls outside a normal distribution is questioned. Chief executive Jayne-Anne Gadhia points out the immediate benefits of the tool. A diversity advocate, Ms Gadhia led a UK government-sponsored research into women’s representation in financial services’ senior roles in 2016, which ran in parallel with the launch of the Treasury’s Women in Finance charter, inviting firms to set their own gender targets and report on progress.

“We did our first bonus analysis after the [launch of the] Women in Finance charter, and, fascinatingly, even at Virgin Money, initially bonuses were skewed towards men. I sent them all back,” says Ms Gadhia. “When people were confronted by the analysis of their decisions they were equally shocked.”

One of the women in my office comes from the infantry, [she served] in Afghanistan, and if women can do that, why they couldn’t [have a career] in banking is completely beyond me

Jayne-Anne Gadhia

This remains an uphill struggle, however, even for a bank that champions gender balance from the very top. Virgin Money’s gender pay gap is still a relatively high 32.5%. Following the acquisition of Northern Rock in 2011, it had to deal with a different culture and staff, says Ms Gadhia. Work habits are hard to change, just as social norms are.

Benefiting men and women

As long as women continue to bear the majority of childcare and domestic responsibility, and the stigma of part-time or flexible working hours persist in banking, presenteeism will remain an issue. However, a more reasonable approach to working hours could benefit both women and men.

“Commitment should be judged by output and less about how many hours [you spend] in the office,” says Brenda Trenowden, global chair of the 30% Club and head of financial institutions, Europe, at ANZ. “I still hear a number of senior managers saying how great it is that people are there [in the office] in the middle of the night. And I’ve had a number of men saying they wish they could work in a more agile way but they wouldn’t dare ask; they hope the women can win these privileges for them too.”

There is a business case since lack of flexible working hours can negatively impact both employers and investors. Morgan Stanley has found that companies that do not offer flexible working schemes have underperformed in the MSCI World Index since 2011. Meanwhile, US companies that have introduced more generous maternity leave benefits have enjoyed higher return on equity and better share performance.

Ms Place believes the concept that senior roles are by definition full time should be challenged. She says even her current role could be restructured to fit a shorter weekly schedule.

Arguing for status quo?

But not everyone supports such corrections and some believe they should be avoided. Psychologist Jordan Peterson believes that the innate characteristics of the genders are better left alone in social groups. It is women’s tendency to be agreeable that contributes to lower pay and, left to their own choices, the genders would naturally sort themselves in different professions, with women preferring, say, nursing, and men engineering – as witnessed even in countries with the most equitable societies, such as in Scandinavia, according to Mr Peterson. It is only through “tremendous social pressure and tyranny” that these differences can be eradicated, he argues. He wishes for equal opportunities, but not equal outcomes.

“That’s rubbish,” says Ms Gadhia. “It’s 100 years since the Suffragettes fought for [women’s] right to vote and we still talk like that. It’s ridiculous that half of the population would be excluded from pretty sedentary jobs. One of the women in my office comes from the infantry, [she served] in Afghanistan, and if women can do that, why they couldn’t [have a career] in banking is completely beyond me.”

That former soldier and, indeed, Ms Gadhia – one of very few female bank CEOs in the world – could be the exceptions confirming Mr Peterson’s rule.

And Rodria Laline, founder and CEO of Intrabond Capital, a board advisory services firm, has also found women on boards typically more agreeable than their male peers – in fact, too agreeable. This has consequences on the board dynamics. Looking at the four different styles of leadership – ‘people’ rather than ‘task’ oriented and ‘ask’ rather than ‘tell’ oriented – women are usually found offering solutions instead of driving the board towards new directions, according to Ms Laline. “I must admit that’s right. Women show less dissent behaviour; they like to challenge the board with questions for which they already have an answer,” she says.

This may simply be the result of the path from which those women have joined boards, from analytical or execution roles rather than from strategic or leadership positions. It could be corrected through a better selection process, according to Ms Laline. “We need more women on boards that are more focused on the ‘what’ space, not on the ‘how’. I want to see more women on boards asking ‘what drives all of us? I know what our customers, our clients want’,” she says.

Diversity commitments

One of the most encouraging developments, say many female bankers, is seeing men committing to gender balance. For example, Lloyds’ chief executive António Horta-Osorio has placed a personal stake on the matter. “I was extremely proud, in 2014, to be the first FTSE 100 CEO to announce a public commitment to having 40% of senior roles filled by women by 2020," he says. "At Lloyds we treat diversity in the same way as we would any other business issue.” He is personally accountable for reaching that target, from 34% in 2017.

Meanwhile, Jean-Laurent Bonnafé, CEO of BNP Paribas, has committed to improving the number of women in the trading area, with a target of 40% of the bank’s talent programme in global markets, as part of the UN's HeForShe initiative. Currently women represent 27% of senior management staff.

Even more encouraging is seeing senior positions being filled by women, such as Clare Woodman, the newly appointed CEO for Europe, the Middle East and Africa (EMEA) at Morgan Stanley. She says: “Every employee group is a dynamic pool of individuals, it requires sustained commitment, over time, by senior management – [gender balance] will certainly have my attention, as a top priority.” The bank has not disclosed current levels or overall targets as part of its signing up to the UK Women in Finance charter but has committed to hire an equal ratio of female and male analysts across most divisions in EMEA.

Waiting for those commitments to bear fruit is a slim pipeline of female bankers, on which data is not readily available. “We’ve made progress in [placing] the issue on the agenda,” says the 30% Club’s Ms Trenowden. “[But] if you look at who is at managing director level in banks and at the level below, there are still hardly any women.”

Is legislation the answer?

One of the most contentious issues in the gender debate is mandatory quotas, so far applied by some European governments on corporate boards. Many believe they can be detrimental, because while offering an immediate improvement in numbers, they risk exposing women too early.

“The thing that stops me from being an actual advocate for quotas is that if we have to reach, say, 40% female representation at managing director or more senior level, we can’t overcome quickly [decades] of not investing in women,” says Barclays’ Ms Frank. “I wouldn’t want people who aren’t ready to be catapulted in a position because the industry is trying to tick a box and meet the quotas.”

Critics have also pointed to circumvention tactics used in France, for example, such as reducing the total board numbers to meet requirements, or, in Norway, where some companies have chosen to delist and escape being captured by the law rather than comply. Another tactic is stretching the same few senior women across multiple boards, thus not supporting the general spirit of the measure. But ‘over-boarding’ is not a new issue. ISS Analytics, the research arm of proxy-advisory firm Institutional Shareholder Services, has the data: while 18.4% of female directors of Europe’s STOXX 600 companies, which are mostly in markets with quotas, sit on at least three boards, the same is true for 13.1% of their male counterparts.

Temporary measures

Paola Profeta, associate professor in social and political studies at Bocconi University in Milan, has found only positive effects from the 2012 introduction of temporary quotas in Italy. The law requires boards of listed companies and government-controlled organisations to ensure a minimum 20% representation of the minority gender (women, in all cases) in the first board appointments following the introduction of the law; and of 33% in the next two rounds. Failure to comply would result in fines and orders to dismantle the governing body.

What is interesting, Ms Profeta points out, is that not only did numbers go up as all companies complied – from 7% in 2011, before the law was passed, to the current 33% (an “impossible” task without the legal imposition, she says) – but the quality of candidates, both men and women, improved too. Widening the search pool to find female names meant dismantling old habits and rethinking what skills were needed.

“[Traditionally, boards] always had the same group of people, usually of old age, and not necessarily the most competent,” says Ms Profeta. “We have analysed all CVs of all board members, both before and after the introduction of the quotas, and we’ve seen [significant] improvements.”

While in other countries’ self-imposed industry targets might work, quotas are clearly having positive effects in Italy, she adds. The country followed Norway’s example, the first to legislate in 2008. Similar measures were subsequently introduced in France and Belgium, with Germany, Spain and the Netherlands opting for softer impositions that do not entail sanctions. As of 2017, according to the European Institute for Gender Equality, the largest listed companies in Norway and France have passed the 40% mark, while Italy, Germany and the Netherlands are at 30% or above.

“It’s a hugely difficult issue. There was a time when I wasn’t even in favour of targets because of a worry that there’d be positive discrimination,” says the Bank of England’s Ms Place. “I’m hopeful [that we’ll get to gender balance] but we can’t leave it to market forces. We need to make concerted interventions to ensure much greater diversity. That will help us deal with risk. And for the bank [and the banking sector in general], it’ll help us better reflect the people we serve.”

The debate on gender balance is wide open. But however women choose to manifest their concerns, in “angry” or subtler tones, more action – from men too – is needed.

Note, May 25, 2018: the article has been updated with fresh data by ISS Analytics, replacing the 19% and 15% of female and male directors sitting on more than three boards, respectively, mentioned in the print version.

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