Lately, I have been thinking about people’s ability to make decisions that properly consider a multitude of variables. This is not just because I started a new job, here at The Banker, although I am sure that has made the subject feel more compelling.
Looking at banks, decisions at board level are, arguably, among the most consequential and challenging the organisation will ever make. Giving the board the best chance of coming to a well-thought-out conclusion is obviously essential. And ensuring the board is formed by people with a variety of skills and perspectives is a good place to start.
Unfortunately, it seems that diversity is an attribute that still largely eludes banks and other financial companies.
A recent EY study of European financial services boardrooms found a slowdown in the appointment of new female directors. While the majority of 2022 appointees were women, they represented less than half of new board directors (44 per cent) last year. UK financial companies did worse than others in the region, at 33 per cent.
This means that there hasn’t been much improvement in the overall gender split: 57 per cent of all financial services board positions are taken up by men. Women have gained a mere percentage point from their 2022 position.
Available data on race and other diversity characteristics like age, sexual orientation and the rather fluid concept of cultural diversity show slow progress too.
Headhunter Spencer Stuart found that only 13 per cent of board directors at UK companies, across sectors, self-identify as having an ethnic minority background last year, compared with 12 per cent in 2022. Of those ethnic minority directors, 42 per cent are UK nationals.
In the US, the Conference Board also noticed a similarly slow rate of progress among S&P 500 companies’ boards, with the ratio of female directors and that of ethnically diverse directors both increasing by only one percentage point in 2023, to 32 per cent and 25 per cent, respectively.
At this point I can feel both the disappointment of those hoping for a more balanced representation, and the exasperation of those thinking that banks (and most businesses) are continuously faced by so many other and more urgent problems that they can’t possibly also be called out for poor diversity performance.
I have some sympathy for this argument. Geopolitical tensions, new technology, ever-changing regulation, slow economic growth, broken supply chains and climate catastrophes affecting clients’ profitability: the skills most in demand right now for board members might well be more quickly found in a ‘traditional’ candidate pool. White men have been in charge for longer; it is easier to find experience and expertise among them.
The EY study does point out that 59 per cent of all new directors appointed in European financial services boards in 2023 had previous C-suite experience. Of these, only 38 per cent were women, compared with 47 per cent the previous year.
In the case of other diversity indicators, like ethnicity and sexual orientation, limited availability of data may also help to explain the still-low numbers.
But irrespective of the reasons behind those ratios, regulators in the EU, UK and US are increasingly focusing on diversity.
Companies listed on the Nasdaq stock exchange now need to have at least one ‘diverse’ director (two from 2025 and 2026 depending on the stock exchange’s segment) or explain why they do not. They also must disclose diversity data at the end of each year. The US Securities and Exchange Commission approved the rule, and a US court upheld it last October, following lawsuits attempting to block it.
The UK’s Financial Conduct Authority and Prudential Regulation Authority are working on a new regulatory framework on diversity and inclusion in the financial sector to tackle “non-financial misconduct” and include such considerations in staff assessments. This is in addition to the FCA’s existing 40 per cent target for female representation on listed companies’ boards, with companies needing to explain the reasons behind failing to meet that ratio.
An EU directive demands listed companies’ boards have at least 40 per cent of non-executive roles occupied by the “underrepresented sex”, and 30 per cent for all directors, by 2026, with member states needing to devise national penalties for companies that fail to comply.
Some may be tempted to think that these could end up being relatively toothless requirements. Still, the fact financial regulators are increasingly spelling them out and expanding them should not be overlooked.
More broadly, while a more uniform group tends to make decisions faster, anyone exposed to ‘groupthink’ knows the dangers of a process that isn’t challenged by fresh perspectives and assumptions. We have all likely been involved in such discussions, or had to deal with the consequences of their poor outcomes.
With the ever-expanding challenges facing banks, whether at board level or throughout the organisation, managers could do worse than seeking to ensure their teams can provide the broadest, most relevant points of view to deal with new and complex problems. Diversity is one of the ways to achieve this.
Silvia Pavoni is editor in chief of The Banker. Follow her on LinkedIn here.
Get in touch at thebankereditorial@ft.com.
