Promoting diversity has been a key element in modern HR practise for a number of years now. A committment to diversity is seen as a sign of good corporate governance, not just in banks but across all commerce and industry.
The purpose of think-tanks, lobbying groups, campaigns and regulations to encourage diversity is not to soak up minorities but, in diverse societies, to increase creativity and productivity by drawing on the wider range of abilities and knowledge and thus to appeal to wider, more diverse, market segments.
The US NGO, National Diversity Council´s chairman, Dennis Kennedy says “Adequate representation from many walks of life increases diversity of thought, which, in turn, increases creativity and productivity.”
McKinsey & Company has been examining diversity in the workplace on a regular basis. Their Women Matter report in 2007 identified a positive relationship between more women in the work-force and better corporate performance. McKinsey & Company has expanded this study to cover diversity in broader terms. Their Diversity Matters report of 2017 found that the top 25% of companies with regard to racial and ethnic diversity were 35% more likely to have better financial returns than the national industry medians of competitor industries without the diversity component, whilst those with better gender diversity were 15% more likely.
On the other hand, the study demonstrated that the companies with the least gender or racial diversity were statistically the least likely to achieve above average financial returns.
In the US., there was a direct linear relationship between diversity and better financial performance, with every 10% increase in diversity among employees resulting in a 0.8% increase in earnings before interest and taxes (EBIT), with racial diversity having more effect than gender, whereas, in the UK., every 10% increase in gender diversity in a workforce directly improved the EBIT by 3.5%. McKinsey & Company concluded that the unequal performance of companies in the same industry and in the same country indicates that the more diverse companies have a competitive advantage for gaining market share.
Banks, like other industries, seeking to increase their customer base, see being diversity-minded in their structure as a starting point for better serving those increasingly diverse customers, since the diverse employees within the bank can relate to the specific needs of the different customer segments. How well are the banks doing at diversifying themselves in order to better serve their diversified customers?
DHR Internatinal studies the degree of diversity in bank hiring. Its annual reports agree that the banking industry is committed to increasing the diversification in its hires but still shows huge gaps between the best and the worst and with the degree to which senior management regards this as a priority.
DHR found large differences between US and European banks and also differences between retail, commercial and investment banks. 65% of the Top 20 banks include measurements of the diversity in their annual reports and only 20% of the Top 20 do not mention the subject at all.
35% promote the recruitment of women at senior level, allowing shareholders to monitor the changes. 30% have specific targets for diversity and demonstrate a large degree of committment to the subject. European banks are better at reporting on diversity than their US counterparts, whilst investment banks lag behind everybody in both diversification and reporting.
All the studies on the subject of diversity show that there is actually a long way to go. Most board rooms, even in many racially diverse countries, are not representative of the gender or racial mix in their countries.
The incentive to do better lies in the results of numerous studies which show, time and again, that it is proven that the more diverse companies and institutions are better performers. How can companies, including banks, turn an intention into action in a very short time and attract the talent they need to develop the next generation of truely global leaders?