New Financial

Report: Diversity & culture

January 2019 • Topic: Driving diversity • by Olivia Seddon-Daines, Yasmine Chinwala & Jennifer Barrow

While culture and diversity have both moved up the agenda of the financial services industry, most firms treat them as distinct issues with discrete initiatives and separate reporting lines. Our analysis finds diversity and culture are closely interconnected and that a more holistic approach to both would yield better – and faster – results. Diversity & Culture analyses the differences and similarities in how companies approach diversity and culture and why it matters. 

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A lack of diversity and poor organisational culture in the financial services industry are widely accepted to undermine performance and to pose both operational and reputational risks. In recent years, both diversity and culture have moved up the corporate agenda with growing pressure from government, regulators, investors and employees. But how are companies approaching these two themes?

Our starting point is that diversity and culture are two sides of the same coin – it is impossible to change the prevailing culture that defines how people behave at work without acknowledging the impact of an individual’s background, experiences and perspectives. Equally, there is little point in creating a diverse workforce if the cultural norms, behaviours and incentives within a company do not allow them to contribute and flourish. Yet most organisations treat them as separate issues that they address with discrete initiatives and different reporting lines.


Here is a short 10-point summary of Diversity and Culture:

1) Moving up the agenda: in recent years, both diversity and culture have moved up the financial services industry’s agenda in the face of pressure from government, regulators, investors, customers and employees. While the two issues are interconnected, they are often treated separately within organisations.

2) Accountability and ownership: ownership of culture and diversity reveals how different organisations are tackling them. Culture tends to sit with the board and the chief executive’s office, while diversity tends to be owned by the HR department, which often doesn’t have a seat at the top table.

3) Mutually reinforcing: the financial services industry is in the early stages of drawing the links between diversity and culture, but a growing number of firms are moving towards folding their approach to diversity and culture – and responsibility for them – into one.

4) Disclosure indicates intent: there are stark differences in what organisations are required to and choose to disclose about diversity and culture. Disclosure on diversity is more comprehensive, but the quality of narrative disclosure about what organisations are doing to address both is patchy. We found very little public disclosure of how the two issues are linked.

5) The measurement challenge: the way in which firms measure and evaluate diversity and culture are very different. Diversity reporting is more clearly defined and quantified, but shortfalls in self-reporting impedes accurate measurement. Most firms see culture as something that is unique to them and more intangible, leading to a wide range in the quality and consistency of measurement across the industry.

6) Dispersal of power: more organisations are devolving the implementation of diversity and culture initiatives to the business units from the centre. While this gives teams more ownership of the issue and can accelerate progress, it can also lead to inconsistencies in the approach and prioritisation within an organisation.

7) Making it happen: diversity initiatives tend to be implemented by HR with input from representatives from across the business on diversity councils, while culture initiatives tend to be focused on conduct and sit within the risk and compliance functions.

8) Stuck in the middle: while the tone from the top in both diversity and culture may be clear, it can often get stuck in middle management. Without clear incentives, structures and training, middle managers will default to focusing on their day jobs and on the metrics that define their pay and career prospects.

9) Aligning incentives: for all of the noise about diversity and culture, there has been limited progress in aligning change with incentives. While the Women in Finance Charter has made some progress in linking diversity targets to pay, this only represents a small part of potential reward. And culture is usually only linked to pay in the form of reduced bonuses for poor conduct.

10) Joining up the dots: efforts have been fragmented and uneven, but the most advanced companies are starting to knit together their diversity actions as part of a more holistic approach to encouraging a broader cultural shift. Diversity and culture do overlap – each can help the other embed desired behaviours and outcomes. It is now time for firms to join the dots and accelerate change.

New Financial conducted desk research on 30 financial services firms. All data was collected between December 2017 to March 2018 using the most recent annual reports, corporate social responsibility reports, diversity reports and corporate websites. We also conducted interviews with more than 20 market participants including corporate governance experts and practitioners across
HR, diversity and inclusion, and culture.

We are very grateful to our interviewees for their time and insight, Black Sun for providing data, our institutional members for their invaluable support, and particularly Legal and General for funding this research.