HFSC Subcommittee Hearing on Diversity & Inclusion
House Financial Services Subcommittee on Diversity and Inclusion
“A Review of Diversity and Inclusion at America’s Large Banks”
Wednesday, February 12, 2020
Key Topics & Takeaways
- Recruitment, Retention & Promotion: Asked about how best to recruit, retain and promote a diverse workforce, Bentsen emphasized that SIFMA member firms understand the value of retention and promotion. He continued that organizations are focused on creating a pipeline and pathway to allow advancement and thereby increase retention of diverse employees. He specifically referenced the effectiveness of mentorship programs, affinity organizations and employee resource groups in terms of retention.
- The Business Case for Diversity: In response to a question, Greenfield emphasized that companies that are committed to establishing a more diverse workforce and inclusive corporate culture can expect to outperform their non-diverse competitors.
- Data Transparency: Democrats emphasized the need for the public disclosure of D&I data and cited the low participation rates for the voluntary self-assessments conducted by the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), and the Federal Reserve Board (Fed). Bentsen and Mercer stated that their respective organizations, SIFMA & ABA, both encourage their member firms to participate in these voluntary assessments. Bentsen continued that in SIFMA’s own biennial benchmarking study, participating organizations represent roughly 50 percent of the industry.
- Kenneth E. Bentsen, Jr., President and Chief Executive Officer, Securities Industry and Financial Markets Association (SIFMA)
- Dr. Naomi Mercer, Senior Vice President, Diversity, Equity and Inclusion, American Bankers Association (ABA)
- Rawan Elhalaby, Senior Equity Program Manager, The Greenlining Institute
- Subha Barry, President, Working Mother Media
- Joseph Vaughan, Executive Director, Corporate Diversity and Inclusions Forum
- Dr. Gail Greenfield, Principal, Workforce Strategy and Analytics, Mercer
Chairwoman Joyce Beatty (D-Ohio)
In her opening statement, Beatty stated that the hearing would review the diversity and inclusion (D&I) efforts of the 44 largest U.S. banks. She outlined the Committee report entitled “Diversity and Inclusion: Holding America’s Large Banks Accountable” and reaffirmed her position that there needs to be increased transparency of D&I information and outcomes in the financial services industry. Beatty lamented that there continues to be a lack of diversity at the C-suite level and that she expects a reaffirmed commitment from the financial services industry to make progress in this area. Beatty opined that there is a need for more inclusion in terms of business activities, especially in areas such as asset management and law, as well as a need for increased partnership with minority- and women-owned businesses. She expressed support for the work of the D&I subcommittee, which has led to positive engagement on behalf of financial institutions who are serious about increasing diversity. Beatty concluded that diverse representation and equity benefit financial institutions, specifically in areas of performance and innovation.
Ranking Member Ann Wagner (R-Mo.)
In her opening statement, Wagner acknowledged that financial institutions recognize the need to improve D&I. She emphasized the importance of diverse talent, the retention and promotion of diverse individuals, and the need for top-down leadership and oversight at all levels of management. She highlighted the efficacy of specific best practices such as resource groups and bias training in improving creativity, innovation, problem solving and business profitability. She concluded that she is pleased to see that firms are acknowledging the business benefits of increasing D&I but that there is more work to be done within the industry and this subcommittee.
Chairwoman Maxine Waters (D-Calif.)
Waters stated that she is proud of the Committee staff for producing this report and that America’s financial institutions took their charge to increase D&I seriously. She continued that the information contained within the report is “illuminating” and she believes that this is a work product that the American public deserves. Waters concluded that banks need to do more to contract with minority- and women-owned businesses and suggested the need for banks to publicly disclose relevant D&I information to their regulators and the American public.
Kenneth E. Bentsen, Jr., President and Chief Executive Officer, Securities Industry and Financial Markets Association (SIFMA)
In his testimony, Bentsen said that achieving diversity in the securities industry is a necessary goal that requires an ongoing commitment, adding that diversity and inclusion, a SIFMA board priority, is both “the right thing to do and a business imperative.” Bentsen explained that SIFMA, on behalf of participating members companies, conducts a biennial benchmarking survey so firms can assess their D&I progress against their peers. He highlighted that the 2018 survey participants all reported having a strategic plan for D&I and that responses indicated that leaders at all levels are actively engaged in the issue. Bentsen discussed the wide range of strategies utilized by SIFMA member companies to develop sustainable diverse talent pipelines, including efforts to reduce bias in the hiring process, specialized internship programs, recruiting at Historically Black Colleges and Universities (HBCUs), working with affinity organizations and developing “return to work” programs to attract predominantly female employees back into the workforce after a career break. Bentsen also highlighted a number of practices firms are employing to ensure their cultures are inclusive and there are advancement opportunities for diverse staff. Bentsen noted ongoing professional development opportunities for women and minorities, mentorship, sponsorship, and leadership academies designed to ensure that diverse employees are prepared to take on top roles at their firms. Bentsen commended the work of the Committee on this issue and reiterated the commitment of both SIFMA and its member companies to diversity and inclusion in the securities industry.
Dr. Naomi Mercer, Senior Vice President, Diversity, Equity and Inclusion, American Bankers Association (ABA)
In her testimony, Mercer commended the subcommittee’s work on D&I issues and provided a summary of how the American Bankers Association (ABA) works with their member firms to make progress on diversity, equity, and inclusion initiatives. Specifically, she noted that the ABA encourages its member banks of all sizes to review their diversity, equity, and inclusion programs while also providing a range of resources and services to help banks succeed in this task. She continued that the banking industry has made significant progress in terms of diversifying their workforce through the use of best practices including employee resource groups, leadership and formal mentoring programs to advance women, people of color, and other underrepresented groups as well as supplier diversity programs. She noted that there is a clear business case for increasing D&I and there is evidence that increasing workforce diversity leads to better business performance. Despite this progress, Mercer stated that there is still much work to be done on D&I issues, specifically referencing the need to increase diversity at the leadership and board levels. She said that the ABA is working with their member firms to address this by distributing and analyzing the relevant research on key best practices such as using diverse and representative hiring and promotion slates, helping member banks to expand their networks when searching for directors and C-suite executives, and teaching banks to prime interview and promotion review panels to reduce unconscious bias. She concluded that while there are certainly general best practices that have demonstrated effectiveness in increasing D&I, each D&I program must be tailored to each organization’s unique culture, community, customer base and workforce.
Rawan Elhalaby, Senior Equity Program Manager, The Greenlining Institute
In her testimony, Elhalaby emphasized what she and her organization view as the three major factors for this hearing: 1) D&I are the building blocks of a fair society and that numerous academic and private-sector studies have shown that diverse businesses outperform homogenous organizations; 2) Transparency in an institution’s approach to diversity does not require any change to the institution’s business plan or practices, it simply gives consumers the ability to fairly evaluate where they spend their dollars and do business; and 3) By 2040, the U.S. will be have a population that is a majority people of color and transparency data will help make clear where D&I participation is lacking. She continued her emphasis on transparency, stating that when transparent data is publicly available, organizations are better able to both see where problems exist and develop solutions to address such deficiencies. She specifically noted her concern regarding the lack of progress that California banks have made in terms of recruiting people of color to their boards. Elhalaby encouraged Congress to expand legislation that will require the public disclosure of D&I data, specifically referencing fintech as an area that requires additional D&I oversight and regulation.
Joseph Vaughan, Executive Director, Corporate Diversity and Inclusions Forum
In his testimony, Vaughan said that greater diversity and inclusion performance enhances profitability and is integral to addressing the persistent wealth gap in diverse communities. He noted that the financial services industry has made significant strides in recent years to integrate D&I best practices into their business enterprise, particularly by developing diversity councils, employee resource groups, recruitment and retention policies, and pay equity initiatives. He added, however, that there are still improvements necessary in areas such as supplier diversity and the representation of women and people of color in senior leadership roles and on boards of directors. Vaughan highlighted that the Directors of the Offices of Minority and Women Inclusion (OMWI) have endeavored to develop an honest, collaborative and transparent engagement with covered entities and have engaged market participants across the US and sought strategic advice. He said that the progress made thus far could be threatened in a future economic downturn and called for greater transparency and disclosure to mitigate that risk.
Subha Barry, President, Working Mother Media
In her testimony, Barry identified two key barriers to D&I efforts that she has observed in her work. First, she stated that organizations must acknowledge and focus on addressing the bias that exists in their talent decision-making systems and processes. Specifically, she noted that challenges in this area include the trend that women and people of color often receive feedback that is more politically correct rather than constructive and insightful as well as the fact that women and people of color aren’t coached or made aware that leveraging relationship capital is critical in the early stages of one’s career. Second, Barry said that companies must be held accountable for transparently providing D&I data and that CEOs and leadership teams must be held accountable for their D&I results. She continued that D&I performance should be tied to compensation and that there is a pressing need to create more structured and tailored programs, as well as standardized accountability metrics, that can be normalized across geography and industry. She concluded that there is still significant work to be done in the D&I space and put forth the following recommendations for organizations that are committed to achieving continued progress: 1) Promote data transparency; 2) Build accountability at the top of the organization; 3) Establish programs for women and underrepresented minorities that build relationship capital, sponsorships and mentoring relationships; 4) Establish new work norms and reframe how work gets done; and 5) Leverage employee diversity for marketplace impact by improving recruitment, retention and business development practices.
Dr. Gail Greenfield, Principal, Workforce Strategy and Analytics, Mercer
In her testimony, Greenfield emphasized the business case that exists for embracing D&I efforts. She stated that research has demonstrated the value of a diverse and inclusive workforce, and as such, D&I should be a priority for any organization seeking to improve their financial performance and compete with peer firms. Specifically, she noted that diversity is positively related to the return on equity, financial performance and employee satisfaction, as well as innovation, creativity and knowledge formation. She then outlined four key measures of diversity and inclusion that organizations should focus on: 1) Representation; 2) Talent flows; 3) Employee experience; and 4) Pay equity. Greenfield specifically pointed to the importance of equitable promotion rates for women and underrepresented minorities as a key factor in ensuring that diversity is reflected at the more senior levels of employment in the coming years. She concluded that financial services companies can continue to advance diversity and inclusion by better understanding where D&I issues are impeding business objectives, cultivating an understanding of the current state of diversity in their own organization, identifying the cultural dynamic that stifle a culture of inclusion, and conducting regular pay equity assessments.
Question & Answer
Beatty and Waters outlined the Committee report and reaffirmed their position that there needs to be increased transparency of D&I information and outcomes in the financial services industry.
Reps. Alma Adams (D-N.C.), Madeleine Dean (D-Pa.), Sylvia Garcia (D-Texas), Ted Budd (R-N.C.), Beatty and Waters asked questions regarding the public disclosure of D&I data. Budd questioned the need to put in place regulations requiring the disclosure of D&I data as the financial services industry has already demonstrated commendable progress without a government mandate.
Democrats emphasized the need for the public disclosure of D&I and cited the low participation rates for the voluntary self-assessments conducted by the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), and the Federal Reserve Board (Fed). Bentsen and Mercer responded that their respective organizations, SIFMA & ABA, both encourage their member firms to participate in these voluntary assessments. Bentsen continued that in SIFMA’s own biennial benchmarking study, participating organizations represent roughly 50 percent of the industry.
Waters noted her concern that without public D&I data, Congress and the relevant regulators will be increasingly challenged in their attempts to craft effective D&I policy and regulations. She continued that the Committee will pursue all actions within its purview to continue to promote transparency and diversity in the financial services industry. Mercer said that accountability should be internally motivated and that while not all banks publicly release their D&I data, she can confirm that ABA members do take D&I very seriously. Vaughan stated that data disclosure is critical in improving transparency and performance in the D&I space. Bentsen noted that many of SIFMA’s member firms do share their information publicly while others do not due to employee privacy and litigation concerns. He continued that he is working with SIFMA member firms to evaluate questions, as well provide answers, regarding information reporting and disclosure. He reaffirmed SIFMA’s commitment to work with the Committee on these important issues and added that while progress has been made, SIFMA members realize that more work must be done.
Recruitment, Retention & Promotion
Reps. Al Lawson (D-Fla.), Sylvia Garcia (D-Texas), Al Green (D-Texas), Wagner and Beatty focused on how to best address the challenge of increasing diversity at the leadership and C-Suite level. In response, Barry emphasized the importance of employment pipelines and making sure that women and underrepresented minorities are put in positions, such as key profit and loss centers, within an organization that grant them the requisite experience and contacts to climb the corporate hierarchy.
Bentsen emphasized that SIFMA member firms understand the value of retention and promotion. He continued that organizations are focused on creating a pipeline and pathway to allow advancement and thereby increase retention of diverse employees. He specifically referenced the effectiveness of mentorship programs, affinity organizations and employee resource groups in terms of retention.
Wagner asked Greenfield how her organization’s research helps financial institutions improve their diversity. Greenfield responded that they encourage their clients to thoroughly examine their own data to understand their progress. She continued that by looking at key factors such as promotion rates, hire rates and turnover rates, an organization can better locate gaps in their D&I efforts and further understand what factors are driving such deficiencies. She concluded that this type of self-examination is critical as there is not a one size fits all approach to D&I.
In response to a question from Lawson regarding recruitment efforts at HBCUs, Bentsen noted that the majority of SIFMA member firms report that they are already recruiting from HBCUs. Vaughan added that industry has the opportunity to assist institutions of higher education in replicating “elite” academic programs.
Wagner noted that there is intense competition within the Science, Technology, Engineering and Mathematics (STEM) field for quality and diverse talent. Bentsen reiterated that firms are attempting to get ahead of the curve by engaging with and cultivating talent at the high school and early internship levels.
The Business Case for Diversity
Reps. Lance Gooden (R-Texas), Bryan Steil (R-Wis.) and Wagner spoke about the business case for prioritizing D&I efforts. In response to a question from Gooden, Greenfield emphasized that companies that are committed to establishing a more diverse workforce and inclusive corporate culture can expect to outperform their non-diverse competitors. Steil commended financial services institutions for investing in D&I efforts from the C-suite down. He continued to make the point that when a company does well in terms of business performance, this success allows for increased reinvestment in workforce development and D&I priorities.
Diversifying Business Partnerships
Beatty stated that in addition to the D&I efforts that are focused on increasing internal workforce diversity, financial institutions should also be held accountable in their external business practices and partnerships with vendors, suppliers, law firms and asset managers. She outlined her belief that financial institutions should track the diversity of partners that they work with.
Green stated that he believes there is a need for regulation in order to speed up D&I efforts in the financial services industry. Garcia noted that she is disappointed that organizations are unwilling to support legislation that will require the public disclosure of D&I information.
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