“Human progress never rolls in on the wheels of inevitability.”
–Martin Luther King Jr., letter from a Birmingham jail
It can be easy to think that progress is inevitable. But as Martin Luther King Jr. said, justice doesn’t simply manifest. It is a choice that people must make collectively.
On the heels of Black History Month and Women’s History month, some people might assume that the world is becoming, broadly speaking, more tolerant and more egalitarian. We’re starting to see better representation in TV and film, and politicians and leaders repeat bromides about America’s slow but inevitable march toward progress at just about every opportunity.
Yet diversity is a hot-button issue, and there is an organized response against it. In the wake of the SVB collapse, some financial journalists were quicker to blame diversity instead of actual, substantive factors.
Finance has a problem. It is not unique in this problem, but the degree to which it has this problem is exceptional. Finance is overwhelmingly white and male.
Progress Is Not Inevitable
The narrative that society continues to evolve and get better on its own, while comforting, can prevent any industry from making substantive, necessary actions to change the status quo. If finance is to evolve into a community, it needs to reject and eject narrow thinking about diversity. Diversity is an opportunity — not a risk.
In a Think Advisor piece, Bridget Venus Grimes was asked how the industry has changed for women since her career started in the 80s. She said, “It really hasn’t changed much. That’s why we’re trying to figure out how to help move this ship that hasn’t done anything. It hasn’t moved very much in decades. It’s a great industry for women, but they aren’t staying because they don’t get paid what they should; it’s very hard to [tend to] a family if you have an inflexible employer; you’re not necessarily able to serve clients the way you want to; and there’s nobody ahead of us to be leaders and mentors.”
The Appearance of Progress Can Hide Regression and Stasis
In January of 2008, as Obama was taking office, just two years prior to the start of the above graphic, “All Things Considered” aired a segment titled “A New, ‘Post-Racial’ Political Era in America.” Not much earlier than that, back in 2003, Supreme Court Justice Sandra Day O’Connor said in her opinion on Grutter v. Bollinger, “It has been 25 years since Justice [Lewis] Powell first approved the use of race to further an interest in student body diversity in the context of public higher education. Since that time, the number of minority applicants with high grades and test scores has indeed increased. We expect that 25 years from now, the use of racial preferences will no longer be necessary to further the interest approved today…”
The appearance of progress is everywhere, but reality tells us a different story.
A 2015 Urban Institute report showed that the racial wealth gap had actually gotten wider than it was in the 1960s. The average wealth of white families was $500,000 greater than it was for African-American or Latinx families in 2013. If you go back to 1963, that number was only $117,000 when adjusted for inflation. Meanwhile, a 2020 UW Milwaukee study found that the Black median household income was a mere 42% of white household income. Furthermore, if you look at the demographics of jails today, despite being 12% of the population, black people represent over 38% of U.S. prisoners.
Looking at finance directly, Grimes noted, “Women in finance have the greatest pay disparity of any industry in the United States. They’re paid 54 cents for every dollar a man is paid.” On Twitter, Nicole Casperson added that “less than 10% of all venture capital deals go to Women, Black, LatinX, and LGBTQ+ founders.”
Even though there has been a marginal improvement in recent years in demographics among CEOs for Fortune 500 companies, those numbers are still appalling.
In an interview with VettaFi, Casperson said, “We truly need more representation within the industry to make it more welcoming to diverse individuals, both on the client and employee side. We need representation within because without it we cannot expect women, people of color, or other diverse groups to trust our industry because they don’t see anyone representing them sitting in decision-making seats.”
If finance is to transform into a community, then its white male majority must be willing to look at the data and acknowledge the problem. Then, they must collectively take action to address it. The world does not get better and fairer because of some invisible hand of progress working in the background. It gets better when people choose to make it better.
This conversation can be hard for some people to have. After all, people are predisposed to want to think well of the groups they belong to and are reticent to acknowledge systemic issues that they might be benefiting from. Additionally, there are broader political culture war conversations that have made it challenging for some folks to even acknowledge data around equality and equity. The word “woke,” which has its origins as a term used to describe being aware of racial injustice, has become co-opted by right-wing reactionaries. These reactionaries decry “woke banks” and fight historically accurate portrayals of American history on largely ephemeral grounds. They can make well-intentioned, important conversations impossible to even begin to engage in.
The only way through, however, is to work past the discomfort and do better. White male financial professionals must be willing to unpack their own complicity in the status quo. Asked why there weren’t more female advisors, Grimes said, damningly, “because of attrition.” More women, LGBTQ+ people, and POC might be getting their CFP certification, but the industry denies them equal pay and equal opportunity.
There are huge benefits to diversity. These benefits are profound enough that firms not pursuing diversity are doing a disservice to not only themselves but to their customers and clients. Aside from the reputational perks of being a more inclusive employer, companies with more diversity see better financial performance. Additionally, research shows that diverse teams make smarter decisions 87% of the time, and are more creative, better at solving problems, and more likely to stay with their firms longer.
Accountability Starts With the Individual
Without realizing it (in most cases), white male financial professionals can make women and minorities feel shut out and unwelcome. Part of this is the aforementioned pay inequality — it’s hard for someone to feel valued when they are not being compensated the same as their colleagues. But another part of it is workplace dynamics. When there are already very few non-white and non-male people in the room, shutting them down, ignoring their ideas, and interrupting them in meetings can codify them as outsiders and create a toxic work dynamic. These environments, in turn, drive talented workers out of finance and into less toxic industries.
No matter how much of a good, well-intentioned person you might think of yourself as, to really commit to change, you must acknowledge where you can do better. Take stock of where you work: What are the demographics of the employees in your practice? Where is the diversity — is it cordoned off in junior roles? How about your clients? Do they differ from the general demographics of the world? How do explain or think about that discrepancy? What do your clients see when they take meetings with your firm?
If you are willing to dig deeper and look in the mirror, you can ask yourself: Are you personally listening to your colleagues who aren’t white and male? Are you making them feel welcome? Are you putting your neck on the line to further their careers and push back against institutional inertia? What are real, substantive things you can do to change those numbers to more accurately reflect the world?
With markets uncertain and talk of recession everywhere, it can be tempting to avoid rocking the boat. Why risk confronting a senior leader who you witness diminish a female colleague if it could impact your job security, especially if you can give yourself an out by focusing exclusively on the things you and your firm do well? “Sure, it isn’t perfect here,” you might tell yourself, “but I’m not inflicting harm. In fact, I’m even doing some good.” Perhaps you have smart, talented colleagues who aren’t white males, and you champion them, or perhaps your firm has a board of directors that accurately reflects the diversity of the place in which your company is based. It’s easy to find one or two things you are doing right and let yourself off the hook.
But for change to happen, you need to be willing to go deeper and look past where you are succeeding to address where you are falling short.
In your practice, if economic data showed you that your portfolio had huge, obvious problems, you would make changes to address those problems without hesitation because you deeply accept that you are responsible for stewarding the wealth of your clients. You would not sit back and make excuses while your portfolio bled from an obvious, addressable wound. You would take action to staunch the bleeding. The data around diversity in finance is clear: Finance has a problem, and it is a problem that will not solve itself.
Solving a problem as big as finance’s diversity issue will take multiple actions on many fronts. Fortunately, once you decide to act, there are a multitude of solutions available.
Create an Inclusive Environment
It is surprisingly easy to implement solutions that many firms fall short on. An inclusive environment means one in which people are welcome and included, with care and attention provided to meet their individual needs.
Beyond simply taking steps to make sure employees are included in meetings and activities, an inclusive workspace provides flexibility for cultural holidays, doctor’s appointments, and remote work, and is open to meeting the unique needs of every employee.
Financial advisor Ramona Maior said, “Gatekeepers in the finance world can make a difference by holding other leaders accountable. Make it a priority to hire diverse crew, implement inclusive policies, and take an active role in supporting diverse entrepreneurs.”
Update Company Policy
Continuing with that theme, changing outdated company policies around dress codes, parental leave, and vacations will make it easier for employees of all backgrounds to feel welcome. Allowing for tattoos (which often carry cultural significance) and having flexibility around what employees are required to wear around the office can go a long way toward people feeling accepted.
Retention, Retention, Retention
As Grimes pointed out, more women are getting CFP licenses, but few are staying in finance. To move the needle on diversity, organizations must not simply hire diverse talent and call it a day — they must develop that talent as well.
Allowing people to complete training programs or take courses to improve their abilities not only makes employees feel more at home within their firm, but it also helps broaden access to critical skills and institutional knowledge. Additionally, this kind of development can provide diverse employees with the knowledge they need to earn promotions and advance their careers, which makes it easier for them to stay in the industry. As they grow from novices to experts to mentors, they in turn can serve as role models for others.
Have No Tolerance for Intolerance
To have a work environment that is open to all, paradoxically, you must have no tolerance for intolerance. This “paradox of tolerance” is an idea coined by Karl Popper. In short, to maintain a tolerant, open, and inclusive society, you must make intolerance completely unacceptable.
If people feel free to exclude, minimize, or antagonize marginalized employees, then those employees will not feel welcome or safe, and will therefore keep their heads down or leave — meaning that your workplace will no longer be tolerant. The healthier thing you can do for your business is to make the very people who feel as though they can bully, exclude, minimize, or antagonize others feel unwelcome themselves.
Stronger anti-discrimination policies could be critical in creating a more diverse workforce in finance — and in general. According to a 2019 article from Harvard Business Review, a whopping 75% of respondents reported that their anti-discriminatory policies were insufficient in moving the needle on inclusion.
One of the chief reasons the pay gap remains persistent is because few firms share data — even internally — about their compensation.
According to research, over 60% of U.S. employees would want to switch to firms that have pay transparency. Transparency creates accountability, and if everyone knows what everyone else is making, it is more challenging for a firm to underpay someone. In fact, most U.S. employees are allowed by federal law to disclose their own compensation to each other at work.
Additionally, pay transparency helps mitigate distrust and unhealthy gamesmanship between employees, who could feel like they must compete with their colleagues for better pay. That competition creates opportunities for unconscious bias to manifest. When that pressure to compete is removed, employees are more open to working with each other in healthy, inclusive fashions.
Equal Pay for Equal Work
Many Americans live paycheck to paycheck. This creates a great deal of stress outside of the workplace, and that stress is multiplied when the paycheck is smaller. Because women and minorities have smaller paychecks, they are forced to navigate more external stress, which could impact their ability to achieve peak performance on the job. The gravity of this should be especially apparent to finance professionals.
If wages are equal, however, they will have more breathing room in their life to be as present as possible for work. People who feel stable and secure can afford to put more energy and focus into their careers, which benefits both employees and employers.
Change Your Board
Beyond curating a more diverse board, setting aside a few seats for employees can have immensely positive impacts on a firm. Though not common in the U.S., there is legislation in the works to make this practice standard. Firms have an opportunity to show leadership and boost their reputation by being “first to market” on this increasingly popular idea. Other countries have already experimented with carving out board seats for employees, which seems to help boost not only diversity but also equity.
For employees, the difference between showing up to collect a paycheck and feeling like a stakeholder has the power to pivot an entire work culture. Employees will also have valuable insight and information to bring to the table, which could be critical drivers in increasing equality within a firm.
Employees are also less likely to chase short-term profit and more likely to look at long-term health and sustainability for a company. A 2017 study indicated that U.S. companies could have generated an additional $1 trillion in GDP and added 5 million jobs to the economy had there been more of a focus on a long-term view instead of chasing short-term profits.
Unconscious Bias Training for Recruiters
No matter how well-meaning someone is, society creates unconscious bias. A good HR recruiter is constantly fighting their own unconscious bias so they can find the best candidates for the firm. Active training from external consultants can go a long way in helping these critical first gatekeepers keep an open mind when hiring. Programs are available that can teach recruiters tools that combat unconscious bias and lead to a fairer hiring process that yields better results.
You Can Create Change
Given that there is no invisible hand of progress coming to save finance, the most important factor in creating real change is you. According to Casperson, “Whether you are an advisor or anyone else in the financial community, you must actively bring diverse groups into the fold. That means diversifying your network and advocating for a colleague who struggles to support themselves because of their diversity and a system that has gaslit them into not believing they are worthy. It means speaking up when you see misogyny or racism enter your workplace. It means refusing to speak on all-male panels at industry events because that does not represent the true diversity of thought and expertise. Your day-to-day actions and words are the most powerful tool you can use to be helpful and make an impact.”
Casperson added that you don’t need to be a DEI expert to create positive change, simply trying to be a good person and acknowledging the struggles and challenges of others can go a long way. “You don’t even need to understand their experiences to be helpful — you just have to acknowledge that they are real.”
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