Culture in financial services has become a priority for both the PRA and FCA as well as government and select committees. It is recognised that culture is a key root cause of major conduct failings that have occurred within the industry in recent history. There is an expectation on firms to focus on fostering good culture, starting in the boardroom and with good behaviour to be embedded at all levels.
What is perhaps not as widely acknowledged is how equality, diversity and inclusivity form an important part of culture. When the Treasury Select Committee published its report on women in finance in June, rather than a consensus of recognising there are issues and committing to make improvements, there were a disappointing number of dismissive and protective reactions. It is difficult to understand how even after a raft of investigations, research and evidence in recent years, not to mention the #MeToo movement, there are some who refuse to listen. The approach to addiction comes to mind: the first step to recovery is acknowledging there is a problem.
The Committee called for reform of bonus negotiations in order to “abolish alpha-male culture”, for promotion of flexible working and to encourage the progression of women to senior levels. It found that “culture is the overwhelming reason that women said they do not want to get involved at the senior levels of the financial services sector, which becomes a self-reinforcing barrier.”
The Equality and Human Rights Commission (EHRC), the regulator for equality law if you will, this month published findings of its research into attitudes towards the gender pay gap. It found that 61% of women would take a firm’s gender pay gap into consideration when applying for a job; 58% are less likely to recommend their present employer if they had a gender pay gap; and 50% would reduce their motivation in their role and commitment to their employer. Interestingly, 75% of all respondents (both male and female) would be willing to take part in actions and activities to help their employers tackle the gender pay gap.
Both these findings show how equality is integral to culture. With poor culture, by not giving everyone equal opportunities, individuals are likely to feel marginalised and devalued in their workplace, impacting mental wellbeing and productivity. Firms are ultimately at risk of losing out on talent and suffering reputational damage, placing them at a competitive disadvantage.
This has been echoed by the FCA who similarly expect firms to be focusing on equality and diversity as part of their culture. Megan Butler, Executive Director of Supervision, has said that “in order to drive change in financial services, we cannot exclusively focus on arguments around social justice – although it is clearly a matter of social justice. We need to call out the fact that diversity is fundamental to business success and to the reduction of failure.”
It is interesting that the FCA has found that firms with monocultures suffer 24% more governance-related issues than their peers. Diversity helps groups from converging around poor decisions because, as behavioural science shows, it encourages different perspectives reducing the risk of group-think. The FCA therefore wants firms to have a culture that pursues diversity and as part of their work, supervisors are directly asking firms about their gender diversity policies.
The starting point to improving equality and diversity and thereby changing culture is a firm’s approach, i.e. whether it seen as something to be embraced or merely an obligation. It’s rather akin to how a firm approaches the principles around treating customers fairly – those who put the customer at the heart of what they do will get it right and ultimately be successful. But those who look to see what they can get away with makes any commitment to these values meaningless.
Head of Policy