How Greater Diversity Can Revolutionize FS&I
In the US, financial services and insurance businesses are making mixed progress towards a more diverse workforce. Recent research from McKinsey shows that the representation of women and women of color in the North American FS&I workforce increased across all ranks between 2019 and 2021, but that representation falls off as you move from entry level to C-suite positions. Data from the Equal Employment Opportunity Commission also shows that Black employees occupy nearly 19% of entry level positions, up from 17.4% in 2007, though their share of senior positions has fallen. Representation of Hispanic and Asian American workers has risen across all levels, but there is still much work to do.
Diversity, Equity and Inclusion (DE&I) isn’t just an ethical imperative; it brings real value to the business. The recruitment and retention of employees from a wider range of demographics can boost a firm’s performance and help it reach new customers. A solid DE&I policy can also help attract new talent, and foster higher levels of engagement, innovation, and creativity. Most of all, it can make it easier for firms to understand what all their customers want and what they need to do to better them. As House Representative Ann Wagner put it in a 2020 hearing on diversity and inclusion at America’s largest banks, “various studies have identified several benefits for companies that increase their diversity, including different perspectives, increased creativity, more innovation, faster problem-solving, better decisions, higher profits, lower turnover, and improved hiring. So, we know just how beneficial it is to have a diverse and inclusive workplace.”
Diversity and performance
Let’s look at those benefits in detail. There’s plenty of evidence that more diverse organizations outperform those that lag behind. A 2020 McKinsey report tracking the performance of 1,000 companies in 15 countries found that companies in the top quartile for gender diversity on their executive teams were 25% more likely to have above-average profitability than companies in the lowest. Companies in the top quartile for ethnic and cultural diversity outperformed those in the fourth one by 36%. Focusing specifically on FS&I, a study of private equity firms in North America and Europe found that buyout teams with at least one woman produced an average 12% higher rate of return than all-male teams.
To some extent, this reflects the fact that meeting the needs of a more diverse customer base requires a more diverse workforce. For instance, it’s estimated that financial services firms around the globe are missing out on at least $700 billion worth of revenue opportunities by not meeting the needs of women. Clearly, female execs and employees are better placed to know what these needs are. Likewise, in an industry where research from Edelman shows evidence of the institutional mistrust experience from Black and Latinx Americans, it’s all the more crucial to have employees who might understand and have experience of the issues. Having employees that can relate to clients can make them more effective at matching them to the right product or service, or even at creating new products to meet specific needs. This in turn can mean improved customer acquisition, not to mention customer retention. That’s something every business wants.
Diversity and innovation
This ties in to evidence that greater diversity can also foster innovation and creativity. After all, the more perspectives you can bring to a challenge or an opportunity, the more chance you have of finding solutions that haven’t come up before. A 2018 report from the Boston Consulting Group found that companies with above-average diversity in their leadership teams reported more and better innovation, including greater payoffs and higher EBIT margins.
More diverse teams can also make better decisions, especially on new or risky investments. A 2018 study for the Harvard Business Review looked at the decisions of thousands of venture capitalists across tens of thousands of investments and concluded that ‘diversity significantly improves financial performance on measures such as profitable investments at the individual portfolio-company level and overall fund returns.’
Diversity and HR
Nobody claims that building a more diverse workforce is easy, but the more you put into it, the easier it becomes. Younger millennials and Gen-Z candidates have made it a priority, and in an era where more potential employees are making job decisions based on purpose and ESG principles, firms that can demonstrate commitment have an advantage when it comes to recruitment. Simply having, and sharing that you have, a diverse workforce can attract a more diverse group of candidates to apply for open positions. What’s more, this interest in diversity can translate to engagement and retention, particularly if it can pervade the whole company structure rather than just the entry-level jobs.
For the FS&I sector, where skills gaps threaten to hold the industry back, building a more diverse workforce also has the potential to increase the skills and knowledge the industry needs to advance. Beamery has the experience and the technology to help FS&I companies transform their workforce and reap the benefits that diversity can bring.
Find out how Beamery can help your business attract, recruit and retain a workforce that’s as diverse as your customer base.