House Financial Services Subcommittee Hearing on Diversity & Inclusion
House Financial Services Subcommittee on Diversity and Inclusion
“An Overview of Diversity Trends in the Financial Services Industry”
Wednesday, February 27, 2019
Key Topics & Takeaways
- Current Trends: Garcia-Diaz said that diversity is a “broad concept,” that could include racial, ethnic, and gender diversity, which is what the GAO report is focused on, but could include other measures including age and veteran status. He said there is “no one picture” of what a diverse organization look like, and diversity could be interpreted differently in different situations. He explained that when you drill down into state-level data, there is a “dramatic variance” across the states. Garcia-Diaz said there is no single solution that works for everyone, but firms have highlighted the importance of flexibility, innovation, and information sharing about best practices.
- Recruitment and Retention: Garcia-Diaz explained that firms can utilize a number of practices to recruit more diverse talent pools, including expanding their pipeline of candidates to different universities and programs they recruit from. Regarding retention, Garcia-Diaz said that even if firms are doing the “right” recruitment, if candidates do not find a firm to be as diverse as it could be, that can act as a barrier to retention. Garcia-Diaz said it is important to consider employee engagement, and for firms to obtain information on their employees’ experiences at the firm to help inform their work.
- Mentorship: Garcia-Diaz discussed the importance of mentorship programs to better engage employees. He said “forward-looking organizations” will set up mentorship programs for employees to ensure they know how to navigate the organization and how they can progress in their career, saying it is “critical” in addressing retention because it “may be easy getting someone in the door,” but keeping them is a “different matter.”
Witness
Opening Statements
Rep. Joyce Beatty (D-Ohio), Chairwoman, House Financial Services Subcommittee on Diversity and Inclusion
In her opening statement, Beatty noted the importance of diversity & inclusion issues and the challenges both the financial services industry and the government face in achieving diversity goals. She said this new subcommittee would serve as a forum for discussion to raise awareness about how the industry maintains and grows inclusiveness for women, people of color, LGBTQ, veterans, Native Americans, and other minority groups, noting that within the next 25 years, half of all Americans are expected to be a member of an ethnic minority group. Beatty said that despite the business importance of diversity in the workplace and studies that show diversity increases productivity and improves the bottom line, disparities exist in recruitment, retention, and promotion of diverse candidates. She stressed the importance of analyzing data and trends, exercising oversight over regulators, and highlighting best practices to “move the needle in a positive direction.”
Rep. Ann Wagner (R-Mo.), Ranking Member, House Financial Services Subcommittee on Diversity and Inclusion
In her opening statement, Wagner stressed that although women and minorities are taking on more leadership positions there is still much work to be done to ensure the financial services industry is “reaping the benefits” of diversity. She noted that studies show diversity affects outcomes, turnover, and performance, and several studies reveal a link between diversity and enhanced corporate returns. She noted the importance of the Offices of Minority and Women Inclusion (OMWIs) created at federal regulatory agencies, as well as the 2017 Government Accountability Office (GAO) report on this issue. She said that recruitment and retention are primary challenges, and although the industry has “good intentions,” it is not necessarily being reflected across the sector. Wagner said that although talent across backgrounds is equal, opportunities are not, and stressed the importance of ensuring the financial services industry is benefitting from diversity and that all people have access to benefit from a robust industry.
Rep. Patrick McHenry (R-N.C.), Ranking Member, House Financial Services Committee
In his opening statement, McHenry expressed his support for the creation of the new subcommittee. He commended Wagner’s leadership in reaching out to the OMWI directors to better understand their work, as well as the work of the GAO in compiling its diversity report.
Rep. Maxine Waters (D-Calif.), Chairwoman, House Financial Services Committee
In her opening statement, Waters noted the importance of examining diversity issues in the industry and supporting minorities who have had to “fight for a seat at the table.” She said diversity and inclusion issues have “stymied” the financial services industry, and the subcommittee would work to “shine a light” on current trends so work could be done to ensure the industry “serves everyone.”
Testimony
Daniel Garcia-Diaz, Director, Financial Markets and Community Investment, U.S. Government Accountability Office
In his testimony, Garcia-Diaz explained that the 2017 GAO report examines data and trends on the extent to which minorities and women are “making headway” in the financial services industry, particularly at the management level, focusing on data from 2007-2015 and the practices firms have identified to enhance diversity. He noted that some sectors of the industry, such as banks and lenders, had made more progress than others. He noted that diversity management requires “intentional and strategic action” that is sustained “over the long haul.” He recommended firms engage in more “broad-based recruitment” and cast wider nets, and establish mechanisms to hold mid-level managers, who may not be as committed as leadership, accountable for achieving diversity goals, suggesting that achieving these goals be tied to performance reviews or compensation decisions. He highlighted that both financial services firms and other stakeholders have said data analysis is a key component of effectively managing workplace diversity and discussed a number of statistics which emphasized that there is much work to be done.
Question & Answer
Current Trends
Reps. Sylvia Garcia (D-Texas) and Wagner asked about how diversity is defined. Garcia-Diaz replied that diversity is a “broad concept,” that could include racial, ethnic, and gender diversity, which is what the GAO report is focused on, but could include other measures including age and veteran status. He said there is “no one picture” of what a diverse organization look like, and diversity could be interpreted differently in different situations. He said it is a “significant challenge” to define what diversity looks like and what it will take to get there.
Rep. Anthony Gonzalez (R-Ohio) said it is important to do a thorough review of the available data, and that although the industry has made strides, there is still much work to be done. He asked if the data showed any “bright spots,” to which Garcia-Diaz replied that when you drill down into state-level data, there is a “dramatic variance” across the states. He said that California and Florida have higher Hispanic populations, which is reflected in higher-than-average representation in the industry in those states, adding that the demographics of particular regions and states would be good to focus on in the future.
Rep. Bryan Steil (R-Wis.) asked what leads certain sectors to be more diverse that others. Garcia-Diaz explained that speaking to specific trends is challenging given the available data, but there are studies that show certain jobs in the industry are perceived as less welcoming to women. He also explained that much of the data does not make clear what roles minorities and women hold, i.e. if they are in a business-forward role as opposed to working in accounting, human resources, or other areas, adding it would be an interesting area for further study.
Asked by Rep. Alexander Mooney (R-W.Va.) what firms have been doing to address diversity challenges, Garcia-Diaz said there is no single solution that works for everyone, but firms have highlighted the importance of flexibility, innovation, and information sharing about best practices.
Recruitment and Retention
Multiple members, including Reps. Maxine Waters (D-Calif.), Wagner, and Steil, asked about recruitment and best practices the industry could better employ. Garcia-Diaz explained that firms can utilize a number of practices to recruit more diverse talent pools, including expanding their pipeline of candidates to different universities and programs they recruit from, such as expanding into math and engineering programs rather than narrowly recruiting from MBA programs. He also said firms can do more in schools and communities to connect with students and ensure diverse disciplines, and therefore more diverse candidates, understand that financial services is a career path for them.
Regarding retention, Garcia-Diaz said that even if firms are doing the “right” recruitment, if candidates do not find a firm to be as diverse as it could be, that can act as a barrier to retention. Garcia-Diaz said it is important to consider employee engagement, and for firms to obtain information on their employees’ experiences at the firm to help inform their work. He said that inclusion is also an important consideration in retention, and firms should work to ensure employees feel they are part of the organization and can stay there and grow.
Asked by Rep. Vicente Gonzalez (D-Texas) about promotions versus new hires and diversity in upper management, Garcia-Diaz explained that the data does not show promotions, only total balances. He said the report does show, however, that firms do have diverse talent pools that can feed into promotion pipelines.
Mentorship
Asked about methods that can improve retention, Garcia-Diaz discussed the importance of mentorship programs to better engage employees. He said “forward-looking organizations” will set up mentorship programs for employees to ensure they know how to navigate the organization and how they can progress in their career, saying it is “critical” in addressing retention because it “may be easy getting someone in the door,” but keeping them is a “different matter.”
Business Case for Diversity
Asked about incentives for businesses to increase their diversity, Garcia-Diaz said that there is a shift to make a more compelling case for diversity practices, calling it the “business case framework.” He said there are studies showing diversity can lead to greater employee satisfaction, higher profit, and a more inviting atmosphere for candidates to apply.
Beatty asked about the data that is available on this issue. Garcia-Diaz explained that they generally found studies that support the idea that a diverse culture can contribute to idea generation and higher employee satisfaction, and is correlated with better performance.
Accountability
Garcia-Diaz said that leadership commitment to diversity is “essential” but accountability for middle managers who are conducting interviews and making hiring decisions is also an important element. He proposed linking performance reviews and compensation decisions to middle managers achieving diversity goals to ensure their performance aligns with leadership’s commitment. He said diversity is not a “check the box” activity, but rather a “more substantial commitment.”
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