84% of all lawyers are white, and only 9% of partners at law firms are minorities even though minorities attribute to 35% of all Summer Associates. The numbers for finance are not much better, with 74% of all employees reported as white. 17-19% of all executives in the financial investment industry are female, whereas 41% of financial analysts, where most financial professionals get their start, identify as women.
But oftentimes these statistics feel abstract and unimportant if they don’t directly affect your life, your upward mobility, or your company. And while there are many real consequences to homogenous hiring and promoting practices (many have even attributed the financial crisis of 2007 to the lack of women on Wall Street), they are able to go on ignored because no one is being held accountable and business is not being lost - yet, anyway.
And because we’re pretty good at making predictions around here (it’s what we do!), we’re interested in proposing another: diversity mandates, whether by Congress, societal pressure, or client standards, are inevitable for both finance and broader professional services.
Tech-giants and other staples of big business are demanding diversity
Earlier this year, the law firm Paul Weiss released a photo of their 2018-2019 new partner class, which is how the world discovered that every one of the twelve new partners were white, and only one was a woman. The backlash was intense. A group of general counsels, including those at Turo, Lyft, Etsy, Waymo, and Vox Media Group, published a letter demanding law firms begin to take their diversity efforts more seriously or they would not select them for future work.
Facebook is now demanding that the teams their outside law firms put on a project be comprised of one-third women and minorities. HP is making law firms literally pay for their lack of diversity, with an internal contract rule that allows the company to withhold up to 10% of billed invoices from law firms that don’t meet minimum requirements for diverse staffing.
At a recent Silicon Valley In-House Counsel Summit, Thomas Chow, general counsel at PubMatic, told the audience that it’s a matter of how well an outside counsel team can truly understand a diverse business if they themselves are not contributing to or are a part of one, saying, “Outside counsel who don’t recognize all walks of life will not be good in front of a jury, or understand my business, because we are very diverse.” Phuong Phillips, chief legal officer at Zynga, made the case that prospective counsel not only needs to mirror her company, but also her company's customers, adding that, “Prospective counsel need to mirror the company, and really understand the product and customer base.”
Asset management firms are being audited for diversity
On June 25, 2019, the House Financial Services Committee held a hearing entitled: Diverse Asset Managers: Challenges, Solutions and Opportunities for Inclusion. The goal of the hearing was to introduce a bill that would require that the board of governors of the Federal Reserve, companies registered with the SEC, and companies registering securities with the SEC to consider minority- and women-owned asset management firms when seeking asset management services.
As mentioned in the hearing, there is no statistical difference in performance between diverse-owned firms and the non-diverse ones that dominate the space, yet less than 1% of assets are owned by majority-diverse firms across four asset classes: mutual funds, hedge funds, private equity and real estate.
Members of Congress will continue to ask big banks the big, uncomfortable questions
In April of 2019, another hearing entitled: Holding Megabanks Accountable: A Review of Global Systemically Important Banks 10 Years After the Financial Crisis was held by the same committee. The seven CEO’s of the world’s largest banks were there to answer questions, on the record, in front of members of Congress. While it was not the sole focus of the hearing, the topic of diversity turned out to be one of the most talked-about topics that day in the press. Congressman Al Green took the opportunity to ask which of them believed that their successor would be a woman or a person of color, and unsurprisingly, no hands were raised.
The Committee requested diversity and inclusion data from the seven banks, and in August that data was released. It was discovered that there is no chief diversity officer currently reporting directly to the CEO of any megabank. Diversity metrics are not tied to compensation and only half of the banks tie it to performance. Only 29% of board members are women, and only 17% are minorities. The Committee made recommendations, such as more focused recruiting through affinity groups and at minority colleges and universities, but no further action has been announced.
More progressive states will start legislating on behalf of diversity
In 2018, then-governor of California Jerry Brown signed into law a new set of requirements for public California companies, demanding them to have at least one woman on their boards by 2019.
In Pennsylvania, a resolution was passed in 2017 to “encourage” equitable and diverse gender representation on the boards and in senior management of companies in-state, though no quotas were specifically mandated. Other states, such as Massachusetts, Illinois, New Jersey, and New York have all proposed similar bills.
Our predictions and recommendations
It seems like it will be a matter of time before mandates make their way to the financial sector, whether by law or by cultural and social forces. Over the years, financial institutions have almost exclusively promoted white males to the top of the industry, whether consciously or unconsciously, leaving women and POC behind, resulting in decades of racial and gender inequality.
To make meaningful headway in correcting this imbalance, it is important that both recruiters and C-Suite executives hold themselves accountable for hiring and advancing diverse talent through their organizations. Read this blog post to see some of our recommendations on how to strengthen your firm's diversity efforts.