Updated: Oct 20
When it comes to DEI, no organisation wants to fall into the trap of performative programming. Understanding where disparities are and why they exist in the first place, along with focusing on outcomes and measuring the impact of DEI work can help organisations to make meaningful progress and create trust among staff that their employer is walking the talk. Doing this well relies, in part, on having access to robust diversity data. This, along with the FCA and PRA’s proposals to introduce a new regulatory framework on Diversity and Inclusion provided the impetus to pen a second piece on working with DEI data. As we highlight in our previous article on DEI data, numbers do not tell the whole story when it comes to DEI, but robust diversity data is essential in building an understanding of where inequities lie, and the issues that need to be addressed. On 25 September 2023, the FCA published a consultation paper on proposals to introduce a new regulatory framework on DEI in the financial sector. Requirements for large financial services firms (those with 251 employees or more) range from developing an evidence based DEI strategy and setting diversity targets to reporting metrics annually. The proposed changes would signal a shift- change. There is much food for thought here, not only for financial services firms but for employers in all industries. We recommend that Financial Services firms familiarise themselves in full with the proposed changes, and consider the potential implications. In this article, we unpack two complex areas: Setting diversity targets and measuring inclusion. Diversity targets – does what gets measured get done? Diversity targets are not a new phenomenon. Many professional services firms began setting leadership gender targets over a decade ago and have since expanded targets into other areas. The Women in Finance Charter introduced in 2016 requires participating firms to not only set, publish and report annually on targets for gender diversity within senior management, but to align senior executive pay to those targets. And the approach to targets has evolved considerably, with many employers expanding their goals to encompass ethnicity, sexual orientation, disability and social mobility, and introducing hiring and promotion goals. But the new approach proposed by the financial regulators feels like it has teeth. The FCA propose that all large firms publicly disclose targets and report the progress towards them annually. The proposal also includes a requirement that firms report to the regulator the rationale behind their targets. Setting diversity targets must be a carefully managed and diligent process, this is not finger-in-the- air stuff. Whether you are setting targets for the first time or revising/refreshing existing goals, our six tips are:
Apply thought and diligence to target setting: First and foremost it’s crucial to understand any legal or wider considerations when setting diversity targets or goals. While the UK market may not be seeing the same level of caution around targets and quantitative diversity measures as seen in the US in the wake of the Supreme Court affirmative action ruling, it remains important that diversity goals and the methodology behind them are sound, evidence-based and remain on the right side of the law. As the recent RAF case found, pressure to meet targets can risk leading to unlawful positive discrimination.
Before setting targets, focus on data collection: Hopefully it goes without saying, but using data to inform target setting is an absolute must. This means that organisations must start by developing their data collection strategy and building trust among staff in order to build good quality data, before moving to create goals and targets.
Don’t limit yourself to mandatory reporting: While the FCA’s consultation paper proposes that, for large financial sector employers, data collection and reporting for some characteristics (including ethnicity, sexual orientation and disability) should be mandatory, other categories (including gender identity, carer status and socio-economic background) are proposed as voluntary. Firms wishing to collect data across a wider range of characteristics might want to take inspiration from the legal sector. Law firms regulated by the SRA are required to report data every two years across a range of areas, including gender identity and socio-economic background. The categories and response options used in the SRA’s data collection can be found here.
Be clear on what you are aiming for: Once you have collected data, what is the right benchmark to use to set your goals? It’s a fair question and right now, there is not a one-size fits all. Approaches tend to fall into two categories: considering external data, e.g., population data or market mapping; or considering internal data, e.g., the diversity of your existing talent pipeline and disparities in promotion or attrition. In recent years a growing number of employers have used the diversity profile of the UK population as a basis for targets (e.g. 14% ethnicity targets). This may feel like a logical approach, but proceed with caution: Many areas of the UK are far more diverse than the population overall, and the FCA’s proposals highlight the importance of considering the diversity make up of the geographical area in which regulated activities are carried out.
Don’t just set your sights on the top: The majority of employer diversity targets focus on senior / leadership roles, but are we missing a trick here? The FCA point to importance that diversity goals tackle shortfalls at different points in the employee lifecycle. Their consultation paper reminds us that a previous FCA multi-firm review found that while existing initiatives to address underrepresentation focus primarily on senior leadership, data showed that the sharpest drops in gender and ethnic diversity occurred in the step from junior to mid-level roles. Analysing headcount, hiring, promotion and attrition data at different seniority levels through a diversity lens, and considering the diversity of your existing workforce when setting goals can help to ensure that targets focus on underrepresentation earlier in the pipeline.
Communicate, communicate, communicate: Once goals have been set and timeframes agreed, communication really matters. Some staff may be concerned by the announcement of diversity goals and so the purpose and rationale must be clear and well positioned and staff must be kept informed of progress. As the FCA consultation paper indicates, targets should focus on addressing areas of underrepresentation and any communications should make this clear, and focus not just on the destination but the journey. Doing this well will help to ensure that those in minority groups have confidence that promotions are based on merit, and that those in majority groups do not interpret diversity targets as a zero sum game, where diverse talent wins and they lose.
OK, but what about inclusion? The FCA consider the full benefits of diversity can only be realised in an inclusive environment that uses the capabilities of a diverse workforce, and we believe they are
Many organisations saw quick wins at the beginning of their diversity journey, particularly in entry level hiring. Only later to identify shortfalls when it comes to inclusion. A study published by Rare Recruitment in 2020, including high level findings from interviews with minority ethnic lawyers, each of whom worked or had worked at elite firms with a strong commitment to DEI, found that 84% had experienced implicit racism and 35% had experienced explicit racism directed at them. The same report identified an ethnicity “stay gap” in major UK law firms, whereby minority ethnic lawyers spend on average 20% less time in post than their white counterparts. But where is the accountability?
For us, one of the most interesting elements of the FCA’s consultation paper is the proposal that financial services firms report annually on measures of inclusion, on whether employees feel: ▪ safe to speak up if they observe inappropriate behaviour or misconduct ▪ safe to express disagreement with or challenge the dominant opinion or decision without fear of negative consequences ▪ their contributions are valued and meaningfully considered ▪ they are subject to treatment (for example actions or remarks) that had made them feel insulted or badly treated because of their personal characteristics ▪ safe to make an honest mistake ▪ that their manager cultivates an inclusive environment at work The intention of these measures of inclusion is to provide a baseline of measurable data within firms and across the finance sector. Surveys do hold value, but through Inclusive Group’s work, we have found that there is no substitute for listening. Employee listening exercises create safe spaces for staff to speak openly about their experiences. We find this leads to powerful insights and truths, which can be difficult for organisations to hear, but can close awareness gaps and allow firms to take steps to remedy cultural issues. For firms who may not have the budget to appoint a third party to conduct employee listening, we recommend instituting stay interviews, conducted by HR professional staff, well versed in facilitating sensitive discussions. So, does what gets measured get done? The honest answer to this question is not necessarily. But the added layers of accountability incorporated into the FCA and PRA proposals certainly increases the odds.