Class, cliques and social codes: doing more on diversity

Speaker: Christopher Woolard, Executive Director of Strategy and Competition
Location: UBS Hedge Fund COO Conference, London
Delivered on: 10 October 2019


  • The FCA sees diversity and inclusion (D&I) as a mainstream business issue that speaks to a firm’s culture and conduct.
  • 75% of UK households use the services of an asset manager – this is a sector whose success depends on its ability to attract capital from investors of all backgrounds, demographics and income levels.
  • Change won’t come overnight. Progressing on the issue of D&I means evaluating the specific barriers in your organisation, coming up with practical strategies to overcome them and evaluating what works and what doesn’t.
  • This is no longer an issue that can be swept under the rug – the public have expectations about the firms that serve them and are increasingly vocal about them.

Note: this is the speech as drafted and may differ from the delivered version.

The D&I problem in asset management

Benjamin Franklin once said: ‘An investment in knowledge pays the best interest.’ It is a maxim on which the asset management industry is built. Legitimately understanding more than your rivals about the markets in which you invest delivers better returns for your clients, and for you.

So, if one sector should be a leader in its approach to D&I, it’s the investment management sector. 75% of UK households use the services of an asset manager – that is not a narrow section of society.

The very success of the industry depends on its ability to attract capital from investors of all backgrounds, demographics and income levels.Yet despite this, there remains an obstacle for the asset management industry – and still more hedge funds and private equity: how do you attract a broad base of knowledge, a variety of views and a diversity of experience?

The Investment Association, firms and others are doing good work to face up to this. But the scale of the challenge is surely obvious to everyone entering the doors of the UK’s asset management firms.

It’s certainly obvious to me when I meet with executives, when, more often than not, I find myself sitting down with men who went to a handful of schools and universities – or occasionally, rarely, in fact, women who’d attended the same institutions. 

Of course, there are exceptions but research by the Sutton Trust has shown that 61% of asset management leaders attended independent schools, making you, along with private equity, the most privileged by background within financial services.

And the same study showed that while 9% of leaders within financial services are women – already a paltry figure – this drops to 6% for asset management.

The Investment Association’s recent Black Voices report shows black, Asian and minority ethnic (BAME) representation within the industry lagging far behind, too. Just 1% of investment managers identify as Black, African, Caribbean or Black British.

Why diversity and inclusion matters

I hope by now why this matters is obvious. But the potted answer goes something like this.

Diversity matters commercially because robust decision-making comes from challenge, and to get challenge you have to have different voices around the table.

It matters organisationally because potential employees are attracted to firms with strong diversity policies and are more likely to stick around if they feel included in a firm’s culture. And it matters morally because we all, regulator and the regulated, have a duty to represent the society we serve. It’s the right thing to do.

I’d also add to the list that it matters materially. How can fund managers choose the right assets to invest in, if they have blind spots about how some of their clients wish them to invest, or they don’t understand how large numbers of actors in the real economy behave?

When firms haven’t made diversity a priority, it’s a good indication they may not value challenge and internal debate. And in those sorts of cultures, misconduct can flourish. These are no longer issues that firms can sweep under the rug.

To quote the Investment Association’s Chris Cummings: ‘When your industry is used by 75 per cent of UK households you better get used to the fact that you are a doorstep political issue.’

Today, the public have high expectations for how firms should behave – and they’re increasingly vocal about those expectations. We all operate now under an unprecedented level of scrutiny and, rightly, are called upon to demonstrate our public value. All of which means that good intentions alone are not going to cut it.

In terms of addressing the issue, more people are undoubtedly talking about it. But talking about it isn’t enough. The part that’s often missing is actually doing something about it.

A case in point – despite all the talk, all the goodwill, all the initiatives, analysis of our Approved Persons data across finance shows that women make up just 17% of that population, a figure that has remained more or less unchanged since 2005 when our data begins.

Seniority has shifted, with more women in NED roles, but the number of senior female executives has remained stubbornly low.

When firms haven’t made diversity a priority, it’s a clear indication they don’t value challenge and internal debate. And in those sorts of cultures, misconduct can flourish.

Why has so little progress been made?

The truth is that this is hard, let’s not kid ourselves about that.

The reasons someone is, or is not, able to secure a good job, progress in it, be remunerated accordingly are complex and intersectional. They relate to economic circumstance, role modelling and, sometimes, the mere fact of being given a chance.

But they also relate to more subtle and intangible cues, codes and behaviours – which come naturally to those who’ve grown up immersed in them, but are completely alien to those who haven’t.

Knowing these codes breeds confidence, which can often be read as ability. But we all know it’s by no means certain that the most confident or voluble person in the meeting will make the most salient contribution.

Nonetheless, being on the outside of this collective understanding of how to act can be a real hindrance. Not only on a purely social level – it’s never nice to stand on the edges of a conversation you know nothing about – but also on a more practical one.

In its recent report on social mobility, the Investment Association highlighted this idea of ‘fitting in’ or ‘being one of us’ and how it feeds into what it called ‘a desire to recruit for familiarity or similarity’. Such biases – whether conscious or not – serve only to reinforce the barriers that keep ‘outsiders’ out.

The asset management industry has done some good work to address the issue. Investment2020, a cross-industry initiative to attract more diverse talent to the asset management sector, is a great example.

In a sector where attendance at the ‘right’ schools and universities has all too often taken primacy in recruitment, efforts to reach out beyond the usual suspects are really encouraging to see.

And looking beyond the obvious is quite right. Firms often tell us they are looking for recruits who are ‘rounded’ or ‘polished’.

To speak personally, I’ve had a very fortunate journey. I grew up on a council estate, went to the local comprehensive and then to a Russell Group university. Eventually I studied for a Masters at the London Business School. 

But at school and university, when I wasn’t studying, I was earning. As an undergraduate, I doubt I would have presented as someone with the sporting and social accomplishments we often equate with ‘being rounded’, but often come from ample means and more leisure time.

What I may have lacked in polish, I made up for tenacity and experience of working with others. It meant not taking no for an answer, which, it turns out, is not bad preparation for being a regulator. 

It’s in no one’s interest to close off the industry to talent, particularly when it’s that talent that will be the driving force behind the industry’s success in the future.

And, let’s face it the other problem is that financial services has an image problem. I’ve met many asset managers who are deeply thoughtful about how politics and economics interact and the effect of their stewardship of the industry. But if you have no knowledge of the industry, there is the perception of finance as a bear pit – with Wolf of Wall Street style bellowing and banter – is putting off great candidates who want to work in modern, inclusive organisations that care about the wellbeing of their staff.

Probing the evidence, learning lessons

Given the deep-rooted nature of these issues, change is going to be incremental.

In my experience, the things that will make a real difference in an organisation are tailored to your organisation. Copying and pasting an initiative you’ve seen elsewhere won’t bear fruit unless it makes sense in your specific context.

Progressing on the issue of D&I doesn’t mean plugging in an initiative and leaving it to run in the background – this is something that has to be nurtured, iterated and evaluated.

And it’s likely there will be false starts. We’ve had a couple of our own.

In 2015, we trialled an approach to nominations for our development programme to support those we expected to be the managers of the future. We changed the process and based nominations on candidates taking a psychometric test. We hoped this would ensure better representation of BAME candidates, who are often underrepresented at a senior level.

But what we found was the tests had an even worse impact on outcomes.

It’s in no one’s interest to close off the industry to talent, particularly when it’s that talent that will be the driving force behind the industry’s success in the future.

When we looked into it we found that many of our BAME colleagues were not used to taking these tests. Some reported not knowing how to prepare and others told us they had started the test while working at their desk. Office disruptions led to these colleagues getting very low marks and missing out on a place on the programme.

Based on what we learnt we switched our approach so nominations are now made by line managers based on an objective framework. From 9% under the previous approach, BAME representation on the programme shot up and now averages 25%.

So, there’s no shame in changing course when new evidence comes to light.

In fact, that is infinitely preferable to taking superficial progress at face value, or making decisions based on no evidence at all.

I think it’s important to remember that it’s not just about getting more women – or BAME people, lesbian, gay, bisexual and transgender (LGBT) people or people from working class backgrounds for that matter – through the door. It’s about what happens when they get there. That’s where the ‘I’ of D&I comes in. Working environments have to be inclusive as well as diverse in order for this to work.

So to achieve real change on D&I our tactics must be practical, meaningful and based in evidence.

Real change comes from the quiet patience of equipping people with the skills they need to navigate more senior roles, demystifying the alien environment of the Boardroom, helping manoeuvre the tricky aspects of office life.

One thing that’s sometimes overlooked in these discussions is intersectionality – what the Social Mobility Commission calls ‘double disadvantage’. So, if you’re from a working class background and have a disability, or you’re a woman and from an ethnic minority group, social mobility will be doubly difficult.

Once you understand what the barriers to progress are in your organisation, the next step is devising workable strategies to overcome them.

One thing we’ve found that has worked for us is our BAME mentoring programme, which has been really well received – so much so that we’re just about to run a second cohort.

We’re also proud of the progress we’re making on our social mobility strategy – informed by our staff network and employee survey. This year we ranked 23 in the Social Mobility Index.

And when we have made progress in one area, because of the intersection with other areas of disadvantage, we’ve found the outcome has been more positive across the board.

Sometimes quite a simple change can make a big difference.

There are also lessons to learn from other parts of the industry. After EY equalised its parental leave policy, the number of men taking the full leave more than doubled in two years, and they’ve reported that turnover among female employees has declined.

There is clearly appetite amongst parents to take up this option – in the last year at the FCA we’ve also seen a marked increase in shared parental leave uptake.

We are past the point where warm words on diversity are enough

Evaluating the evidence is really important. We’ve committed to measuring, and building on, progress through targets. These are critical in ‘keeping us honest’ about where we are.

Our target is that 45% of the FCA’s Senior Leadership Team (SLT) to identify as female by 2020, and 50% by 2025. Our BAME target is 8% by next year. These are stretching targets – and frankly we may not meet them. At the most senior level, we know that big percentage numbers can pivot on a single individual.

But the fact they’re demanding is a good thing – it pushes us to do more, faster. And we’ve all got to show that kind of commitment if we’re going to turn D&I in financial services from an ambition to a reality.

To conclude, we are past the point where warm words on diversity are enough. What you can expect from the FCA is twofold.

First, we are on the same journey. We know this isn’t an easy nut to crack. We know organisations that lead in this space will get things wrong. Progress may not be linear. Honesty about issues will be painful. But the prize is worth it, and it has to be done.

Second, make no mistake – we see D&I as a mainstream business issue that speaks to a firm’s culture and conduct. Just as the diversification of risk is inherent to the investment sector’s purpose, the diversity of its population should be an essential, appreciable aspect of the industry, one that characterises its thinking and its future.


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