Last year, the Financial Conduct Authority (FCA) was moving full steam ahead with a consultation on diversity and inclusion in the financial sector, focusing on both DEI metrics and non-financial misconduct. The Treasury Committee's (the Committee) report on Sexism in the City, issued in March 2024, has led to somewhat of a re-think.
The Committee found that "firms still treat diversity and inclusion as a 'tick box' exercise rather than a core business priority", remarking on the "lack of cultural change in the sector". The Committee concluded that:
- Responsibility for driving culture change sits with senior leadership and boards;
- Firms need to evaluate which diversity and inclusion initiatives will be most impactful, drawing on best practice;
- DEI initiatives should be implemented with "the same rigour as other core business priorities";
- DEI should be seen as a competitive advantage in attracting and retaining talent; and
- Investors have a "key role" in holding firms to account and pushing for greater change.
While none of the conclusions are out of step with the regulatory mood music in this space, the Committee provided a new take on the FCA's proposed approach of implementing DEI strategies, collecting and reporting on data and setting targets.
They warned that these "costly initiatives with unclear benefits would likely be treated by many firms as another 'tick-box' compliance exercise, rather than necessarily driving much-needed cultural change". The Committee was also critical of the FCA's proposal that firms with fewer than 251 employees be exempt, citing anecdotal evidence that smaller firms can have worse cultures. The focus then, for the Committee, should be on ensuring boards and senior leadership take greater responsibility.
The FCA's response? An acceptance that they do not want to impose unnecessary costs or for data collection to become a tick box exercise. So, for now, the FCA are prioritising work on non-financial misconduct, including sexual harassment and bullying. On the data side, the focus may shift to what needs to be collected to hold boards, senior leadership, and investors to account.
This is a tough position to be in for those accountable, as many continue to struggle with how to measure DEI and the impact of any initiatives targeted at removing barriers or empowering staff. Measurement tends to be reduced to an employee engagement survey or easily obtainable statistics such as the numbers of complaints.
Fewer complaints mean the firm is doing well, right? Or is that right, maybe just a failure to speak up? What quantitative data collection misses is the chance to really hear what employees are saying – the stories they tell about inclusion and belonging, their ideas for change. Without this, firms end up reducing a very human problem to data that can be represented on a dashboard, and potentially misinterpreted – losing all the rich stories and experiences that ultimately help uncover patterns of culture in the organisation.
There is political and regulatory focus on DEI which is not going to dissipate. If anything, there is stronger scrutiny to come.
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