Green Park's Response to the FCA’s Consultation on DEI in the Financial Sector

Green Park's Response to the FCA's Consultation on DEI in the Financial Sector

Green Park recently responded to the FCA’s consultation on DEI in financial services: ‘Diversity and inclusion in the financial sector – working together to drive change’. We commend the regulators on this consultation and also appreciate that these proposals provide an important benchmark for the broader financial services industry, which is encouraging.

As a global talent and advisory organisation with over 17-years of experience in recruiting, retaining and improving diverse leadership, Green Park welcomed the opportunity to contribute our experience, insights and expertise to this important issue.

Green Park responded to the areas we felt we could add the most value. To read our response to the questions, please read on below:

FCA Question: To what extent do you agree with our proposals on D&I strategies?

In summary, these proposals state:

• Firms MUST have a strategy or set of objectives which is regularly communicated to all staff
• Strategies and action plans MUST have Board level accountability for the strategy
• The strategy MUST set out objectives, targets and a mechanism for regular and ongoing monitoring
• Firms MAY engage employee resource groups to help with the delivery of their strategy/action plan

Green Park Response: We agree with the regulators proposals on firm-wide D&I strategies for SII and CRR firms. We believe that accountability ought to sit with individuals at the highest level of the organisation - although we would caution against devolving ultimate accountability to multiple senior individuals. We propose that accountability for the firm-wide strategy ought to map to a firms Statement of Responsibilities (SoR) where ultimate accountability can be attributed to a single individual, whilst having senior oversight at an executive level (e.g., quarterly oversight at executive committees).

Finally we would recommend that the regulators consider how their supervisory approach intends to monitor the effectiveness of firm-wide strategies and their ability to translate through to middle-management activities.

FCA Question: To what extent do you agree with our proposals on targets?

In summary, firms MUST be able to collect a good representative sample of D&I data, in order to highlight under-represented groups. Under-represented areas will be driven by the firms diversity profile across 3 levels: board, senior leaders, and employee.

Green Park Response: We are broadly supportive of the proposed sample of D&I data at multiple levels of the organisation. It is important to be aware that target setting can potentially encourage positive discriminatory practices within firms who seek to achieve targets without fostering greater levels of inclusion. Through our work with the Business Leaders Index, we have been able to show a relationship between positive action initiatives designed to increase female leadership within c-suite positions and increases in cultural change. We are currently working on a new line of research involving inclusion, which offers benchmarks across sectors and would be happy to have a further discussion on the positive benefits of diversity targets.

FCA Question: To what extent do you agree with the list of demographic characteristics we propose to include in our regulatory return?

In summary, firms MUST to report on the following mandatory demographics:

• Age, ethnicity, sex or gender*, disability or long term health conditions, religion, and sexual orientation across 3 levels: board, senior leaders, and employee.

Firms are able to VOLUNTARILY disclose the following demographics:

• Sex or gender*, gender identity, socio-economic background, parental responsibilities, caring responsibilities.

* Please note: “Firms are required to report on either Sex or Gender. Firms may choose to report on both Sex and Gender on a voluntary basis.”

Green Park Response: At Green Park, we measure 19 diversity characteristics, which include both inherited, acquired and experiential characteristics. We agree with the notion of mandatory diversity data, although we advise regulators to remain cautious of the regulatory burden that this will pose to some mid-sized and smaller firms. We propose a staged approach, focusing on a smaller selection of data points, with a clear plan to introduce a wider set of data points over a period of time. We encourage regulators to take a proportionate approach and share guidance on mechanisms which may assist smaller firms in achieving compliance.

There is a growing body of research which points to the significance of social mobility within the workplace (Social Mobility Commission, 2022) and it's compounding effect when considered intersectionally (MakeIt10 - British Psychological Society, 2022, Social Mobility Report - KPMG, 2022). This imbalance is clearly demonstrated within the financial services industry in particular (The Bridge Group, 2022). Through our partnership with Progress Together, we found that many of their members found it difficult to keep up with data collection requirements. We foresee and opportunity for regulators to work with the firms and industry experts to develop a unified and standard measure for social mobility within financial services and propose further discussions on measures in this area.

FCA Question: To what extent do you agree with the list of inclusion questions we propose to include in our regulatory return?

In summary, responses to mandatory inclusion questions should be reported using a 5-point scale to form part of firm’s annual staff survey. These questions are designed to capture cultural inclusion within a firm and are designed to gauge 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
• Their manager cultivates and inclusive environment

Firms are invited to set their own internal inclusion targets

Green Park Response: We welcome the regulators proposals on inclusion measures and acknowledge that unlike diversity which is well suited to quantitative measures and targets – inclusion is linked to cultural change, which develops over a period of time and is a more abstract measure (Gartner Inclusion Index, 2022).

We are conscious that whilst the proposals are clear on targets and measures for diversity, but we question whether these proposals go far enough to provide a balanced perspective of both diversity and inclusion.

Green Park have been collaborating with Race Equality Matters (REM) and will be releasing research in early 2024 which is the result of research conducted with REM's stakeholders. This research considers a number of facets of inclusive leadership which extends to inclusion. We would encourage the regulators to engage with industry on a broader and more encompassing set of inclusion measures and we would welcome a roundtable discussion with others on our research findings and other useful methods to measure inclusion.

Additional Considerations

While we broadly agree with the consultation’s proposals, Green Park ask that regulators also consider:

• Aligning the accountability of delivery of the firm-wide D&I strategy with the Statement of Responsibility (SoR) to ensure that ultimate accountability aligns with a single senior executive individual and a single senior non-executive, as opposed to devolved accountability across a leadership team. This approach provides direct accountability at both an operational and a strategic level.
• A staged approach to the collection of D&I data - bearing in mind the regulatory burden for mid-sized and smaller firms who may be earlier on their cultural journey and may require time to adjust
• Collaborating with industry to define a unified, standard measure for social mobility
• Consider a more balanced approach to both diversity and inclusion metrics. This consultation is heavily weighted towards (largely visible) diversity characteristics. Our experience of the market alongside a growing body of recent research suggests that firms who focus on diversity in absence of inclusion are often subject to worse outcomes (Race Equality Matters, 2021, McKinsey, 2022, Harvard Business Review, 2022). We suggest there is a need for a broader discussion on inclusion measures and propose that the regulators engage with firms, academic researchers and other thought leaders to form a more balanced view on an industry-wide approach to recording, monitoring and reporting on inclusion alongside diversity.

We look forward to hearing the consultation's final outputs later this year.