Did you see the PRA and FCA discussion paper on Diversity and inclusion in the financial sector and wonder what the heck does that have to do with the regulators? Have the regulators gone woke? Perhaps they have too much time on their hands? If you did, then you weren’t alone.
So, where are they going with this and why should you take any notice? Let me give you three good reasons why this discussion paper is long overdue.
You can’t have failed to have heard the post-financial crisis regulatory focus on culture. Culture for a regulator is all about making sure that organisations set the right tone from the top and create an environment in which it is safe to speak up about things that aren’t right.
Sadly, and rather like what happened with TCF, culture has been turned into an exercise of who can create the biggest, longest, most complex, static, MI pack that tells you nothing but costs a fortune to build and maintain. Oops, spot the MI cynic!
If you are serious about culture then you likely won’t have much of an MI pack to speak of. You are far more likely to be actively managing your people, both the good and poor performers. You will more likely be sharing examples internally of where something has gone wrong but been resolved because that individual in that team in a far flung corner of the office felt it was ok to tell someone about it. Your line managers will feel supported when they have to go out on a limb for that misconduct issue because they will know that their peers and seniors will back them up.
Your colleagues won’t be talking you out of calling a client to explain that you’ve had yet another STOR near miss and are no longer comfortable doing business with them, because you all know that you cannot afford to allow your business to be used for market abuse.
As these are all indications of good culture, so is a diverse and inclusive workforce, none of this is new.
Psychologists say that constantly striving for consensus can lead to irrational and dysfunctional decision-making. A phenomenon known as group think.
The psychological theory goes that if you work with people who are all like-minded with similar backgrounds or ethnicity then you will be subconsciously all driving similar agendas. People in these groups may not value critical challenge as highly as they do consensus. Everyone wants a quiet life right?
The regulators are concerned that group think can lead to poor risk management and poor business decisions. By improving diversity and inclusiveness not just in board rooms but throughout regulated firms, the regulators believe they will gradually reduce the risk of group think.
You almost certainly know individuals who have struggled over the past year or so. Some of those maybe clients. Some may run their own business.
They may be struggling for financial reasons, perhaps business has dipped. Maybe they have lost friends or family, or struggled mentally with the lockdown. Actually the latter probably applies to the majority of us; I don’t think any of us enjoyed lockdown.
These people, our friends and clients will have had moments where they are more vulnerable. They will have had times where they needed extra support or help making decisions because their usual support network wasn’t readily accessible to them.
The regulators have long talked about vulnerable customers. They of course mean the retail consumer.
Diversity and inclusiveness plays a big part in vulnerability. The lockdown’s have made some people even more vulnerable, and disproportionately so for some. Sadly that population has increased because not everyone coped as well as you and I.
In business we have to look out for those more vulnerable individuals as much as we should be considering the diversity of our client base and reflecting that back in our own workforce. Most of us won't have been waiting around for the regulators to tell us that doing so is good for business.