The Financial Conduct Authority has outlined the importance of building an inclusive culture, arguing firms with higher gender diversity in their boardrooms incur fewer fines for misconduct.
Speaking at his keynote speech at the British Insurance Brokers’ Association Conference in Manchester last week (May 11), the FCA’s executive director for consumers and competition Sheldon Mills said unless financial services firms become more diverse and inclusive there is a risk of “group think that leads to crises and a lack of innovation.”
He said: “I am not interested in equality, diversity and inclusion (EDI) because I am black, Welsh and gay. I am interested because groupthink leads to crises and a lack of innovation.
“One way of challenging that is to have greater and wider representation and that will allow you to serve communities in the varied needs they have. It isn’t about having this quota on black people or women on boards.”
Mills said it is about having the right speak-up culture in your firms and urged the audience that the FCA wants to see “strong leadership and committed actions from you”.
“I am often told ‘I only have five people in my firm so how am I supposed to do that (EDI)?’,” he said. “It needs proportionality. Every community has both women and men so I would expect you to think about the gender balance and how that works.”
Mills said a diverse and inclusive industry, which attracts and develops the best talent, will drive positive culture in firms.
Outlining studies, he said firms with higher gender diversity in their boardrooms incur fewer fines for misconduct and have better risk management.
“As a regulator, I am interested in diversity because efforts to improve your firms’ diversity and culture will certainly help deliver better outcomes for customers and prevent future financial crises,” he added.
“It will also support the UK financial services industry to continue to be a global leader. It is important that firms build an inclusive culture, where individuals feel able to express their views, speak up and raise concerns.”
Last year’s Hampton-Alexander review found women still only hold 14 per cent of executive directorships in the FTSE 100. In addition to this, the 2020 Parker review quoted 37 per cent of FTSE 100 companies surveyed did not have any ethnic minority representation on their boards.
“In financial services, we have a huge role to play in increasing diverse representation,” he said.
“We have been active in this space: we recently published our policy statement on the D&I on company boards of listed companies and plan to issue a consultation in the autumn following our D&I discussion paper published last year.”
Mills urged the audience to consider initiatives for improving both the firm’s diverse representation and ensuring workplaces are psychologically safe and inclusive.
“We will ensure that our work here is proportionate and targeted – larger firms will have greater expectations on them than smaller ones,” he added. “But ultimately, we will all benefit from our efforts in this space.”