The regulators have taken a different, and somewhat more sophisticated, approach to the meaning of diversity and inclusion by focusing on the “why” question. One of the reasons why diversity and inclusion is now high on the board agendas of corporates is that it brings a richness and dynamism to the thinking that goes into important decision-making.
Imagine a board that has five white and three male members of colour; it also has four white women, one of whom is a disabled wheelchair user. Ostensibly, that would appear to be a fairly diverse board, and would indeed be a more diverse board in terms of race and gender than many others in financial services. However, while, on the surface, this board looks diverse, if 70% of those board members went to the same university and come from similar socioeconomic backgrounds, there is a good chance that they are likely to share similar views in a number of different areas. In reality, the diversity of opinion on the board may still be limited.
The regulators are focusing on this diversity of thought (also called cognitive diversity) because if this is achieved the likelihood is that the mix of characteristics making up the group will be too. In the words of the FCA/PRA they are defining diversity of thought as:
“bringing together a range of different styles of thinking among members of a group. Factors that could lead to diverse thinking could include, but not limited, to different perspectives, abilities, knowledge, attitudes, information styles, and demographic characteristics, or any combination of these”.
By taking this perspective, the regulators recognise that diverse group thinking is influenced by many factors, including both visible (gender, age, ethnicity) and invisible ones (education, sexual orientation and disability). Other elements also need to be fed into the mix such as socioeconomic diversity, cultural background and the intersectionality of two or more of these characteristics.
As for inclusion, the regulators point out that diversity alone is not enough. Individuals need to be respected, valued, involved and treated fairly. These elements need to be embedded into a firm’s culture: it is not sufficient to simply pay lip service to inclusion – a commitment to inclusion requires active thought and action. Using their familiar language, the regulators conclude that a culture of psychological safety where individuals can make a contribution and feel empowered to challenge and raise concerns is essential for fostering inclusion.
Have the FCA and PRA got their understanding of the terms diversity and inclusion right? This is question 1 on the discussion paper, and is clearly fundamental to the regulators’ thinking around this issue. My own view is that they have taken the right approach but how this is achieved and measured are different questions for exploration – and I’ll leave my colleagues to explore this further.
The next blog by Pete Summers will look at the question of linking remuneration to diversity and inclusion metrics as part of non-financial performance assessment and why this can be so problematic from an employment law perspective.