Financial Services Industry: Overall Trends in Management-Level Diversity and Diversity Initiatives, 1993-2006
Published: 2008-02-07T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: As the U.S. workforce has become increasingly diverse, many private and public sector organizations have recognized the importance of recruiting and retaining minority and women candidates for key positions. However, previous congressional hearings have raised concerns about a lack of diversity at the management level in the financial services industry, which provides services that are essential to the continued growth and economic prosperity of the country. This testimony discusses findings from a June 2006 GAO report and more recent work on diversity in the financial services industry. Specifically, GAO assesses (1) what the available data show about diversity at the management level from 1993 through 2006 and (2) steps that the industry has taken to promote workforce diversity and the challenges involved. To address the testimony's objectives, GAO analyzed data from the Equal Employment Opportunity Commission (EEOC); reviewed select studies; and interviewed officials from financial services firms, trade organizations, and organizations that represent minority and women professionals.
section_title: What GAO Found
paragraphs: GAO's June 2006 report found that, from 1993 through 2004, overall diversity at the management level in the financial services industry did not change substantially, but some racial/ethnic minority groups experienced more change in representation than others. EEOC data show that management-level representation by minority women and men increased overall from 11.1 percent to 15.5 percent during the period. Specifically, African-Americans increased their representation from 5.6 percent to 6.6 percent, Asians from 2.5 percent to 4.5 percent, Hispanics from 2.8 percent to 4.0 percent, and American Indians from 0.2 percent to 0.3 percent. In preparation for this testimony, GAO collected EEOC data for 2006, which shows that diversity at the management level in the financial services industry remained about the same as it had in previous years. Financial services firms and trade groups have initiated programs to increase workforce diversity, but these initiatives face challenges. The programs include developing scholarships and internships, partnering with groups that represent minority professionals, and linking managers' compensation with their performance in promoting a diverse workforce. Some firms have developed indicators to measure progress in achieving workforce diversity. Industry officials said that among the challenges these initiatives face are recruiting and retaining minority candidates, as well as gaining the "buy-in" of key employees, such as the middle managers who are often responsible for implementing such programs. Without a sustained commitment to overcoming these challenges, diversity at the management level may continue to remain generally unchanged over time.

section_title: Letter
paragraphs: I am pleased to be here today to discuss the results of our June 2006 study  on diversity in the management level in the financial services industry, as  well as more recent information that we have gathered on this important  topic. As you know, the U.S. workforce has become increasingly diverse  over the last several decades. As the composition of the workforce has  changed, many private and public sector organizations have recognized  the importance of recruiting and retaining minority and women candidates  for key positions. In a 2005 report on diversity management, we stated that  workforce diversity can benefit organizations in a variety of ways, such as  by allowing them to better meet the needs of a diverse customer base,  reducing the costs associated with employee turnover, and increasing staff  morale. However, this subcommittee and others have raised concerns  about workforce diversity in the financial services industry, which  provides key services necessary to help ensure the continued growth and  economic prosperity of the country. In hearings held by this subcommittee  in 2004 and 2006, some witnesses stated that financial services firms— banks and securities firms, for example—have not made sufficient  progress in recruiting and retaining minorities and women at the  management level.
In my testimony, I will summarize the key findings from our work, which  has sought to collect, analyze, and report data and information that  provide insights into diversity in the financial services industry.  Specifically, I will discuss (1) what the available data show about diversity  at the management level in the financial services industry from 1993  through 2006 and (2) the types of initiatives that the financial services  industry and related organizations have taken to promote workforce  diversity and the challenges involved.
To prepare our June 2006 report, we used the Equal Employment  Opportunity Commission’s (EEOC) Employer Information Report (EEO-1)  data on financial services firms with 100 or more employees for the period  from 1993 through 2004. The EEO-1 data provide information on  racial/gender representation for various occupations, including “officials  and managers,” for a broad range of industries, including financial  services. In updating our work in preparation for this testimony, we  collected and analyzed EEO-1 data for financial services firms with 100 or  more employees for 2006. We cannot conduct a direct and continuous  trend analysis of changes in the representation of minorities and women at  the management level in the financial services industry between 2004 and  2006 because the 2006 data is based on an updated system for classifying  industries. However, the 2006 EEO-1 representation data for the financial  services industry can generally be compared with the EEO-1 data for 2004  and prior years. Our work has also involved reviewing reports on the state  of workforce diversity and initiatives to increase the representation of  minority and women in financial services firms. We have also interviewed  academics and officials from a variety of financial services firms and trade  and professional groups.
We performed this performance audit in Washington, D.C., in January  2008, in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
From 1993 through 2006, overall workforce diversity at the management  level in the financial services industry did not change substantially, but  some racial/ethnic minority groups experienced more change in  representation than others. As described in our June 2006 report, EEO-1  data show that overall management-level representation by minority  women and men increased from 11.1 percent to 15.5 percent from 1993  through 2004. Specifically, African-Americans increased their  representation from 5.6 percent to 6.6 percent, Asians from 2.5 percent to  4.5 percent, Hispanics from 2.8 percent to 4.0 percent, and American  Indians from 0.2 percent to 0.3 percent. Representation by white women  remained constant at slightly more than one-third during this period, while  representation by white men declined from 52.2 percent to 47.2 percent.  EEO-1 data also show that representation by minorities and women at the  management level was about the same in 2006 as it had been in previous  years. For example, African-Americans and Asians represented about 6.4  percent and 5.0 percent, respectively, of all financial services managers in  2006. Moreover, the EEO-1 data show that depository institutions, such as  commercial banks and insurance companies, have generally been more  diverse at the management level over the years than securities firms.
Although financial services firms and trade groups have initiated programs  to increase workforce diversity, these initiatives face challenges that may  help explain why overall diversity at the management level has not  changed substantially. Officials at financial services firms said that  diversity was an important goal and that top leadership was committed to  recruiting and retaining minority and women candidates. Some financial  services firms have established scholarship and internship programs or  partnered with groups that represent minority professionals. Officials from  a few firms told us that they had begun linking managers’ compensation  and performance in promoting workforce diversity, and some firms had  developed indicators (e.g., representation by minorities and women in key  positions) to measure progress in achieving workforce diversity. Industry  officials said that, among the challenges these initiatives faced were  recruiting and retaining minority candidates, as well as gaining the “buy- in” of key employees, such as the middle managers who were often  responsible for implementing such programs. Without a sustained  commitment to overcoming these challenges, diversity at the management  level in the financial services industry may continue to remain generally  unchanged over time.
subsections: section_title: Background
paragraphs: We defined the financial services industry to include the following sectors:    depository credit institutions, which include commercial banks, thrifts  (savings and loan associations and savings banks), and credit unions;   holdings and trusts, which include investment trusts, investment  companies, and holding companies;   nondepository credit institutions, which extend credit in the form of loans,  and which include federally sponsored credit agencies, personal credit  institutions, and mortgage bankers and brokers; the securities sector, which is made up of a variety of firms and  organizations (e.g., broker-dealers) that bring together buyers and sellers  of securities and commodities, manage investments, and offer financial  advice; and the insurance sector, including carriers and insurance agents that provide  protection against financial risks to policyholders in exchange for the  payment of premiums.
The financial services industry is a major source of employment in the  United States. EEO-1 data showed that the financial services firms we  reviewed for this work, which have 100 or more staff, employed nearly 3  million people in 2004. Moreover, according to the U.S. Bureau of Labor  Statistics, employment in the financial services industry was expected to  grow at a rate of 1.4 percent annually from 2006 through 2016.
section_title: Diversity in the Financial Services Industry at the Management Level Did Not Change Substantially
paragraphs: EEO-1 data for 1993 through 2006 generally do not show substantial  changes in representation by minorities and women at the management  level in the financial services industry, but some racial/ethnic minority  groups experienced more change in representation than others. Figure 1,  which is based on information that we obtained in preparation for our  June 2006 report, shows that overall management-level representation by  minorities increased from 11.1 percent to 15.5 percent from 1993 through  2004. Specifically, African-Americans increased their representation from  5.6 percent to 6.6 percent, Asians from 2.5 percent to 4.5 percent,  Hispanics from 2.8 percent to 4.0 percent, and American Indians from 0.2  to 0.3 percent. Management-level representation by white women was  largely unchanged at slightly more than one-third during the period, while  representation by white men declined from 52.2 percent to 47.2 percent.
As shown in figure 2, EEO-1 data also show that the depository and  nondepository credit sectors, as well as the insurance sector, were  somewhat more diverse at the management level than the securities and  holdings and trust sectors. In 2004, minorities held 19.9 percent of  management-level positions in nondepository credit institutions, such as  mortgage banks and brokerages, but 12.4 percent in holdings and trusts,  such as investment companies.
In preparation for this testimony, we contacted EEOC to obtain and  analyze EEO-1 for 2006 and found that diversity remained about the same  at the management level in the financial services industry (see fig. 3) as it  had in previous years. For example, the 2006 EEO-1 data show that  African-Americans and Asians represented about 6.4 percent and 5.0  percent, respectively, of all financial services managers in 2006. In  addition, the 2006 EEO-1 data show that commercial banks and insurance  companies continued to have higher representation by minorities and  women at the management level than securities firms.
However, it is important to keep in mind that EEO-1 data may actually  overstate representation levels for minorities and white women in the  most senior-level positions, such as Chief Executive Officers of large  investment firms or commercial banks, because the category that captures  these positions—“officials and managers”—covers all management  positions. Thus, this category includes lower-level positions (e.g., Assistant  Manager of a small bank branch) that may have a higher representation of  minorities and women. Recognizing this limitation, starting in 2007, EEOC  revised its data collection form for employers to divide the “officials and  managers” category into two subcategories: “executive/senior-level  officers and managers” and “first/midlevel officials.” We hope that the  increased level of detail will provide a more accurate picture of diversity  among senior managers in the financial services industry over time.
However, it is too soon to assess the impact of this change on diversity  measures at the senior management level.
section_title: Initiatives to Promote Workforce Diversity in the Financial Services Industry Face Challenges
paragraphs: Officials from the firms that we contacted said that their top leadership  was committed to implementing workforce diversity initiatives, but they  noted that making such initiatives work was challenging. In particular, the  officials cited ongoing difficulties in recruiting and retaining minority  candidates and in gaining employees’ “buy-in” for diversity initiatives,  especially at the middle management level.
subsections: section_title: Financial Services Firms Have Implemented a Variety of Diversity Initiatives
paragraphs: Minorities’ rapid growth as a percentage of the overall U.S. population, as  well as increased global competition, have convinced some financial  services firms that workforce diversity is a critical business strategy.   Since the mid-1990s, some financial services firms have implemented a  variety of initiatives designed to recruit and retain minority and women  candidates to fill key positions. Officials from several banks said that they  had developed scholarship and internship programs to encourage minority  students to consider careers in banking. Some firms and trade  organizations have also developed partnerships with groups that represent  minority professionals and with local communities to recruit candidates  through events such as conferences and career fairs. To help retain  minorities and women, firms have established employee networks,  mentoring programs, diversity training, and leadership and career  development programs.
Industry studies have noted, and officials from some financial services  firms we contacted confirmed, that senior managers were involved in  diversity initiatives.  Some of these officials also said that this level of  involvement was critical to success of a program. For example, according  to an official from an investment bank, the head of the firm meets with all  minority and female senior executives to discuss their career  development. Officials from a few commercial banks said that the banks  had established diversity “councils” of senior leaders to set the vision,  strategy, and direction of diversity initiatives. A 2005 industry trade group  study and some officials also noted that some companies were linking  managers’ compensation with their progress in hiring, promoting, and  retaining minority and women employees.
A few firms have also developed performance indicators to measure  progress in achieving diversity goals. These indicators include workforce  representation, turnover, promotion of minority and women employees,  and employee satisfaction survey responses. Officials from several  financial services firms stated that measuring the results of diversity  efforts over time was critical to the credibility of the initiatives and to  justifying the investment in the resources such initiatives demanded.
section_title: Several Challenges May Have Affected the Success of Workforce Diversity Initiatives in the Financial Services Industry
paragraphs: While financial services firms and trade groups we contacted had  launched diversity initiatives, officials from these organizations, as well as  other information, suggest that several challenges may have limited the  success of their efforts. These challenges include the following:    Recruiting minority and women candidates for management  development programs. Available data on minority students enrolled in  Master of Business Administration (MBA) programs suggest that the pool  of minorities, a source that may feed the “pipeline” for management-level  positions within the financial services industry and other industries, is  relatively small. In 2000, minorities accounted for 19 percent of all  students enrolled in MBA programs in accredited U.S. schools; in 2006,  that student population had risen to 25 percent. Financial services firms  compete for this relatively small pool not only with one another but also  with firms from other industries.
Fully leveraging the “internal” pipeline of minority and women  employees for management-level positions. As shown in figure 4, there  are job categories within the financial services industry that generally have  more overall workforce diversity than the “official and managers”  category, particularly among minorities. For example, minorities held 22  percent of “professional” positions in the industry in 2004 as compared  with 15 percent of “officials and managers” positions. According to a 2006  EEOC report, the professional category represented a possible pipeline of  available management-level candidates. The EEOC report states that the  chances of minorities and women (white and minority combined)  advancing from the professional category into management-level positions  is lower when compared with white males.
Retaining minority and women candidates that are hired for key  management positions. Many industry officials said that financial services  firms lack a critical mass of minority men and women, particularly in  senior-level positions, to serve as role models. Without a critical mass, the  officials said that minority or women employees may lack the personal  connections and access to informal networks that are often necessary to  navigate an organization’s culture and advance their careers. For example,  an official from a commercial bank we contacted said he learned from  staff interviews that African-Americans believed that they were not  considered for promotion as often as others partly because they were  excluded from informal employee networks needed for promotion or to  promote advancement.
Achieving the “buy-in” of key employees, such as middle managers.
Middle managers are particularly important to the success of diversity  initiatives because they are often responsible for implementing key  aspects of such initiatives and for explaining them to other employees.  However, some financial services industry officials said that middle  managers may be focused on other aspects of their responsibilities, such  as meeting financial performance targets, rather than the importance of  implementing the organization’s diversity initiatives. Additionally, the  officials said that implementing diversity initiatives represents a  considerable cultural and organizational change for many middle  managers and employees at all levels. An official from an investment bank  told us that the bank has been reaching out to middle managers who  oversaw minority and women employees by, for example, instituting an  “inclusive manager program.”
In closing, despite the implementation of a variety of diversity initiatives  over the past 15 years, diversity at the management level in the financial  services industry has not changed substantially. Further, diversity at the  most senior management positions within the financial services industry  may be lower than the overall industry management diversity statistics I  have discussed today. While EEOC has taken steps to revise the EEO-1  data to better assess diversity within senior positions, this data may not be  available for some period of time. Initiatives to promote management  diversity at all levels within financial services firms appear to face several  key challenges, such as recruiting and retaining candidates and achieving  the “buy-in” of middle managers. Without a sustained commitment to  overcome these challenges, management diversity in the financial services  industry may continue to remain generally unchanged over time.
Mr. Chairman, this concludes my prepared statement. I would be pleased  to respond to any questions you or other Members of the Subcommittee  may have.
section_title: GAO Contact and Staff Acknowledgments
paragraphs: For further information about this testimony, please contact Orice M.  Williams on (202) 512-8678 or at williamso@gao.gov. Contact points for  our Offices of Congressional Relations and Public Affairs may be found on  the last page of this statement. Individuals making key contributions to  this testimony include Wesley M. Phillips, Assistant Director; Emily  Chalmers; William Chatlos; Kimberly Cutright; Simin Ho; Marc Molino; and  Robert Pollard.
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