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. 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. 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. 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. 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. 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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Summary:
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. 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.