Most private employers subject to Title VII of the Civil Rights Act of 1964 with 100 or more employees, and all federal contractors who have 50 or more employees and meet certain other requirements, must submit data to the EEOC on the racial/ethnic and gender characteristics of employees by occupations for a range of industries, including financial services. Employers are required to submit these data to EEOC every year using the EEO-1 report. EEOC requires employers to use the North American Industry Classification System to classify their industry. Under this system, the financial services industry includes the following five sectors: Credit intermediation and related activities (banks and other credit institutions), which include commercial banks, thrifts, and credit unions; Securities and other activities, which includes firms that bring together buyers and sellers of securities and commodities and offer financial advice; Insurance firms and agents that provide protection against financial risks to policyholders; Funds and trusts, which include investment trusts and holding Monetary authorities, including central banks. Beginning in 2007, EEOC changed its requirements for reporting data on managers. Specifically, employers were required to report separately on senior-level management positions rather than combining data on senior- level managers with data for first- and mid-level managers, as had been the practice until 2007. Employers are required to review EEOC guidance describing the two management positions and determine how their firm’s job positions fit into these classifications. In a January 2005 report, we identified a set of nine leading practices that should be considered when an organization is developing and implementing diversity management. They are (1) commitment to diversity as demonstrated and communicated by an organization’s top leadership; (2) the inclusion of diversity management in an organization’s strategic plan; (3) diversity linked to performance, making the case that a more diverse and inclusive work environment could help improve productivity and individual and organizational performance; (4) measurement of the impact of various aspects of a diversity program; (5) management accountability for the progress of diversity initiatives; (6) succession planning; (7) recruitment; (8) employee involvement in an organization’s diversity management; and (9) training for management and staff about diversity management. In 2017, we reported that industry representatives confirmed that these nine practices are still relevant. As we reported in November 2017, at the overall management level, representation of minorities in the financial services industry increased from 2007 through 2015, though representation varied by individual minority groups (see fig. 1). Specifically, minorities’ representation in overall management positions increased by 3.7 percentage points. Asians had the largest gains since 2007, increasing their representation among managers from 5.4 percent to 7.7 percent. Hispanics made smaller gains; their representation among managers increased from 4.8 percent to 5.5 percent. In contrast, the proportion of African-Americans in management positions decreased from 6.5 percent to 6.3 percent. Representation of minorities also increased between different levels of management from 2007 through 2015 (see fig. 2). Minority representation among first-and mid-level managers increased by 3.7 percentage points. In contrast, representation of minorities among senior- level management increased at a slower pace during this period (1.7 percentage points). Minority representation among senior-level managers remained considerably lower than among first- and mid-level managers. Among first- and mid-level managers, representation of Asians experienced the largest increase from 2007 through 2015 (2.6 percentage points). Hispanic representation increased by less than 1 percentage point, while African-American representation slightly decreased by 0.3 percentage point. In addition, among senior-level managers, representation of each racial and ethnic group changed by less than 1 percentage point. We also reported in November 2017 that representation of women at the overall management level had generally remained unchanged. From 2007 through 2015, women represented about 45 percent of overall management. Representation of each racial and ethnic group varied by gender during this time period. For example, among minority women, African-American women consistently had the highest representation in overall management (about 4 percent of managers per year). Among minority men, Asian men consistently had highest representation in overall management (3.1 percent to 4.6 percent of all managers). The proportion of men and women within various levels of management remained unchanged from 2007 through 2015, though there were some increases in the representation of both minority women and minority men. During this timeframe, women represented around 48 percent of first-and mid-level managers and about 29 percent of senior-level managers. Among first- and mid-level management positions, the representation of minority women increased by 1.6 percentage points and the representation of minority men increased by 2.2 percentage points (see fig. 3). Among senior-level management positions, representation of minority women and minority men increased by smaller amounts (0.3 percentage points and 1.5 percentage points, respectively). In November 2017, we reported that management-level diversity varied across sectors within the financial services industry. Minorities’ representation in overall management increased in all four sectors of the financial services industry (see fig. 4). For example, representation of minorities in the banks and other credit institutions sector increased by 3.1 percentage points and 4.3 percentage points in the funds and trusts sector. Also, the representation of minorities in overall management was consistently the greatest in the banks and other credit institutions and lowest in the insurance sector. The representation of women in overall management also varied by financial services sector (see fig. 5). The insurance sector consistently had the highest proportion of women in management positions, followed by banks and other credit institutions. The proportion of women in management decreased in each sector except for the insurance sector where it increased by 1.9 percentage points from 47.7 percent to 49.6 percent. Our November 2017 report found that the representation of minorities in overall management positions increased as firm size (number of employees) increased, whereas the representation of women in management generally remained the same across firm size. More specifically, in 2007, the representation of minorities in overall management was nearly 5 percentage points greater in firms with 5,000 or more employees compared to firms with 100–249 employees. By comparison, in 2015, the representation of minorities in overall management was about 6 percentage points greater in firms with 5,000 or more employees compared to firms with 100–249 employees. Across firms of different sizes, the representation of women in management positions in 2015 was generally the same as it was in 2007. Our November 2017 report found that from 2007 through 2015, representation of minorities in all levels of management increased in the financial services sector, the professional services sector, and the overall private sector. However, among first- and mid-level managers, representation of minorities increased at a lower rate in the financial services sector during this time period (3.7 percentage points) than in the professional services sector (7.5 percentage points) and slightly lower than the overall private sector (3.8 percentage points) . In addition, the financial services sector generally had a greater proportion of women in management compared to the overall private sector and professional services sector. For example, women represented 36.7 percent and 38.2 percent of first- and mid-level managers in the professional services sector and overall private sector, respectively, in 2015. As previously mentioned, women represented about 48 percent of first- and mid- level managers in the financial services sector from 2007 through 2015. Potential employees for the financial services industry can come from a range of academic and professional backgrounds. Financial firm representatives we spoke to for our November 2017 report told us that undergraduate or graduate degrees are an important consideration for employment. Some firm representatives also told us that while graduates with Master of Business Administration (MBA) degrees are an important pool of talent, firms seek students with a variety of degrees. We also found that from 2011 through 2015, about one-third of the external pool of potential talent for the financial services industry—that is, those obtaining undergraduate or graduate degrees—were racial/ethnic minorities (see fig. 6). Additionally, rates of attainment of bachelor’s, master’s, and MBA degrees by racial/ethnic minorities all increased during this time period. For example, minorities’ representation among those who attained an MBA increased from 35.6 to 39.2 percent. Furthermore, from 2011 through 2015, minority women consistently earned a greater proportion of master’s and MBA degrees compared to minority men. Additionally, we found that from 2011 through 2015, a majority of those obtaining undergraduate or graduate degrees have been women (see fig. 7). For example, women consistently earned about 58 percent of bachelor’s degrees, just over 60 percent of master’s degrees, and about 45 percent of MBA degrees during this time period. As we reported in November 2017, the internal pool of potential talent for the financial services industry is known as the “internal pipeline” of staff that could potentially move into management positions. There are two nonmanagement job categories in the financial services sector that are considered to be part of the internal pipeline: professional and sales positions. From 2007 through 2015, EEOC data show that minorities’ representation in professional and sales positions had changed over time, but had generally been greater than minorities’ representation in overall management positions. Similarly, EEOC data over the same timeframe show that representation of women in professional positions in the financial services industry had generally been greater than women’s representation in overall management. For example, from 2007 through 2015, women consistently represented about 50 percent of all employees in professional positions and about 45 percent of overall management. The percentage of women in sales positions in the financial industry had generally been lower, at about 40 percent. Representatives from financial services firms and organizations that advocate for women or racial/ethnic minorities who we spoke to for our November 2017 report described a variety of challenges to recruiting a diverse workforce for the financial services sector. These challenges included negative perceptions of the financial services industry that might discourage potential candidates and a lack of awareness of career paths in the industry. Research we reviewed and representatives we spoke with identified several practices believed or found to be effective for recruiting women and racial/ethnic minorities, which included: Recruiting students from a broad group of schools and academic disciplines. Representatives from three firms stated that they were increasingly hiring and interested in recruiting students from a variety of academic disciplines, such as liberal arts or science and technology. For example, representatives from one firm said that they were interested in candidates with critical thinking skills, and that technical skills could be taught to new employees. Additionally, representatives from several firms noted the importance of recruiting at a broad group of schools, not just a small number of elite universities. Offering programs to increase awareness of careers in financial services. Several representatives of financial firms told us that they had established relationships with high school students to expose diverse students to the financial services field. For example, representatives from one firm described a program that pairs high school students with a mentor from the firm. Additionally, a 2016 consulting firm report on women in financial services organizations in 32 countries found that a majority of asset managers who were interviewed thought it was important for financial services firms to educate students about careers in financial services. Financial services firms and other sources also noted challenges to retaining women and racial/ethnic minorities. For example, some representatives of financial firms noted that employee resistance, particularly from middle-managers, poses a challenge to diversity efforts. In addition, officials from some organizations we interviewed noted that unconscious bias can negatively affect women and minorities. As we noted in our November 2017 report, according to reports on diversity, representatives from financial services firms and other stakeholders, certain practices that may help improve the retention of women and racial/ethnic minorities, included: Establishing management-level accountability. Representatives from three financial services firms told us that management should be held accountable for workforce diversity goals. For example, two representatives discussed the use of a “diversity scorecard,” which is a set of objectives and measures derived from a firm’s overall business strategy and linked to its diversity strategy. Additionally, one firm representative noted that tying senior managers’ compensation to diversity goals had been an effective practice for retaining women and minorities. Researchers have noted that efforts to establish organizational responsibility for diversity have led to the broadest increases in managerial diversity. Assessing Data on Workforce Diversity. Financial services firms and organizations we talked to generally agreed that assessing demographic data to understand a firm’s diversity is a useful practice. All of the financial services firms we interviewed agreed on the importance of analyzing employee data. Several firms stated that it is important for organizations to understand their progress on workforce diversity–and, if data trends indicate problems, such as retention issues, they then can take steps to address them. Representatives of firms and organizations that advocate for diversity differed on the benefits of making demographic data public. Representatives of one organization said requiring businesses to be transparent about their workforce data creates incentives to improve the diversity of their workforce. However, representatives of two financial firms expressed concerns that publicly disclosing firm-level employee characteristics would not be beneficial to businesses. For example, one representative noted that publicly disclosing that firms are not diverse could damage their reputation and make improvement of workforce diversity more difficult. In closing, I would like to thank you for the opportunity to discuss trends in management-level diversity in the financial services industry. I look forward to working with this subcommittee on these important issues. Chairwoman Beatty, Ranking Member Wagner, and Members of the Subcommittee, this concludes my prepared statement. I would be pleased to respond to any questions that you may have at this time. For further information on this testimony, please contact Daniel Garcia- Diaz at (202) 512-8678 or GarciaDiazD@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. GAO staff who made key contributions to this testimony are Lisa Moore (Assistant Director), Christine Ramos (Analyst in Charge), Kay Kuhlman, Jill Lacey, Tovah Rom, Jena Sinkfield, and Tyler Spunaugle. Financial Services Industry: Trends in Management Representation of Minorities and Women and Diversity Practices, 2007—2015. GAO-18-64. Washington, D.C.: November 8, 2017. Investment Management: Key Practices Could Provide More Options for Federal Entities and Opportunities for Minority- and Women-Owned Asset Managers. GAO-17-726. Washington, D.C.: September 13, 2017. Corporate Boards: Strategies to Address Representation of Women Include Federal Disclosure Requirements. GAO-16-30. Washington, D.C.: December 3, 2015. Federal Home Loan Banks: Information on Governance Changes, Board Diversity, and Community Lending. GAO-15-435. Washington, D.C.: May 12, 2015. Diversity Management: Trends and Practices in the Financial Services Industry and Agencies after the Recent Financial Crisis. GAO-13-238. Washington, D.C.: April 16, 2013. Federal Reserve Bank Governance: Opportunities Exist to Broaden Director Recruitment Efforts and Increase Transparency. GAO-12-18. Washington, D.C.: October 19, 2011. Financial Services Industry: Overall Trends in Management-Level Diversity and Diversity Initiatives, 1994—2008. GAO-10-736T. Washington, D.C.: May 12, 2010. Financial Services Industry: Overall Trends in Management-Level Diversity and Diversity Initiatives, 1993—2004. GAO-06-617. Washington, D.C.: June 1, 2006. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

Summary: The financial services industry is a major source of employment that affects the economic well-being of its customers and the country as a whole. As the makeup of the U.S. workforce continues to diversify, many private sector organizations, including those in the financial services industry, have recognized the importance of recruiting and retaining minorities and women in key positions to improve business or organizational performance and better meet the needs of a diverse customer base. However, questions remain about the diversity of the workforce in the financial services industry. This statement is based on GAO's November 2017 report on changes in management-level diversity and diversity practices in the financial services industry. This statement summarizes (1) trends in management-level diversity in the financial services industry, (2) trends in diversity among potential talent pools, and (3) challenges financial services firms identified in trying to increase workforce diversity and practices they have used to address those challenges. In November 2017, GAO reported that overall management representation in the financial services industry increased marginally for minorities and remained unchanged for women from 2007 to 2015. Similar trends also occurred at the senior-level management of these firms. For example, women represented about 29 percent of senior-level managers throughout this time period. As shown below, representation of minorities in senior management increased slightly, but each racial/ethnic group changed by less than 1 percentage point. The diversity of overall management also varied across the different sectors of the financial services industry. For example, the banking sector consistently had the greatest representation of minorities in overall management, whereas the insurance sector consistently had the highest proportion of women in overall management. As GAO reported in November 2017, potential employees for the financial services industry, including those that could become managers, come from external and internal pools that are diverse. For example, the external pool included those with undergraduate or graduate degrees, such as a Master of Business Administration. In 2015, one-third of the external pool were minorities and around 60 percent were women. The internal talent pool for potential managers included those already in professional positions. In 2015, about 28 percent of professional positions in financial services were held by minorities and just over half were held by women. Representatives of financial services firms and other stakeholders GAO spoke to for its November 2017 report described challenges to recruiting and retaining members of racial/ethnic minority groups and women. They also identified practices that could help address those challenges. For example, representatives from several firms noted that an effective practice is to recruit and hire students from a broad group of schools and academic disciplines. Some firms also described establishing management-level accountability to achieve workforce diversity goals. Firm representatives and other stakeholders agreed that it is important for firms to assess data on the diversity of their employees but varied in their views on whether such information should be shared publicly.