Enhancing Diversity & Inclusion in the Financial Sector: Practical Strategies for Recruiting and Retaining Diverse Talent

Recruiting and retaining talent is difficult. Recruiting and retaining diverse talent is even harder. Like many industries, the banking sector has placed renewed focus in recent months on improving diversity, equity and inclusion within its ranks. Many executives recognize that having a workforce that reflects the diverse composition of the local community can help their banks be more effective, better serve their customers and be more profitable. But financial institutions, like many organizations, struggle with how to best devise a diversity, equity and inclusion (DE&I) program that is effective without creating unnecessary legal risk.

Whether your bank is just starting out on its diversity and inclusion journey or is already well down that path, this article will provide an overview of the legal guideposts to consider and practical suggestions for implementing effective DE&I programs.

An Overview Of The Legal Framework For Diversity, Equity and Inclusion Programs

When structuring any corporate DE&I program, it is important to understand the guideposts set out in applicable employment laws. The legal issues associated with diversity initiatives are deceptively complex and, if not properly considered, may bring about the very problems they are designed, in part, to avoid.

At a high level, federal law prohibits employers from taking employment actions “because of” a person’s gender, race or other protected characteristic. This means that employers may not consider protected characteristics, like race or gender, in making employment decisions, such as deciding who to hire or who to promote. Most people think of these civil rights laws as prohibiting discrimination against minority groups, which they do, but it is important to note that these laws also prohibit “reverse discrimination” against majority groups.

In 1979, the U.S. Supreme Court took up a case to decide whether these laws prohibit an employer from implementing a voluntary affirmative action program that favors a protected group. In that case, the number of Black employees in the company’s skilled workforce was significantly less than the number represented in the surrounding community. To remedy this disparity, the company set aside 50% of its trainee positions for Black workers until the number of Black skilled workers matched the percentage of representation in the surrounding community.

The employer’s program was challenged by employees who claimed that the program discriminated against them by favoring Black employees in the selection criteria for the training program. Ultimately, the case reached the Supreme Court, which held that a voluntary affirmative action program is lawful if it is (i) justified by “manifest racial imbalances” in traditionally segregated job categories, (ii) narrowly tailored to achieve the goal of remedying past underrepresentation, and (iii) temporary in nature. The Court stressed that affirmative action programs implemented to maintain racial balance in the workforce or to support diversity because a diverse workforce is beneficial are not permissible under the law.

Strategies For Developing And Implementing Effective Diversity Programs

The law in this area is continually evolving and much has changed since the Supreme Court’s decision in 1979. For companies looking to implement effective DE&I programs, these dynamics create a number of challenges. Most companies do not want to create evidence of historic underrepresentation within their workforce to legally justify a voluntary affirmative action program, yet those same companies want to take meaningful steps to improve the representation of historically disadvantaged groups in their workforce. The good news is that these competing interests are not mutually exclusive. With careful planning and help from experienced employment counsel, there are countless ways that financial institutions can design and implement effective diversity programs that are also legally compliant.

Commit From The Top. Make DE&I initiatives a company strategic initiative. Report progress on DE&I initiatives to the CEO and the Board and ensure your executive leadership team models behaviors that demonstrate the importance of diversity and inclusion to the organization.

Keep Diversity and Inclusion Front and Center. Include diversity and inclusion as topics in orientation and periodic training and educate managers on unconscious bias. Form employee resource and affinity groups. Celebrate holidays that are important to individuals with diverse backgrounds. Make DE&I part of everyday life at your bank.

Create a truly diverse diversity committee. Often corporate diversity committees are comprised only of diverse individuals, which can put a disproportionate burden on underrepresented groups to push DE&I initiatives within an organization. Instead, form a committee made up of individuals from a variety of backgrounds and levels within the organization.

Invest in sponsorship programs. Leadership programs that foster mentorship and sponsorship opportunities can positively impact diversity efforts. Employees who have sponsors often feel more connected to the organization and advance more successfully through the ranks.

Diversify your pipeline. Banks that are interested in a more diverse workforce should consider directing their attention toward building educational links with schools that have large diverse populations. Getting more diverse students interested in finance and giving them exposure to financial careers early is critical to infusing the pipeline with qualified diverse applicants.

Broaden your recruiting pool. Often financial companies recruit and hire from a small pool of top schools. However, Black students, in particular, are underrepresented in top MBA programs. Partnering with colleges and universities that have more diverse student bodies is one way to increase the diversity within the talent pool.

Rethink your job postings. If your job posting has too many “must have” criteria, you may find diverse candidates are less likely to apply. Studies show that women and many minority groups self-select out of applying for a position if they view themselves as not meeting all of the criteria in a job posting, whereas non-diverse applicants often are more comfortable applying even if they don’t check all of the required boxes.

Broaden your hiring criteria. Consider hiring for attributes rather than prior banking experience to broaden your candidate pool. Demonstrated skills in project management, teamwork, problem solving and communication are transferable to a number of different jobs. Often, diverse candidates won’t have prior financial experience, but with a small investment you can teach that knowledge to someone with other valuable skills.

Use diverse interview panels. It is human nature to gravitate toward those that are most like us. Having diversity in those who interview candidates will help promote diversity in candidate selection.

Consider paid internships. Often it is not economically feasible for diverse candidates to take on unpaid internships, causing them to miss out on these valuable experiences. Paid internships can help attract diverse candidates when they are young and can help influence their career direction.

Analyze your promotion process. Often there is a double-glass ceiling in financial institutions. The first ceiling emerges at middle management, and the second shows up at the executive level. Evaluating your promotion process for this phenomenon and taking steps to overcome it, if it exists, are critical to retaining diverse talent.

Monitor workforce demographics and progress. It is important to understand where your organization stands in terms of workforce demographics and to track any changes in those demographics. It is best to do this under the direction of an attorney to protect these self-studies from disclosure.

Tie compensation to diversity efforts (not results). Financial incentives and financial penalties have long been used by companies as the carrot and stick for accomplishing a host of strategic goals. Extra caution must be taken when tying financial incentives to DE&I initiatives, however, because incentivizing racial or gender preferences in employment decisions can run afoul of the anti-discrimination laws.

Close the pay gap for women and minorities. Conducting a pay gap analysis under the direction of an attorney can be eye-opening for many companies. Ensuring fair pay for all employees is key to retaining your diverse talent.

When it comes to diversity, equity and inclusion programs, there is no one-size-fits-all solution that will work for every financial institution. But by setting goals and embracing programs that advance these goals, banks can succeed in attracting and retaining diverse talent to better reflect the customers and communities that they serve.

Emily Burkhardt Vicente is co-chair of the Labor & Employment Practice and the Diversity & Inclusion Committee with Hunton Andrews Kurth LLP. In her practice, she advises companies on the design and implementation of legally compliant diversity, equity and inclusion programs.