By Amanda Maine, J.D.
The House Subcommittee on Diversity and Inclusion held a hearing to examine the economic benefits that result from the implementation of robust implementation of diversity and inclusion (D&I) strategies at corporations and firms. The hearing was bipartisan in nature, with both Democrats and Republicans praising efforts to improve diversity in the corporate landscape and in the financial services industry in particular.
Why diversity matters. Several of the witnesses and committee members drew attention to a study from McKinsey & Company entitled "Why Diversity Matters." According to the study, companies in the top quartile for gender or racial and ethnic diversity are more likely to have financial returns above their national industry medians, with the opposite being true for those in the bottom quartile for diversity.
Victoria Budson, co-founder and Executive Director of the Women and Public Policy Program of Harvard Kennedy School, testified that while women are more highly educated than men across many levels of the education spectrum, the financial services industry has not made full use of this talent. Women may be more equally represented in entry-level roles, but as one looks up the organization, far fewer are in senior leadership positions, and hardly any women of color are found in the c-suite in the financial services industry, despite numerous studies showing that diversity in teams leads to better performance, she said. Gender and racial diversity are correlated to novel solutions, greater innovation, and higher collective intelligence, Budson explained.
Adrienne Trimble, president of the National Minority Supplier Development Council (NMSDC), emphasized that a commitment to diversity is not a social program or a handout. D&I strategies have clear, measurable impact to a corporation’s bottom line. It is especially important to consider diversity due to the country’s changing ethnic demographics, noting that by 2045, it is expected that the U.S. will be majority-minority and all Americans should have a stake in the economy, she said, adding that D&I strategies can help develop products to meet market demand.
William Von Hoene, Jr., Chief Strategy Officer at energy giant Exelon Corporation, touted his company’s D&I program, stating, "our success would be impossible without our commitment to diversity" driven by a wide range of backgrounds, ideas, and perspectives. Exelon’s diversity strategy includes tracking its progress as it does with other key metrics such as safety and financial performance, he said. He also noted that Exelon has seen an improvement in diversity of its senior leadership since it launched efforts to improve diversity six years ago. Five of its six utility businesses have CEOs that are either Hispanic or African-American, and the CEO of Exelon Utilities is a woman. In addition, Exelon also pursues a D&I strategy when it comes to contracting with suppliers, banks, and money managers. The result, according to Hoene: "our supply chain had never operated more efficiently than it does today, nor have our banks, outside law firms, money managers or other professional service providers."
Rory Verrett, founder and managing partner of recruiting firm Protege Search, said that there are five core guiding principles for implementing a D&I strategy. First, it must have the support of the CEO and the board of directors. Second, it must be linked to performance standards and tied to executive compensation. Third, there must be diversity on interview teams, and not just on candidate slates. Fourth, companies must be transparent about issues such as hiring and promotion rates of minorities and women as well as compensation. Finally, companies should be able to unleash the entrepreneurial potential of their diverse employees, he said.
Rick Guzzo, senior leader of Workforce Strategy at Mercer, said that his company has worked with hundreds of companies on their diversity strategies. Diversity is important in driving business value for many reasons, including reputation, investors, and results. Reputation matters because companies that have reputations for inclusion will be favored when competing for top talent and for consumers. It matters to investors who are increasingly interested in ESG (environmental, social, and governance) investing, he said. As for business results, there is plenty of evidence that a well-managed diversity strategy contributes to business success, Guzzo added.
Members’ questions. Subcommittee Chairwoman Joyce Beatty (D-Ohio) inquired how minorities can get fair access to federal contracting opportunities. Trimble observed that her organization, NMSDC, is in a good position to help the federal government reach out to capable minority suppliers. She asked Verrett what the best way would be to help the retention of minorities in firms. Verrett explained that women and minorities are the least likely to be mentored, sponsored, and promoted, so having reliable data on these metrics is important. It is also important to have brand recognition in the market by encouraging clients to engage in a narrative that is specific to candidates of color.
Replying to subcommittee Ranking Member Ann Wagner (R-Mo) on how to improve recruiting minorities and women, Verrett advocated extensive mentorship and sponsorship opportunities, programs for lifestyle challenges (such as paid family leave), training to rotate through all areas of the company, and holding leaders accountable.
Representative Maxine Waters (D-Calif), chairwoman of the full Committee on Financial Services, said a common complaint is from African-Americans, and African-American women in particular, who have worked at a company for years only to get passed up by newer hires for promotions, and asked what can be done to help companies to stop this from happening. Budson said that rather than have an evidence-based framework for promotion, the conversation is about "who’s ready?" Companies should define characteristics for upward mobility and be transparent and specific about these characteristics, she advised.
In response to Rep. Trey Hollingsworth’s (R-Ind) question on how Exelon started its diversity initiative, Von Hoene noted that his industry touches on large urban populations, so the company was mindful that its customers are a very diverse group. He added that the realization that it is not simply the right thing to do, it is the right business thing to do creates momentum to embrace diversity strategies. Hollingsworth asked Budson what is happening that holds women back, to which Budson replied that it is sometimes characterized that women opt-out, when it is more accurate to say that they get fed up and want to go to environments where they feel valued with respect to pay, status, flexibility, and what work is assigned.
Representative Anthony Gonzalez (R-Ohio) said that there is a strong interest in diversity from business leaders in his district and asked Von Hoene how to tailor what Exelon has done for small businesses. Von Hoene acknowledged that one size does not fit all, but the same general principles apply. He noted that a smaller company devoted to diversity could actually have some advantages over a larger company due to more personal relationships with employees. Representative Brian Steil (R-Wis) also asked about small business implementing diversity strategies, to which Verrett recommended starting out a business with a diverse workforce. He observed that millennials are choosing to work for diverse companies.
Trimble added that smaller businesses sometimes have the opportunity to be more flexible, criteria favored by Generation X and millennials. Budson recommended that small companies build partnerships with local student organizations as part of a diversity strategy. She also advised "de-biasing" the hiring process, such as hiding an applicant’s name or where they went to school.