Issues : Strategy

Making Diversity Happen

Recently I attended a day-long conference at the Federal Reserve Bank of Richmond that was put on by Bank on Women, an organization focused on the promotion of women in banking. The topic was diversity in the bank boardroom and C-suite.

This is an issue that Bank Director takes seriously. Several of us have written about the lack of gender, racial and ethnic diversity in banking, particularly in positions of power. If you haven’t read it already, I would recommend Bank Director magazine’s second quarter 2019 cover story, “A Woman’s Place is in the C-Suite,” written by Vice President of Research Emily McCormick.

Bank Director President Mika Moser also led panel discussions on diversity at two of our conferences this year, and she participated in a panel discussion at the Bank on Women event.

Most of the people in attendance were women — which is unfortunate in the sense that few professional women need to be told that banking has a diversity problem. For many, if not most women, it’s part of their daily work experience.

Ann Owen, a professor of economics at Hamilton College, presented data at the event from 2015 that casts the inequality issue as an inverse pyramid. (Owen’s presentation was based on a research study, “The Performance Effects of Gender Diversification on Bank Boards,” that she coauthored last year with Federal Reserve economist Judit Temesvary in the Journal of Banking & Finance.)

According to Owen, 57% of all bank employees in 2015 were women. But only 48% of those women were mid-level officers and managers, and just 31% were executives and senior-level officers and managers. And when we get to the pinnacle of power in banking — the boardroom — the underrepresentation of women becomes even more pronounced. In 2018, according to Owen’s analysis, less than 20% of bank directors were women.

I have no doubt that more education around this issue is required if real change is going to occur. I also think we need to talk more about how we create more gender, racial and ethnic diversity in banking. Bringing greater diversity to the boardroom is especially important because it sends an empowering message to diverse employees below the director level. When a mid-level female manager sees four female directors in the boardroom at her bank — especially if one is also the CEO — it opens a realistic path for her as well.

Unlike big banks, which can afford to hire search firms to find diverse board candidates, community bank boards generally recruit new directors themselves. A common complaint I hear when talking to male directors and board chairs about this issue is that they can’t find qualified female board candidates. I find this astounding.

Jennifer Docherty, a managing director and associate general counsel at Sandler O’Neill + Partners and the founder of Bank on Women, also came armed with data in her presentation to the group. Docherty says there were 12.3 million women-owned businesses in 2018 with $1.8 trillion in reported revenue. The vast majority are small, local businesses with 500 employees or less. Community banks are known to recruit local business owners and professionals — often bank customers — to join their boards. Since many of these individuals are women, prospective female candidates shouldn’t be difficult to find.

Community bank boards also tend to recruit new directors from within directors’ own networks. This can be a limiting strategy as well, because men and women generally populate different networks with minimal overlap. Owen’s study looked at 554 bank boards between 1999 and 2018. Only 12% of male directors had a connection with a female director, while 86% of male directors had a connection with another male director.

The ramifications of this are obvious. The majority of bank directors are males. When male directors rely on their own networks to recruit a new director, they are most likely to reach out to another male because that’s who they know. But the solution is just as obvious. If you want to recruit female directors to your board, you need to participate in networks where there is a higher proportion of female business owners and professionals.  By now, we should be past the point of talking about the importance and benefits of having greater diversification on bank boards. To me, that’s a settled question. The conversation now should be how do we accomplish that.