Rethinking Diversity Measures in the Finance Industry

The financial industry is one of the least diverse industries in the United States. Recently, the Securities and Exchange Commission approved Nasdaq’s proposed diversity measures, which require companies on its exchanges to meet specific gender and racial ethnicity targets for their board membership. Although well intentioned, these measures provide a narrow definition of what constitutes a diverse company.

The financial industry defines diversity by concentrating on a business’s ownership and board membership, regardless of how it’s doing in regard to any other dimensions related to diversity, equity, and inclusion. Measuring the number of women on boards and women in top management positions, or identifying a business as woman-owned, for example, does not necessarily measure how female employees are treated, whether they receive the respect and credit they deserve, or whether their opinions are heard and taken into account. I call these measures insufficient statistics because they do not truly capture the ethical aspects of diversity that we would like to measure, such as treatment and inclusion.

An insufficient statistic is not only bad in providing information about the true situation within an organization; worse, these statistics can create a false sense of accomplishment. For example, instead of offering truly improved support to marginalized groups within the organization, most banks and financial institutions will shift their asset managers’ goals to hit minimum targets, resulting in minimal redistribution of power. Once the target is hit, most will feel as if their work is done: There’s no need for further internal education programs, supervision, or changes in corporate culture.

The fact that the statistics are imperfect, however, does not mean that we should stop computing them. Rather, it means that the emphasis on these numbers is oftentimes misplaced. How, then, should we measure diversity?

Measurements should account for a company’s efforts around inclusion, access, and treatment. We should ask: What are the organization’s intentions and goals? What is its process and progress toward diversity? What is it doing to hire, retain, and promote minorities and change its practices around all three? How is its culture shifting?

First, it depends on the degree of disclosure needed. If the assessment is meant to be confidential, a business can evaluate itself by understanding the outcomes of its hiring, promotion, and retention activities.