While progress towards the goal of gender equality and diversity in the global economy remains slow, the past year witnessed some historic highs. The Reserve Bank of Australia welcomed Michele Bullock as its first female governor, while Hafiz Gaye Erkan became governor of the Central Bank of Türkiye. Janet Truncale made history as the first woman appointed as the chief executive officer of a big four firm, poised to lead EY later this year.
However, there were also lows. The departures of Esther George and Alison Rose from leadership positions at the Federal Reserve Bank of Kansas City and NatWest, respectively, remind us that the journey towards gender equality is a complex one.
OMFIF’s Gender Balance Index 2023, which tracks the presence of women in senior leadership in the financial sector, found that it will take 140 years to achieve parity at the current rate of progress.
Bridging the gap
Efforts to promote gender balance have accelerated in recent years through legislation and policies. In November 2022, the European Parliament ushered in a landmark law mandating gender quotas on company boards. This directive, a decade in the making, requires companies in member countries to have boards made up of 40% female non-executive directors or 33% female directors overall by June 2026.
In the UK, the Financial Conduct Authority refined its diversity and inclusion policy. UK-listed firms are mandated to disclose the gender and ethnic makeup of their boards and executive teams. These new regulations enforce gender-related targets, including a minimum of 40% women on boards and at least one female senior board position.
But the impact of such legislation remains to be seen. When the 2023 GBI was published, only one of the five UK-based commercial banks in the index – NatWest – met the FCA’s requirements. Today, this number is zero.
There have also been reports of diversity objectives being sidelined by firms’ other priorities. The proportion of female candidates appointed to the board in the largest 150 companies in FTSE rankings fell to 51% last year, compared to 60% the year before, and the proportion of ethnic minority candidates declined to 5% from 27% in the same timeframe.
Strengthening the pipeline
There is an argument for focusing beyond the board for gender balance. The policies introduced in the last few years don’t look at gender equality at the executive level, where women are less likely to be visible.
The 2023 GBI found that women hold just 29% of executive committee positions in commercial banks and 28% in sovereign funds. The figure is slightly higher for pension funds at 33%. Women’s presence in ExCos and the types of role they hold matters as future leaders of financial institutions are more likely to be chosen from this pool of candidates.
This pipeline problem extends to central banks as well. Of 186 central banks, only 12% of governors were women in 2023, and 27% of deputy governors were women. Although both figures have increased marginally compared to 2022, these institutions have a long way to go before we see gender parity in the top leadership levels.
To address the issue, some central banks have introduced policies that promote women’s progression within the bank. Of the 46 central banks surveyed for the GBI report in 2023, 48% ensure that female candidates are selected for entry-level interviews, and 31% have similar policies for interviews for promotion to senior management vacancies. However, 43% of survey participants don’t offer any form of progression initiatives, suggesting there is still a long way to go on the global stage.
Embracing diversity beyond gender parity
While gender equality remains a crucial goal, there is also a growing recognition of the need to embrace broader diversity in financial institutions. The US is leading the way here.
The appointments of Adriana Kugler and Phillip Jefferson to the board of governors of the Federal Reserve System last year were historic milestones for diversity. Kugler is the first person with Hispanic heritage to join the board of governors, and Jefferson will be only the second African-American man to serve as vice chair. Susan Collins also made history in 2022 when she became the first woman of colour to lead any of the regional Feds.
The regional Feds track and publish figures on minority representation on boards and within their workforce. Five years ago, of the 108 board members in regional Feds, 70 were white men and only 38 were female. Today, there are 48 women and 41% of members were people of colour. With dedicated diversity officers and targeted recruitment programmes, these institutions have undergone a transformation in board composition over the past five years.
The FCA and Prudential Regulation Authority in the UK have also begun to take steps to boost diversity in the financial sector. Their consultation paper, launched in September 2023, proposes rules requiring the largest firms to set diversity targets and report diversity and inclusion data. These include mandatory and voluntary demographic characteristics at the board level, senior leadership and all employees.
The focus on disclosing such data raises questions about privacy and data protection. Developing and using appropriate methodologies will be crucial to managing these concerns. The move signifies a positive step for diversity and inclusion more broadly, though the resulting policy and its impact are yet to be seen.
Diversity acts as a bulwark against ‘groupthink’ in financial institutions, fostering a more accurate reflection of the societies they serve. This not only enhances credibility and legitimacy but also brings fresh perspectives to navigate economic uncertainties. As financial institutions increasingly embrace diversity, they are not just breaking gender barriers – they are fortifying their resilience in the face of an ever-evolving global landscape.
The journey towards equality and diversity in financial institutions is far from over, but each new appointment and policy change propels the industry closer to a future that is truly representative and inclusive.
Arunima Sharan is Senior Research Analyst, Economic and Monetary Policy Institute, OMFIF.
The 2024 edition of OMFIF’s Gender Balance Index will publish 10 April. Register to attend the launch and stay up to date on developments ahead of publication.