The Benefits of Bank Diversity: 2022 Bank Board Diversity Analysis

Amidst the wave of media attention on Silicon Valley Bank’s demise is the misleading and misguided question of whether the bank was somehow too focused on diversity, and that led to its collapse – or at least its inability to prevent a collapse. With one of the least racially diverse boards and leadership teams of any of the country’s top banks, SVB’s situation actually begs the opposite question: would the bank have made better business decisions if diverse perspectives were sought out and prioritized? If the bank’s leaders reflected the diversity within communities that are most impacted by bank failures, would they have worked harder to balance their financial risk?

These are important questions – and while we may not have the answers, we do know that in general, yes, diverse leadership teams are better equipped to respond to issues impacting their institution than homogenous ones.

Since we were founded 30 years ago, The Greenlining Institute has tracked racial and gender diversity data for the executive boards at the largest banks in California (our latest report can be found here). A common theme across the decades:  banking institutions have a lot of work to do when it comes to diversifying their bank boards.

The diversity of executive bank boards isn’t just an optional bonus for banks to take on, having diversity in decision-makers is core to increasing access to capital for communities of color and addressing the racial wealth gap.

The diversity of executive bank boards isn’t just an optional bonus for banks to take on, having diversity in decision-makers is core to increasing access to capital for communities of color and addressing the racial wealth gap.

Bank Board Diversity Matters

Bank boards hold institutional and decision-making power which influences the day-to-day operations of banks and the investments (or lack thereof) in the communities they serve. Historically, financial institutions have played a major role in redlining, which is still prevalent in many communities of color today. These disinvestments in neighborhoods of color have created barriers to economic growth and mobility.

Banks and their leaders have a legal responsibility to undo the years of redlining and discrimination that have severely limited the opportunities communities of color have to build wealth and establish financial security. One way to address historical disinvestment is to cultivate executive leadership that reflects the communities they serve. Banks continue to fail to prioritize opportunities for upward mobility in their institutions for diverse staff in leadership roles. While 43% of people of color constitute lower level jobs within the banking industry, only 9% of C-suite positions are held by men of color and only 4% by women of color.

In 2019, the House Financial Services Committee recognized that Diversity, Equity, and Inclusion needed to be a priority in financial services – one area of interest being the diversity of bank boards and senior management. The DEI subcommittee indicated that bank boards are still predominantly white (80%) and male (70%) and do not reflect the diversity of the bank’s workforce. When Republicans took control of the House Financial Services Committee in 2023, one of the first actions they took was to eliminate the DEI subcommittee, deprioritizing DEI in financial services and limiting efforts to address racial and gender gaps. The decision to eliminate this crucial subcommittee raises a red flag, especially at a time when the racial wealth gap continues to widen and economic conditions for communities of color worsen.

Greenlining collected data on the demographics of bank boards at the top 15 banks in California in 2022. Our data aligns with the subcommittee’s findings from 2019: bank boards continue to be predominately white and male. In order to identify areas of growth and accountability in banking, we analyzed and compared our data with prior years and found little improvement this year.

The Impact of Bank Leadership on Diversity, Equity & Inclusion

To address and dismantle systemic racism within financial institutions, banks must examine their power structures, many of which continue to uplift wealthy, white men, and exclude communities of color and women of color from positions of power. When BIPOC staff and women of color are denied access to leadership, systems of racism and oppression are not only replicated, but can become even more deeply entrenched.

Banks boards not only make decisions for hiring and retention of BIPOC and women of color, but also play a huge role in whether diversity, equity, and inclusion is prioritized within the company. This ultimately impacts decisions that affect the communities they serve. Bank board data from the 12 Federal Regional Banks showed “more diverse bank boards were more likely to invest in underserved and predominantly minority communities”

In addition, data from 180 bankers from different types and sizes of institutions, revealed that bank employees think their institutions make better decisions when their teams are diverse. Those same employees who work at financial institutions with more diversity in leadership feel valued, a sense of belonging, and that their input is important.

The benefits of having diverse bank boards have been recognized not only by various regulatory agencies, but also by former Chairwoman Waters of the House Financial Services Committee who underscored that diverse bank boards make better decisions that help maximize the returns on their diversity investments. Acting Comptroller, Michael Hsu, of the Office of the Comptroller of the Currency shared data regarding “minorities and women in management,” stating that “these numbers show that we continue to fall short in reflecting the communities we serve.” As regulating agencies recognize their shortcomings, it is important that they also model what diverse management and senior leadership looks like so other regulated agencies can follow.

To address and dismantle systemic racism within financial institutions, banks must examine their power structures, many of which continue to uplift wealthy, white men, and exclude communities of color and women of color from positions of power. When BIPOC staff and women of color are denied access to leadership, systems of racism and oppression are not only replicated, but can become even more deeply entrenched.

Below are tangible steps that banks and regulators can implement to achieve greater diversity at all levels of their institution.

What can banks do?

1. Prioritize representation and critique existing organizational structures and processes to ensure that hiring and recruitment practices, career development, salaries and promotions, etc. are equitable. Greenlining’s Diversity, Equity and Inclusion Framework is a helpful tool to use to ensure policies and practices are equitable, and DEI is operationalized within the institution. 
2. Create a diversity and inclusion strategy with tangible goals, accountability measures, and a senior point of contact to help meet benchmarks/goals.
3. Establish Diversity Equity and Inclusion Bank Board Standards:
   • Recommend that a minimum of 40% should be women
   • Recommend that a minimum of 50% should be people of color
   • Require a minimum of one candidate of color and one woman up for consideration when recruiting to fill a vacant executive board position. 
4. Create and implement career mentorship programs that create pathways for underrepresented talent development that lead to director and management positions.
5. Address barriers to wealth building by providing employees stock awards (including staff earning less than $100K) in partnership with financial advisors to help staff understand investment strategies and its role in building financial security. When banks invest in their staff it shows that they value their workers, overall leading to greater retention within organizations.

What can regulators and legislators do to ensure diversity on bank boards?

1. Reinstate Subcommittee on Diversity Equity and Inclusion in House of Financial Services.
2. Increase transparency and accountability by requiring board demographic disclosures annually, including measurement goals and recruitment efforts.
   • An example of greater transparency is the U.S. Securities and Exchange Commission’s Nasdaq rule that requires all companies on its U.S. public exchange to have two diverse boards of directors, including at least one director who self-identifies as female and at least one director who self-identifies as an underrepresented minority or LGBTQ+. Companies are required to report their progress and why they haven’t fulfilled this requirement in yearly disclosures.
3. In California, legislators need to reintroduce legislation that addresses the racial and gender gaps that are represented in the data above by reintroducing legislation similar to California’s 2020 corporate diversity law which was struck down in early 2022.
   • Corporations headquartered in California should be required to disclose their corporate board data disaggregated by race/ethnicity, gender, and LGBTQ+ demographics through yearly disclosures.
   • In addition, corporations should be required at minimum to reflect 50% of the racial and gender demographics of the state which show women at 50% of the population and people of color at 69% (39% Latinx, 15% AAPI, 5% Black, 4% Multiracial, and fewer than 1% Native American or Alaska Natives).

California Findings: Leadership diversity of CA’s largest banks

California’s top banks have made some strides in increasing board diversity over the last two years; however, the majority of bank boards in California are still at or under 36% people of color. Given California’s population is 69% people of color, it is imperative for banks in the state to double-down on efforts to diversify leadership ranks. While many of these banks made commitments to improve their racial equity efforts in 2020, there still remains a pressing need to include more people of color, especially women of color.

Visit the link below for the full article:
https://greenlining.org/2023/2022-bank-board-diversity-analysis/