It often takes a crisis to instigate change. The financial crisis of 2008 brought the financial industry’s shortcomings to the surface, ultimately spurring more transparency and accountability. Similarly, for as long as organizations have been touting greater diversity, it was the murder of George Floyd in May 2020 that pushed many U.S. companies to embrace diversity, equity and inclusion, taking DEI commitments to new heights.
40% of S&P 500 companies discussed diversity policies during earnings calls in the second quarter of 2020, up from 6% the previous year, per research by the Royal Bank of Canada. Some organizations have flourished with new leaders in executive diversity roles; others have withered. There are lessons that can be gleaned from both sides of the equation.
Chief Diversity Officers: A Position and a Statement
Creating a Chief Diversity Officer position at a bank or credit union could send several messages including that the institution has made it a priority to reflect the customers it serves, has a new or enhanced commitment to pay equity, wants to elevate its voice in the markets or be a voice at new tables.
Creating a CDO position within the C-suite in particular makes a statement to both employees and clients because these executives prioritize strategies that facilitate DEI company-wide. Many financial institutions see the need for such a position as critical. In fact more chief diversity officers have been added to the C-suite than any other position.
The hiring of CDO’s overall soared 111% as a share of all hires between September 2020 and August 2021, according to LinkedIn data.
New chief diversity officers made up 51% of all C-suite hires in 2021, after being at 84% in 2020.
Representation of diverse employees and suppliers has always been good business for banks as well as other companies. It has now become a business necessity. When leaders reflect the diversity of the communities they serve, institutions see greater success.
For example, McKinsey notes “a substantial differential likelihood of outperformance — 48% — separates the most from the least gender-diverse companies.”
Further, a Coqual report found that diverse publicly-traded companies were 70% more likely than non-diverse public companies to report new market growth in the past 12 months and 45% more likely to report improved market share in that same time-frame.
From CDO Boom to Bust — Why?
While 2020 and 2021 saw a boom in chief diversity officer hiring, there was an almost equal and opposite reaction reported in late 2021 and into 2022. CDOs are leaving their posts quickly. The Financial Times reported that the average tenure of a chief diversity officer in the U.S. was 1.8 years in 2021, down from 3.1 years in 2018.
Why is this? Certainly, there is ever-scaling demand for more expertise, which is in low supply. However, there is also a quiet realization these newer CDO leaders are not always being given the authority and tools that they were promised would ensure success.
Below we address three broad steps that banks and credit unions must take to ensure the CDO role is set up for success even before a hire is made.
Leadership: Clarity of Mission From the Top
From the board of directors to those in the C-Suite, embracing diversity, equity and inclusion at the executive level should always be the first step. It is best when DEI is understood as a business accelerator, as this will secure commitment for the long-term success of the chief diversity officer.
Importantly, inclusion requires senior management to value different perspectives and opinions. We’ve seen that diversity in a management team — and the inclusion of different views and perspectives — breeds innovation by creating an environment where “outside the box” ideas are heard.
Diversifying at lower and middle levels alone cannot accomplish this. Those who hold the power to promote employees, embrace and deploy compelling ideas, and impact the budget are those who drive the success of DEI. And those who best understand the unmet needs of the underserved client are in the best position to accelerate growth.
Behavior: Define the Role, Supply the Tools
Chief diversity officers must be empowered to take action. Equitable and inclusive leadership that supports a shift in mindsets, behaviors and practices needs support from the top down — at the start and throughout the transformational journey.
How a bank or credit union defines and measures the performance of the CDO will impact the success of their endeavors. In banking, there are specific categories attributed to success, and associated KPIs to be measured against. This kind of clarity should also apply to the expectations of the chief diversity officer. It sets the tone and allows CDOs to both bring about near-term change and open the door to change for the next iteration of DEI.
In addition to making the job description crystal clear, it’s critical to offer the right tools to support success. In particular: budget and headcount/staff.
Headcount. Simply put, diversity is not one person’s job. In order to ensure that the CDO hire is not simply symbolic, the value of a cadre of employees who support this function cannot be overstated. A team dedicated to the success of diversity, equity and inclusion needs to be put in place at the beginning of the CDO’s tenure.
In 2021, KeyBank intensified its focus on improving the outcomes and effectiveness of its DEI programs and efforts. For example, the bank publicly committed to increasing people of color representation in senior leadership ranks by 25% by 2025 and by 50% by 2030.
Budget. Supporting what Josh Bersin calls the “toughest job in business,” the person responsible for diversity, inclusion and fairness in a company, doesn’t come free. In fact, addressing issues surrounding recruiting, promotion, pay, team behavior, leadership, employee interactions and community involvement — including philanthropy. This requires significant investment.
Since 2016, KeyBank’s National Community Benefits Plan has delivered more than $20.8 billion in lending and investments to diverse communities across America. In early 2021, Key announced its commitment to extend and expand the plan, increasing its lending and investments to $40 billion.
Culture Is Everything
Within financial institutions, fairness, equity and diversity are all born out of the management culture. Historically, the banking industry has had a problem with lack of representation and inclusiveness. To impact real and meaningful change, DEI must be woven into the new culture.
While making any impact on culture takes time, there are specific tactics that have proven effective within organizations. Here are three:
Onboarding. Make diversity part of all new employees’ exposure to the institution from day one.
KeyBank connects with employees before they join the organization to ensure they understand that valuing diversity and fostering inclusion are core to Key’s culture and success. This culture is a point of pride for Key employees who believe in the mantra: “Diverse is who we are; inclusion is what we do.” New hires are also connected to employee resource groups in the onboarding phase.
Ongoing support. To facilitate a cultural change, ongoing support is a requirement. Establish opportunities that go beyond the usual 30/60/90-day plan. Create a buddy or mentor program to assist the chief diversity officer. Select individuals who are senior enough within the organization to have the insights of an executive. These “buddies” to the CDO can provide transparency and support — both professionally and personally.
Out and About:
It's important that the chief diversity officer not be siloed from others in the bank, but instead have access to the institution's version of 'water cooler' interactions.
Open communication. Even with an intentional, ground-leveling set of activities in place, there are sure to be unspoken rules. A great source of connectivity can be found through employee resource groups.
At Key, 60% of employees are a member of at least one employee resource group. In addition, Key’s DEI team has launched a listening campaign and roadshow to understand the lived experiences of diverse employees.
An Outsider Can Spot Disconnects
For banks and credit unions that engage a search firm to find a DEI leader, such companies can and should be a checkpoint for whether the institution is realistic about what the chief diversity officer role can accomplish. They should note whether what exists in terms of support for success is sufficient and advise on how the candidate market might react. Their advice could avoid repeating the failures of the past.
It may also prove beneficial to spend time learning what didn’t work well with the predecessor CDO. This is an opportunity to refine leadership, behavior and culture to build the framework for meaningful change.