Central Bank will challenge supervised firms over lack of diversity at board and management levels – Deputy Governor Donnery

• Available research suggests diversity can lead to improved outcomes in terms of governance, decision-making and productivity
• In the absence of voluntary improvements in diversity on the part of firms, the Central Bank will consider putting specific requirements in place
• Central Bank gender pay gap analysis published

Speaking at the Central Bank of Malta’s 50th anniversary conference, Sharon Donnery, Deputy Governor, Central Banking, argued that the kind of problems which contributed to the financial crisis, and are sometimes still identified by supervision today, can be associated with a lack of diversity at senior levels. These traits include groupthink, insufficient challenge, poorly assessed risk and problems with culture.

Read the full speech: “The importance of diversity in central banks and supervised entities”

In her speech, Deputy Governor Donnery highlighted the available research that shows how gender diversity can guard against groupthink by bringing a heterogeneity of values, beliefs and attitudes. Addressing the issue of risk taking by regulated firms, Ms Donnery explained that knowledge of risks can improve where there is gender diversity on the board as risks are more carefully examined, weighed and challenged.

Deputy Governor Donnery said: “We are placing a spotlight on this issue, and intend to keep it there. We are doing so not from an ethical perspective, important though that is. We are doing it because there is a sound business case for diversity – one which can contribute both to the bottom line and the public good. At the Central Bank, we are committed to diversity to ensure our own organisation reflects the public we are here to serve. In our supervisory role, firms can now expect the Central Bank supervisors whom they deal with to challenge them when there is a lack of diversity at board and management levels. We want the firms we supervise to make good decisions, take considered risks and not suffer from groupthink.

“Furthermore, the Central Bank of Ireland is actively considering what other steps it should take in this area, particularly if raising awareness has insufficient effect. We would prefer to see the firms we supervise taking steps to increase diversity levels on a voluntary basis. But in the absence of improvements in diversity at senior levels in regulated firms, the Central Bank will have to consider whether it is necessary to put specific requirements in place.”

Ms Donnery also unveiled the Central Bank’s first gender pay gap analysis. The report shows that 50% of Central Bank staff are male and 50% of staff are female, with women making up 39% of directors and 49% of division heads. There are some differences in gender profiles across different grades and consequently, there is an overall difference of 2.7% between the average pay for males and females across the Central Bank. Deputy Governor Donnery concluded by saying that while the Central Bank’s pay gap is less than other organisations, there is room for continued improvement.