The Importance of Diversity in the Financial Services Sector - Director General Derville Rowland

Address to the European Financial Forum 30% Club lunch on 11 February 2020

Good afternoon everyone!

And thank you to the 30% Club and Davy for inviting me here today.

I would like to reflect on the importance the Central Bank attaches to diversity and inclusion - both in terms of how we regulate and supervise financial services firms and how we manage our own organisation.

But first, I would ask you to consider the bigger picture.

The bigger historical picture

This year marks the centenary of the 19th amendment to the US constitution being signed in to law.

That was the amendment that granted women the right to vote.

It was a long time coming.

The US suffragist, Carrie Chapman Catt, would later recall it took them 52 years.

They conducted 879 campaigns at party, state and national levels before they finally secured the change they were seeking (Flexner et al, 1996)^1.

It was, in short, a very long struggle.

But one which has proved extremely worthwhile.

Because, as former UN Secretary General Ban Ki-Moon has observed, equality for women means progress for all. Ban Ki-Moon has highlighted that:

• Countries with higher levels of gender equality have higher economic growth;
• Companies with more women on their boards have higher returns;
• Peace agreements that include women are more successful; and
• Parliaments with more women take up a wider range of issues – including health, education, anti-discrimination, and child support (UN 2014)^2.

The picture in Ireland

In Ireland, women first got the vote in 1918.

The following year, Countess Markievicz was elected to parliament and became Minister for Labour in the revolutionary first Dáil - one of the first women in the world to hold a cabinet position.

Despite this strong start, women continued to be under-represented in parliament relative to their share of the population. 

So, in 2012, the Dáil adopted a law obliging political parties to select at least 30% women candidates and 30% men candidates to contest general elections.

Political parties who fail to meet that quota lose 50% of the State funding they receive on an annual basis to run their operations.

This had a positive effect at the 2016 election, as the number of women elected rose from 25 to 35.

Too few women on boards

If Irish women have been under-represented in politics, they have also been seriously under-represented at senior levels in business.

So much so that the government in 2018 set up the Balance for Better Business initiative to place a spotlight on the gender balance of corporate boards.

The government has found the percentage of women on the boards of major companies in Ireland remains “significantly lower than that of EU Member States and other international high performing global economies” (Balance for Better Business, 2019).³

Women account for 19% of directors at listed companies overall -  8.5% of executive directors and 23% of non-executive directors. Disappointingly, 14 companies continue to have all-male boards (Balance for Better Business, 2019).⁴

This is surprising given that research from McKinsey has found that the statistically significant correlation between a more diverse leadership team and financial outperformance continues to hold true on an updated, enlarged, global dataset.

Companies in the top quartile for gender diversity on executive teams are 21% more likely to outperform on profitability, while companies in the top quartile for ethnic/cultural diversity on executive teams are 33% more likely to have industry-leading profitability (McKinsey & Company, 2018).⁵

And, as many of the people in this room already know, 30% is the minimum point at which members of a group cease to be seen and heard as representing that group and become fully accepted as individuals with their own views and perspectives (Kanter, 1977).⁶

Driving diversity at regulated firms

The financial crash of 2008 provided what Christine Lagarde, now President of the European Central Bank, termed a “sobering lesson in groupthink” (Lagarde, 2018).⁷

In the aftermath of the crisis, the global financial regulatory focus has been not only on building financial resilience at the firms we regulate and supervise, but also on preventing the groupthink that is widely seen to have contributed to the crisis in the first place.

We want the firms we regulate to be sufficiently diverse and inclusive, particularly at senior level, to prevent groupthink, guard against overconfidence, and promote internal challenge.

I want to talk about two specific aspects of our work in this space – firstly, senior appointments, and secondly, wider diversity and inclusion throughout firms.

For the last three years, the Central Bank has provided updates on the levels of diversity of senior appointments at regulated firms.

Last year, we published our analysis of more than 5,000 applications for senior roles which firms submitted to us for approval under our fitness and probity regime in 2018 (Central Bank of Ireland, 2018).⁸

The good news is that we found an overall improvement in the number of female applications to 24% (compared with 22% the previous year).  We found the biggest improvement came in the banking sector where 31% of applications were for women.

It is positive to see improvements in gender diversity at senior roles in regulated financial services providers.

But it is also striking that there remains a pronounced gender imbalance at board level and in revenue generating roles.

While gender diversity is only one aspect of diversity, it is a very important one and one that is easy to measure.

Research from the International Monetary Fund has shown that if women’s employment equalled men’s, economies would be more resilient and economic growth would be higher; and if banks “increased the share of women in senior positions, the banking sector would be more stable too.” (Lagarde, 2019)⁹

However, I want to be very clear: when the Central Bank speaks to the need for diversity at senior levels, we are not only referring to gender diversity.

We also want to see improvements in the diversity of experience, thought, background and attributes at senior levels.

In particular, the Central Bank expects regulated firms to:

• show more ambition, including in targets and measures;
• pay more than lip service to diversity programmes;
• build better pipelines of talent; and
• identify and reduce barriers to change.

In 2018, as many of you will recall, we published a report into the Behaviour and Culture of the Irish Retail Banking Sector. The report found the retail banks had much more work to do in terms of ensuring their organisations were sufficiently diverse and inclusive, particularly at senior level, to prevent group-think, guard against over-confidence, and promote internal challenge. We continue to monitor the banks against their action plans to deliver the required change.

Following on from the retail banking review, the Central Bank last year performed a thematic assessment of diversity and inclusion in the insurance sector. 

Eleven insurance entities were included in the thematic assessment with the objective of assessing the maturity profile of the diversity and inclusion frameworks in each organisation.    

The assessment will also provide a perspective on the approach to diversity and inclusion within the Irish insurance industry more broadly, identifying good practices and areas for development that will be useful for firms beyond those involved in the assessment.

The Central Bank is currently finalising this assessment and is engaged in open bilateral dialogue with the eleven entities selected.  An industry communication based on aggregate anonymised industry observations will be published by the Central Bank by end April.

Increasingly, we are incorporating diversity and inclusion into our supervisory thinking as we see the regulated firms and markets we supervise grow in scale and complexity, requiring the quality of firms’ decision making and risk management apparatus to be ever more sophisticated and balanced.  

The importance of firms having high quality and fully embedded conduct risk frameworks to manage these risks is something I spoke to in our recent letter to industry with our findings on conduct risk in securities markets (Central Bank, 2020).¹⁰ It is worth noting that the taxonomy we used to complete that work included specific modules on culture and people, and that the findings in question included output from over 150 interviews of not just directors, CEOs and other officers but also frontline staff in the firms we inspected.

Leading by example

Of course, if you’re going to talk the talk, you should walk the walk.

In 2018, the Central Bank published our vision for diversity and inclusion in which we stated that we want to:

• Have a diverse workforce reflecting society in Ireland;
• Harness difference to our benefit;
• Be a thought leader on diversity and inclusion; and
• Ensure our focus on diversity and inclusion has a positive impact on thebehaviour of the financial services industry.

The vision is supported by a comprehensive action plan.

So how are we faring in practice?

On the question of gender diversity, women make up almost 50% of our total workforce, one-third of our board and over 40% of our leadership team.

As part of our action plan, the Central Bank has published our gender pay gap report on our website. Our gender pay gap stands at 2.4 per cent in favour of men. While this compares well with the gap elsewhere in Ireland and across the EU, we are not complacent.

I have been lucky enough to work in an organisation that has championed gender balance and merit-based promotions for some time.

But, again, diversity and inclusion does not stop at gender balance.

Let me give you a few examples.

It is about understanding the low take-up of parental leave among fathers in the Central Bank and what can be done to improve it.

It is about enhancing organisational flexibility, work-life balance and effectiveness - through initiatives such as our home-working policy which we launched last year.

It is about promoting access to the labour market for people with disabilities by offering both placements and jobs – as we have done through our partnership with the Association for Higher Education and Disability (AHEAD) and the National Council for the Blind in Ireland (NCBI).

It is about welcoming people to the Central Bank from socially diverse backgrounds – such as through our scholarship and ‘’bridging the gap programmes’’ with the local community in the North East Inner City.

Leadership matters

It is about having leaders willing to actively drive, sponsor and enable diversity and inclusion initiatives – such as the launch of our Rainbow Network.

Governor Makhlouf has long been on record about the diversity advantage. He has argued that diversity helps us to understand the present, better anticipate the challenges and opportunities that may arise in the future and better manage the pace, complexity and cross-cutting nature of change (Makhlouf, 2017).¹¹

Amongst our peer central banks, we are considered one of a few front-runners in driving diversity and inclusion and we are happy to exchange our knowledge and experience with other organisations as we are doing here today.

In 2018, we designed our own leadership development programme.  Crucially, the programme has an important module on inclusive leadership including how we work together, how we make decisions and how we get things done.

A call to become something more

Harvard Business School Professor Rosabeth Moss Kanter once said that “a vision is not just a picture of what could be; it is an appeal to our better selves, a call to become something more”.

I would urge all the leaders here in this room today to support the vision of the 30% Club and the Balance for Better Business initiative who have set both targets and timelines for those targets to be reached.

I am heartened by the progress the financial services sector is making on putting diversity and inclusion firmly on the corporate agenda. As a member of the club of women, who make up 50.5% of our population, I think now is the time to double down on our efforts to ensure the positive changes we are seeing continue at pace.

Thank you so much for your attention.

Acknowledgments: I would like to thank Kathleen Barrington, Colm Kincaid, Antoinette McDermott and Paul O’Brien for their help with this speech.

[1] Flexner, Eleanor & Ellen Frances Fitzpatrick, 1996: Century of Struggle: The Woman's Rights Movement in the United States.

[2] United Nations Secretary-General, 2014:Secretary-General's remarks at Annaul Commemoration of the International Women's Day

[3] Balance for Better Business, 2019: First Report. 

[4] Balance for Better Business, 2019: Second Report

[5] McKinsey & Company, 2018: Delivering through Diversity

[6] Kanter, Rosabeth Moss, 1977: Men and Women of the Corporation.

[7] Lagarde, Christine, 2018: Ten Years After Lehman - Lessons Learned and Challenges Ahead.

[8] Central Bank of Ireland, 2018: Demographic analysis – Applications for Pre-Approval Controlled Functions (PCF) roles in regulated firms – 2018.

[9] Lagarde, Christine, 2019: A Global Imperative

[10] Central Bank of Ireland, 2020: Securities Markets Conduct Risk - January 2020 Industry Communication. 

[11] Makhlouf, Gabriel, 2017: Diversity and Inclusion: Why it Works at Work. Speech delivered at the Women in Public Sector Summit in Wellington, NZ