The Importance of Diversity - Deputy Governor Ed Sibley

15 November 2017 Speech

Central Bank of IrelandRemarks prepared as notes for the ECB Inspiring Leaders Series, 15 November 2017 


Firstly, I would like to thank the ECB for the invite, and Verena Reith and Siobhán Kirrane for their assistance in organising today. To start with, by way of introduction, I will give you some background on myself, and the basis for my interest in diversity.  I will then discuss diversity, including why it is important from both an internal organisational perspective and from an external supervisory perspective – including the strong interlinkages with behaviour and culture in regulated firms. 

I will give some thoughts on the current situation, the challenges, and then outline the actions we have been taking in the Central Bank to improve diversity and inclusion internally and how we have started to drive for improvements in diversity across regulated firms.


I am Deputy Governor, Prudential Regulation at the Central Bank of Ireland.  I was appointed on 1 September of this year, and have been with the Bank for a little over five years. I have been working in financial regulation and supervision since the onset of the financial crisis, firstly in the UK, and now in Ireland.  Throughout, for various reasons, I have had a strongly European focus.

I have been regularly attending the Supervisory Board since the creation of the SSM and have been Ireland’s member of the Supervisory Board since April of this year.

I am driven by doing things that I consider have societal value, are interesting, offer opportunities for continuous learning and have a people-focused element.  I attribute my success at the Central Bank to the fit between my drivers and the roles I have had within the Bank, and the resultant passion and commitment I have for the roles I have held and for the organisation as a whole.  

A definition of diversity

Now you may be sitting there thinking this is all very interesting, but it does not explain or really justify why we all need to focus on improving diversity and inclusion within our organisations and importantly with regulated firms.   Before making the case for action, it is important that we are starting from a similar reference point, as to what is meant by diversity.

The dictionary definition runs something along the lines of:

  1. the state or fact of being diverse; difference; unlikeness: diversity of opinion;
  2. variety; multiformity; and
  3. a point of difference.

One definition of diversity in the workplace I have seen is “the inclusion of individuals representing more than one national origin, colour, religion, socioeconomic stratum, sexual orientation, etc.”.   This clearly makes sense, although I like to think of it even more broadly, to incorporate all these things, and more – including, importantly, considering personality types. 

Why diversity matters

So, I have talked about why diversity is something of interest to me.  But why is it important beyond my and, presumably, your interest in the topic. 

Intuitively we might say diversity matters – and I would guess that I will not get much argument in this room on that (given the self-selecting nature of your attendance today), but is that a compelling enough reason for business change? Well, even if it is not, then there are increasing numbers of studies that show that diversity does matter from a business perspective.

Correlation and causation are difficult to determine in many of these studies, but the correlation is certainly clear, and pretty compelling.  Studies suggest that when companies embrace gender and ethnic diversity at the leadership level, they are more successful.  McKinsey’s research in this area suggests that companies in the top quartile for gender or racial and ethnic diversity are more likely to have financial returns above their national industry medians. Companies in the bottom quartile in these dimensions are statistically less likely to achieve above-average returns.

Based on their studies, McKinsey believes more diverse companies “are better able to win top talent and improve their customer orientation, employee satisfaction, and decision making, and all that leads to a virtuous cycle of increasing returns. This in turn suggests that other kinds of diversity – for example, in age, sexual orientation, and experience – are also likely to bring some level of competitive advantage for companies that can attract and retain such diverse talent….. diversity is a competitive differentiator shifting market share toward more diverse companies”

One of the experts on the Icelandic banking collapse is of the view that “While male values are about risk-taking, short-term gain and a focus on the individual, female values tend towards risk awareness, the long-term and team goals.  What is needed for a successful future is a better balance of the two and a greater focus on long-term sustainability” (HALLE, THOMASDOTTIOR)

The 2016 Empowering Productivity Report, which was sponsored by the UK Treasury and the Bank of England concludes that, “Diverse groups tend to have a well-rounded view on business issues and risks. It is widely believed that greater diversity of thought results in better decision making and improved corporate governance and risk management, thus avoiding the perils of ‘groupthink’.”

Research has shown that companies with a significant proportion of women in senior management positions perform better in part because of some leadership behaviours that women exhibit more consistently than their male colleagues.1

In particular, women are found to excel at people development, participative decision making, presenting a compelling vision and acting as role models – all drivers of financial performance2.

Research on board membership has also shown that female directors enhance board independence, partly because women bring different perspectives and networks to the table, and partly because they are more likely to ask difficult questions.3 There is also evidence of a point of critical mass – when there are at least 3 out of 10 women on the board.4

Finally, there is a compelling macro-economic and social policy argument, particularly in developed economies.  It is well known that we have an ageing population, with a diminishing workforce to support an increasing number of people beyond current retirement age. According to Eurostat, in 1995 there were 30% more people in the EU at the lowest working age (below 25) than the highest working age (55-64); by 2030, there will be 30% less.  In this context, it becomes increasingly important to get the very most economic value from all those of working age, no matter what gender, race, ethnic background, religion, etc.. 

In fact, there is a strong argument that this is the driver for changes that we are seeing in places like Saudi Arabia. As it tries to transform its economy from an oil based one to a more balanced one it needs more workers operating in different sectors. Bowing to pressure to allow women to drive facilitates them getting to work, as well as freeing up other labour. 

Moreover, if we look at the causes of the financial crisis, we can see clear linkages to behaviour, culture and diversity.

It is clear that there were multiple failures and multiple individual and collective decisions leading up to the financial crisis, for example, collective groupthink, business model and strategy failures, governance and control issues, financial misconduct, excessive optimism, regulatory failures, political interference and so on.  There are behavioural and cultural linkages across all of these failures.

The behaviours and underlying cultures within financial services firms were wholly inappropriate.  Short termism was incentivised, particularly with respect to shareholder returns.  Effective internal challenge of the prevailing views was not. 

Decisions were made in the short-term interest of the shareholder (or at least management’s interpretation of it), and whether decisions were legal, with too little consideration of whether they were ethical or in the interests of the customer.  Ironically, this behaviour has been massively destructive for long-term shareholder value, as well as customers, and financial stability.

As I have described, research shows that diversity at senior levels of regulated entities can help to reduce the likelihood of groupthink5, improve decision-making6, increase the level of challenge7, and improve risk management8,

Additionally, there are increasing numbers of studies that show that diversity is a competitive differentiator; specifically, that when companies embrace gender and ethnic diversity at the leadership level, they are more likely to be successful - or to put it another way, they are less likely to fail.

In my own experience, a lack of diversity at senior management and board level in organisations is a leading indicator of elevated behaviour and culture risks, and consequently prudential and conduct risks. And so this brings me to the related topics of behaviour and culture.

Behaviour and Culture

Culture is a somewhat nebulous concept, and much more difficult to define and measure than profitability, pricing, compliance with regulatory requirements, such as minimum capital requirements, liquidity coverage ratios, and so on.  But, that does not make it any less important - as the saying goes, it eats strategy for breakfast9.

An organisation's culture is formed by the assumptions, values, expectations and beliefs, which drive behaviours of staff. When we talk about culture, what we are really talking about is behaviour.  

Culture therefore drives the values and beliefs that govern how individuals treat others, perform their tasks, take decisions, assess risk, and perhaps most importantly, do the right thing to ensure they operate in a safe and sound manner. It is the foundation upon which effective governance is built and is critical to firms’ long-term prosperity. Importantly, experience10 shows that behaviour has a predictive value with respect to firms’ future stability.

While culture may be somewhat nebulous, the impacts of cultural problems are not.  The list of scandals affecting both the treatment of customers and the financial strength of firms is long and inglorious.  These are not limited to financial services, as we can see from politics, and the entertainment, automotive, telecoms, airline industries and so on, but pension misselling, payment protection insurance misselling, LIBOR rigging, ‘rogue’ trading, and so on, have had a corrosive effect on trust in financial services. As has, obviously, the catalogue of failures that led to the financial crisis, the effects of which are still very much with us today. 

It is clear, therefore, that regulated firms’ approach to diversity, and their behaviours and cultures are within the purview of regulators, both from a prudential and a conduct perspective11.  

Current Situation

So if you accept the premise that diversity is important from a regulatory and supervisory perspective, it is also important to understand the current circumstance.

Unfortunately, demonstrably from a diversity perspective, and arguably from a behaviour and culture perspective not enough has changed.  I spoke at an event recently12 during which I highlighted the breakdown in public trust and confidence in banking in Ireland, and the need for meaningful change to repair and restore trust. Well-thought through actions to improve diversity and inclusion can assist in this rebuilding.

In this context, it is concerning that a significant imbalance in gender and other diversity aspects remains at senior levels operating in most regulated firms in Ireland.

In September 2008, before the bank guarantee, the main retail banks operating in Ireland had no female executives at Board level; the 18% of female Board members were non-executives. 

Worryingly, the situation is not improving.  Approximately 80% of the most senior and influential appointments in regulated firms in Ireland between 2012 and 2016 were male13. Comparisons are almost certainly worse for any other measure of diversity.  This is not a unique circumstance in Ireland. The Empowering Productivity Report, sponsored by the UK Treasury and the Bank of England, concluded that UK Financial Services had an average of 23% female representation on boards, but only 14% on Executive Committees.14

Strikingly, underneath the headline numbers, there is an even greater gender imbalance for roles that are revenue generating.  At the board level, women comprised 12% of applicants for Chief Executive roles,. 12% of applicants for Chairman of the Board roles, 15% of applicants for executive director roles and 18% of applicants for non-executive director roles.

It is also interesting to look at the split across roles – women are more prominent in risk, compliance and audit functions, men even more so in front line / revenue generating roles.

This is not to suggest that diversity is all about gender.  There are no studies that I have seen for the EU or Ireland on racial and ethnic diversity in business, but I have no reason to believe that it is any better than the UK - where 78% of UK companies have senior-leadership teams that fail to reflect the demographic composition of the country’s labour force and population – or indeed the US, where the figure is 91%.

Experiments from behavioural science has shown the importance of personality types on our risk taking behaviours. These findings suggest that having a board made up of more optimistic individuals than pessimistic individuals is dangerous and should be avoided.

The UK Financial Services Authority report15 into the collapse of the Royal Bank of Scotland identified significant overconfidence by board members prior to the financial crisis, and in particular in relation to the acquisition of ABN AMRO. The Dutch Central Bank16 has also identified a tendency towards consensus and optimism in organisations. Overconfidence and optimism can depend on our biological makeup.

Studies have shown, e.g. Mischel17 that more depressed people, who have a low psychological immune system tend to self-rate their performance in various tests quite accurately. Individuals with higher psychological immune systems tend to rate themselves far higher than their actual performance (i.e. they are overconfident).

The cookie jar experiment18 asks people to estimate how many coins there are in a transparent cookie jar. When people do this independently, the accuracy of the average judgement rises with the number of estimates and is generally very close to the actual number of coins.  But if people hear or see each other’s estimates, the mean can shift wildly up or down. This experiment has been completed across many different groups by age, sex, culture and so on, all giving the same result. The experiment highlights an important point; better results are achieved through diversity and independent opinion.

So the current situation, in Ireland at least, is concerning.  Moreover, we have reviewed a sample of diversity policies in regulated firms, which many financial services firms are now required to have (under the CRD, Solvency II and the Central Bank’s Corporate Governance Codes).   These are not going to turn the dial.

In the main, they are striking for their lack of ambition. In many cases internal targets that are already being met have been set, many lack accountability, and there is little evidence that progress against them is being monitored. Remarkably, for two large financial services firms, their diversity policies were exactly the same, word for word, with the exception of the names of the firms and some of the targets they had.

Notwithstanding these issues, there are financial services firms that have a healthy gender balance, with applications among certain banks and insurance companies at 44% and 45% female applicants over the past five years.  There are financial services firms that have diversity policies and programmes that demonstrate that diversity is a priority.  There are also sector wide initiatives that are focusing on addressing these issues, which the Central Bank is actively participating in – to support the development and delivery of our internal diversity and inclusion programme, which aims to continue to enhance our own approach.

Nonetheless, I am concerned that this lack of diversity is negatively affecting the behaviour and culture in financial services firms, their decision-making and risk management and consequentially increasing the risk of poor consumer protection outcomes and financial stability issues.

Significant progress has been made in improving the financial strength of financial services firms, and remediating weaknesses in governance and risk management arrangements.  The rulebooks underpinning the regulation and supervision of all sectors have been re-written and strengthened. However, it is more difficult to legislate to improve behaviour and culture, the effectiveness of decision-making, the approach to challenge within firms, and to reduce the risk of group-think. 

Internal focus

Of course, if you accept that the arguments that I have outlined on the importance of diversity from a regulated firm perspective, then it follows that there are strong arguments for focusing on diversity and inclusion from an internal perspective. 

In addition to the case regarding decision-making, challenge, innovation, risk management and so on, there are other reasons for diversity and inclusion to be important from a Central Bank perspective.  These include:

  • Access to a wider pool of talent, at a time when retention and recruitment are critical challenges for the Central Bank;
  • A potential employee engagement ‘dividend’ – achieved through staff being motivated by being part of an inclusive organisation; and
  • From an ethics and public service – because it is the right thing to do – i.e. there is an argument that public sector organisations should be more representative of the community they serve.

Research shows that having a diverse workforce is not sufficient for benefits to accrue, that the seniority of those in a ‘minority’ matters and that inclusive policies and behaviours must go hand in hand with diversity in order to maximize impact. Conscious decisions about how to harness differences are required.

In terms of our current position, from a gender perspective, the situation in the Central Bank is strong.  With a good balance of male and female leaders up to the head of division level.  This is less balanced at director level, but at the executive level, 40% of the exco equivalent are women, and more than 30% of the board. However, if we use a wider definition of diversity, there is much more work to be done in the Central Bank also.

Externally focused actions

So we have, I hope, established that diversity in its broadest sense is a good thing.  We have also established that we are not where we need to be and that there must be significant barriers to breakdown if we want to increase diversity in the workplace.  What might the actions be to break down these barriers?

As I have indicated already, there is a strong link between behaviour and culture and diversity.  In this regard, the work the SSM has piloted, led by our colleagues at the DNB on behaviour and culture is important. The SSM and DNB are not alone in recognising the importance of culture.  

The Central Bank, together with other international supervisory bodies, including, inter alia: the Bank of International Settlements; the Group of 20; the New York Federal Reserve and the Bank of England19 have also identified culture as an important issue.

While regulators have strengthened the structural requirements around governance risk, including remuneration rules, these rules are only a partial solution and are not sufficient to drive appropriate culture in firms, which is the responsibility of the board and senior management.

Given the nebulous nature of culture and the intensive nature of assessing it and transforming it, it is also possible that targeted and effective action on diversity could be used to drive behaviour and culture improvements.

Similar to behaviour and culture, responsibility starts with the board.  We should expect boards to take responsibility for the culture of the firm and understanding the behaviours that culture drives.  And in this context the board should be actively promoting diversity and inclusion at all levels of the firm to improve decision-making and how this, in turn is impacting on behaviour and culture.

Recruitment policy, hiring decisions, internal HR and operational policies, training, education, people management and leadership can all be considered in the context of both improving culture (e.g. through considering how staff are incentivised to behave) and diversity.

Diversity is supervisable.  We can legitimately expect regulated firms to meaningfully address diversity and inclusion in the boardroom, at the executive level and the pipeline of talent needed to run the organisation in the long-term. We can review the policies that are put in place to deliver this outcome.  We can analyse data showing the outcomes from a firm and a sector perspective (as the Central Bank has done and will continue to do an annual basis).  

We will update our governance codes and requirements to be more explicit in terms of expectations regarding diversity policies. We can include diversity considerations in governance inspections and we can consider as part of root cause analysis when we have concerns regarding behaviour and culture, or when serious issues emerge.  Above all, we can hold boards and executives to account to ensure that they are delivering as many have committed to do.

We should also be considering whether our actions are inhibiting change.  For example, in our consideration of fitness and probity applications are we considering exclusively on an individual basis or a more rounded consideration of the construct and diversity of the board, executive and so on.  That is not to say that we should lower our standards, but that we should consider the effectiveness of the board and the executive as a whole. 


So, there is lots that can be done.  I would recognise that from both an internal and externally facing perspective, the Central Bank is at the start of a journey and not at the end.  Significant challenges exist regarding, for example: achieving buy-in, particularly with respect to other priorities rather than conceptually; and data – beyond gender and age, how we do know whether we are succeeding and what our current circumstance is.

The most significant challenge is the need to drive meaningful cultural change in regulated firms and internally within the Central Bank.

But the goal is so important.  Groupthink has been identified as a contributing factor to the financial crisis20. As I have covered, healthy diversity at senior levels of organisations has been shown to reduce the level of groupthink, improve decision making, increase the level of challenge and improve the quality of decisions taken on risk.

Diversity and inclusion, combined with behaviour and culture change are therefore critically important to our mandate of safeguarding stability and protecting consumers. They are also important in making the Central Bank a fulfilling place to work for all our staff, and ensuring that they have the opportunity to reach their potential.

Thank you for your attention.

1 McKinsey - Why Diversity Matters

2 Harvard Business Review - Are Women Better Leaders than Men?

3 Lord Davies Women on Boards


5 Daily, C.M., Dalton, D.R. and Cannella, A.A. (2003) Corporate governance: Decades of dialogue and data. Academy of management review, 28(3), pp.371-382.; Maznevski, M. L. (1994) Understanding our differences: Performance in decision-making groups with diverse members. Human Relations, 47(5), pp. 531–552.; Robinson, G. and Dechant, K. (1997) Building a business case for diversity. Academy of Management Executive, 11, pp. 164–177.; Zelechowski, D. and Bilimoria, D. (2004) Characteristics of women and men corporate inside directors in the US. Corporate Governance: An International Review, 12(3), pp. 337–42.

6 Hoogendoorn, S., Oosterbeek, H. and van Praag, M. (2013) The impact of gender diversity on the performance of business teams: evidence from a field experiment. Management Science, 59, pp. 1514–1528.

7 Terjesen, S., Sealy, R. and Singh, V. (2009) Women directors on corporate boards: A review and research agenda. Corporate Governance: An International Review, 17(3), pp. 320–337

8 Adams, R.B. and Ragunathan, V. (2015) Lehman sisters. FIRN Research Paper.; Kirrane, S (2017) Should financial regulators require regulated entities to have gender diversity on their boards.

9 “Culture eats strategy for breakfast” was first articulated by Peter Druker.

10 Examples: Honohan Report 2010 ‘ ..risky borrowing and lending behaviours’; DIRT inquiry 1986-1998 ‘misbehaviour by banks in facilitating tax evasion’; Tracker mortgage review 2017.

11 For details on the Central Bank’s financial regulation structure, see Address to the Association of Compliance Officers – 10 November 2017

12 Address to the Association of Compliance Officers

13 See Central Bank of Ireland - Gender breakdown of applications received for certain roles in regulated firms 2012 to 2016.

14 Jayne-Anne Gadhia Empowering Productivity: Harnessing the Talents of Women in Financial Services March 2016.

15 FSA Report into failure of RBS, 2014.

16 DNB, Supervision of Behaviour and Culture, 2015.

17 Walter Mischel, The Marshmallow Test: Why self-control is the engine of success. Little,Brown, and Company, 2014.

18 Daniel Kahneman. Thinking Fast and Slow. Farrar, Straus and Giroux, 2011.

19 Examples: Bank of International Settlements, 2016; ECB, 2015; Federal Reserve Bank of New York, 2017.

20 Nyberg, P. (2011) Misjudging risk: Causes of the systemic banking crash in Ireland. Retrieved from   on 10 August 2016.