Unlocking potential through socio-economic diversity
Progress Together is a not-for-profit membership body, launched in 2022 as an output of a Government-commissioned taskforce. Progress Together supports its members across UK financial services to level the playing field, so employees from all socio-economic backgrounds can achieve their full potential. We are delighted to share with you this short piece written by Sophie Hulm, CEO of Progress Together.
This year saw our first annual analysis of member firms’ data and practices. It is the largest study of its kind internationally in financial services, comprising 149,111 employees. The study revealed that:
- Socio-economic background has a greater impact on career progression than gender or ethnicity.
- Women face a ‘double disadvantage’, progressing 21% slower than women from more advantaged families. For men this gap is 13%.
Other evidence from the Bridge Group shows that 89% of senior leaders are from higher socio-economic backgrounds compared with just 47% at junior levels. Yet, evidence tells us that the lack of progression among those from lower socio-economic backgrounds has no link to job performance.
At best, the failure to recognise the achievements of those from different socio-economic backgrounds is a failure to benefit from high performing talent. If the UK wants to remain globally competitive, it must be led by job performance, not notions of perceived confidence, gravitas or ‘fit’. Across the UK workforce as a whole, 52% of CEOs are from higher socio-economic backgrounds, so the 89% figure for financial services is stark.
Despite emerging good practices, our analysis of member firms shows that there is still a long journey ahead. We know that the regulators play a key role in speeding up progress.
In our open letter to Nikhil Rathi, CEO of the Financial Conduct Authority, and Sam Woods, CEO of the Prudential Regulation Authority in the Financial Times last week, we raised five key points:
1. Concerns About Class Pay Gap:
Financial Services has the highest class pay gap of all sectors. Individuals from lower socio-economic backgrounds receive £17,500 less annually compared to those from higher socio-economic backgrounds. The regulators have an opportunity to address this issue through their consultations on diversity and inclusion.
2. Impact on UK Economy and Productivity:
The financial services sector, despite being a key contributor to the UK economy, is affected by longstanding productivity issues. Increasing socio-economic diversity can enhance productivity, making the sector more competitive globally. Evidence shows that improving social mobility to Western European levels could boost annual GDP by approximately 2 percent.
3. Socio-Economic Background as a Barrier:
Socio-economic background has a more significant impact on an individual’s success path than gender or ethnicity. There is a need to address socio-economic diversity for both individual well-being and the overall success of the financial services sector.
4. Call for Mandatory Data Collection:
We are advocating for the mandatory collection of socio-economic background data within the financial sector. Data collection is essential for accountability and driving positive change. There is an increasing trend for socio-economic data collection and its recognition by investors as an indicator of growth-oriented and talent-focused companies.
5. Opportunity for Positive Change:
The regulators' consultations on diversity and inclusion provide a unique opportunity to bring about positive change. https://www.progresstogether.co.uk/fca-diversity-and-inclusion-consultation-read-our-response/
We know that socio-economic diversity is linked to the regulators’ competitiveness objectives in several ways:
Innovation and Decision-Making: A socio-economically diverse workforce brings a variety of perspectives and experiences, fostering innovation and better decision-making. This diversity helps financial firms adapt to changing market conditions, ultimately enhancing their competitiveness.
Risk Mitigation: Regulators acknowledge that a lack of diversity, including socio-economic diversity, poses a risk of groupthink. Groupthink can lead to weak governance and failure to act in consumers’ best interests, impacting a firm’s competitiveness. Encouraging socio-economic diversity helps mitigate this risk.
Consumer Trust and Outcomes: The regulators emphasize the importance of securing consumer protection, promoting effective competition, and enhancing the integrity of the financial system. A socio-economically diverse workforce can build trust with a broader consumer base and contribute to better consumer outcomes, aligning with the regulators’ objectives.
Talent Pool and International Competitiveness: The FCA recognizes diversity of talent as a factor underpinning the international competitiveness of the UK financial services sector. Socio-economic diversity contributes to a more comprehensive talent pool, ensuring the industry remains competitive on a global scale.
ESG Considerations: Socio-economic diversity aligns with Environmental, Social, and Governance (ESG) criteria. As socio-economic factors become increasingly important in ESG considerations, firms that embrace socio-economic diversity position themselves favorably, meeting stakeholder expectations and regulatory requirements.
Investor Expectations: Investors are increasingly interested in firms’ diversity metrics, including socio-economic diversity. Mandating data reporting on socio-economic background helps financial institutions meet the growing demands from stakeholders, aligning with the regulators’ objectives of protecting and enhancing the integrity of the financial system.
Our response to the FCA and PRA consultations can be found here. It addresses various aspects, including data reporting, targets, demographic characteristics, and the mandatory or voluntary nature of disclosure. We advocate for making socio-economic diversity a mandatory reporting characteristic, given its importance for better decision-making, outcomes, and overall success in the financial services industry.
Socio-economic diversity in the financial services sector aligns with the regulators’ objectives by contributing to innovation, effective risk management, enhanced consumer outcomes, a competitive talent pool, and meeting evolving ESG and investor expectations. Let’s not miss this opportunity for change.