Overview — Covid and the capital markets: Virus shines a light on finance’s diversity failings

One of the many unexpected consequences of Covid-19 has been an extra prod to the awareness among capital markets firms of the need to improve their performance on diversity and inclusion in their workforces.

It was not obvious from the start that things would go this way. Despite past disease outbreaks like Sars, the coronavirus was essentially a new experience for banks and investment firms in Europe — a pandemic on a larger scale, closer to home and with much sharper consequences.

No one knew how individuals or firms would react. A threat like this could provoke a ‘me first’ attitude. In some quarters it has, such as developed countries stockpiling vaccines while poor regions, especially in Africa, have gone without.

The immediate imperative for every firm was to make sure it could keep operating effectively and within the law, with the vast majority of staff sent home for lockdowns.

But that swiftly took on a social dimension. “The first couple of weeks were about making sure people could work safely from home,” said Anne-Marie Balfe, the talent leader for EMEIA of EY’s financial services business. “Were people physically OK and could they work from where they were? Then very quickly we had a lot of individuals overseas, whom we were trying to bring back as the pandemic peaked. Then within a couple of months, it was: we know we can deliver, but we need to maintain the welfare of our people.”

Right from the beginning, differences between organisations emerged. Rondette Amoy Smith, head of diversity and inclusion, EMEA at Nomura, said some firms had been less than diligent about making sure all employees were able to connect properly in lockdown. Knowing that Nomura was strong on this issue was a plus for her when she joined in March 2021.

Jobseekers considering a new company would ask, she said, “how was 2020 handled?”

The first big lesson from this physical health crisis was, counter-intuitively, the need to pivot to awareness of mental health.

“For us and within our industry, looking after mental health became a much bigger challenge,” said Balfe. “We have a very young workforce — some are living in shared accommodation, some individuals are isolated or struggling to find space to work. There’s another group with young families.”

A study published inThe Lancetin October estimated that in 2020, the pandemic caused a 28% rise in serious depression worldwide and a 26% rise in anxiety disorders — an extra 53m and 76m cases, respectively.

Just as the Covid-19 disease touched individuals in an enormous number of ways, from severe illness and bereavement to no direct effects at all, the measures taken to control it also had starkly disparate results, depending on people’s home circumstances and personalities.

“With Covid there has been a greater understanding among employers that the workforce is made up of people who are individuals with very different needs and ambitions,” said Helen Beedham, a consultant who has spent most of her career advising City firms and other companies on how to improve their cultures and working practices. “People want and need different things, depending on demographics or age or their home life.”

‘Diversity’, in other words, means more than pointing to a spreadsheet showing percentages of women and ethnic minority employees — it involves appreciating and valuing the differences between people and their varied needs.

That is exactly the message campaigners for D&I have been promoting for years.

Covid also served to strip away defences for bias. “Because everyone was on a screen, proximity was no longer an excuse. Everybody was equally distant,” Smith said. “So if when you are in the office, you only tend to grab coffee with the people you went to school with, or who come from a similar background, now you are working from home, are you taking the opportunity to be inclusive? Are you checking yourself to ask ‘am I asking for this person’s opinion? Am I tapping into their skillset?’”

In GlobalCapital’s recent survey on how practitioners believe Covid will change the future of working in capital markets, 34% of the 85 respondents said they agreed with the statement that “Diversity and inclusion will be bigger priorities” as a consequence of Covid. Another 15% strongly agreed, making nearly half altogether.

Virtually all the rest chose the ‘neutral’ answer, leaving only 7% who disagreed or strongly disagreed.

The attention is sorely needed. A study by Green Park, a recruitment firm, in February found that for the first time in six years of research, there was not a single black CEO, CFO or chair at a FTSE 100 company. Only 3.4% of these roles were held by people from ethnic minorities.

And fund data provider Morningstar reported in March that there were fewer women fund managers in the UK than fund managers called Dave.

Few in the capital markets now believe such statistics are acceptable. Beedham is convinced attitudes to diversity and inclusion have shifted particularly in the last two years, for a number of reasons.

“With the rise of ESG investing, employers are under much greater scrutiny around the ‘S’,” she said, referring to social issues. “PLCs are being judged by rating agencies and fund managers about their diversity and inclusion records.”

Socially responsible investment is another field where the coronavirus has triggered progress, rather than a backlash. Investors are honing their ability to factor social issues into investment and risk management decisions.

This is influencing supply chains, too. In finance, issuers ranging from the International Finance Corp to Unilever have started questioning investment banks about their ESG credentials, as part of deciding how to allocate mandates for bond business.

Covid has contributed to making some social problems worse. In April 2020, Satya Nadella, CEO of Microsoft, rejoiced that “We’ve seen two years’ worth of digital transformation in two months” as remote working mushroomed. On one day that month, more than 200m people joined Teams meetings.

But although digital connection has been crucial to enabling people to keep in touch while self-isolating, the technology can also start to shape behaviour.

Beedham is concerned about “e-presenteeism” — the tendency of employees to feel they have to be available online for excessive hours in the day. “We’ve also seen rising levels of loneliness and people not interacting in ways they are used to,” she said.

Thirteen Goldman Sachs investment banking trainees shocked the financial world in March 2021 with a Powerpoint presentation describing the arduousness of their working lives. They rated their mental and physical health an average of 2.8 and 2.3 out of 10 — down from about 9 before they had joined Goldman.

One of the notable things about the episode was that for much of their time at the bank, these analysts had been working from home — supposedly a more comfortable environment where the worst excesses of old school investment banking culture should not have been able to penetrate.

Technology is at best an imperfect barrier to workplace stress — and may even act as a magnifier.

Some financial firms are aware of the dangers and have tried to tackle them proactively.

Beedham has heard of initiatives such as Zoom cooking demos and employees volunteering to read to a colleague’s child online.

At EY, people had been making a special effort “to ensure we are checking in on each other”, Balfe said. The firm has run mental health and resilience programmes, such as coffee catch-ups, team events and games and workshops on yoga and mindfulness.

It has also appointed mental health first aiders to refer people who are having difficulties. “You raise that level of understanding,” said Balfe. “But we need to supplement it with changing behaviour from leadership.”

The pandemic has been different for every individual — but there have also been clear patterns.

In both the US and UK, people from ethnic minorities have been two to three times more likely to die of Covid than white people. At some stages and for certain groups, the risk was as much as five times higher.

At the same time, a string of killings of African Americans between February and May 2020 including Ahmaud Arbery, Breonna Taylor and George Floyd sparked a worldwide wave of protests against racism.

“Prior to that, a lot of the work I did in D&I was on gender,” said Smith. “In May 2020, because we were all stuck in our houses, everybody had to process it. Black men had been killed on camera for decades. These two things combined meant 2020 was a huge wake-up call across the world.”

The pandemic and killings have both drawn renewed attention to racial inequality. “Social justice campaigns like Black Lives Matter and #MeToo have definitely hit companies’ radars very hard,” said Beedham. “A lot have come out vocally in support, saying the right things — but there’s a big question about how it’s backed up with meaningful action.”

Companies and banks have had to examine their own records of equality for black and minority ethnic (BAME) employees and customers, and ask themselves if they could do better.

Smith argued that 2020 had been about understanding — educating people who had not confronted the issue to learn more about racism. “It was an aha moment,” she said. “People would say: ‘I had heard about these things but they didn’t feel as applicable because it wasn’t spoken about as much.’”

This year, she said, “it’s ‘what are we doing as organisations about our retention rates, about attracting top talent?’”

After “what happened in the US with the murder of George Floyd and Black Lives Matter, we’ve seen a real focus on how we are supporting BAME employees to ensure we are providing the same experience,” said Balfe. “There’s been a big focus on that across many organisations — George Floyd and BLM have increased that very much, in the US and UK.”

EY has examined all its processes, from recruitment and onboarding to “what is the lived experience of BAME colleagues, men and women,” Balfe said. “We’ve looked through a process lens and also a behaviour lens — we’ve set goals for leaders. So we’re using a number of levers.”

Managers have targets for the diversity of staff they hire, and they are observed to see whether they bring employees of all backgrounds equally to meetings, and on whom they give feedback to.

Staff are surveyed several times a year on their experiences to assess whether different groups encounter the same opportunities and obstacles. The firm also holds focus groups.

Smith believes tackling racial inequity in banks starts with accountability. “It really starts from the top,” she said. “You have to hold senior leaders accountable. They have got to convey the message to middle managers. The junior talent are on it — they’re all on social media and are for the most part aware. And senior leaders do see the value of change. But often it’s the middle layers that feel that crunch and pressure.”

Training on D&I issues is important — but it should not just be a box to be ticked and then forgotten about. People have to apply what they have learnt on a consistent basis.

Nomura has renamed its employee networks ‘inclusion networks’, which sends a subtle message, Smith argues. It has launched D&I awards for staff and is recognising the unpaid work advocates do through the performance review system.

There is also an inclusion recognition programme, which lets people gain levels from bronze to platinum by participating in inclusion events — including even International Men’s Day. “It’s almost a fun competition,” said Smith. “You get a badge, you can put it on your email signature so clients can see it.”

Nomura is preparing a series of ‘allyship toolkits’ — free packs of information and resources available online to all staff to use at their choice. They will cover awareness of issues such as race, disability and sexuality.

“Sometimes people are afraid to ask a question,” Smith said. “They’re afraid to say the wrong thing. The toolkits will help people understand the terminology. There is also guidance on what to do if you do say the wrong thing.”

In future, one possibility Nomura is exploring is training using virtual reality. “You are in a person’s shoes,” Smith said. “You don’t know who you are. You go to a series of events — you can feel the micro-aggressions. It’s not till the end you realise that’s what people really experience.”

The pandemic may have raised consciousness of inequalities, but that does not mean it has made them better. At least in some respects, the reverse has happened.

“We saw a big exodus of women leaving financial services during the pandemic,” said Balfe. “The lion’s share of caring responsibilities tend to fall on women, so a lot of women opted out and left the industry entirely.” As lockdowns have eased, she added, there has been a wave of “people opting to change roles and careers”.

EY’s attrition rates are usually similar for men and women, but in the past 18 months there has been a slight increase for women. The firm is fighting back, with a drive to increase female recruitment to 50% at graduate level and 30% for partners, as well as improving ethnic diversity.

“It can be reversed, but it’s going to take time,” Balfe said. The firm has noticed women can take longer to go through deciding to accept a new job, so is guiding managers to take this process slowly.

Simultaneously, firms are grappling with difficult questions about how far staff should resume office working after Covid.

In February, David Solomon, CEO of Goldman Sachs, said working from home was “not ideal for us and it’s not a new normal”. Morgan Stanley chief James Gorman told the Financial Times in June “if you can go into a restaurant in New York City, you can come into the office.”

Firms such as these believe direct, centralised contact is the best way to train recruits and share ideas. But workers’ expectations have changed — and the issue interacts with questions of diversity.

“There used to be a real question about people working from home,” said Balfe. “The challenge was: ‘can I trust that somebody is doing their job?’ The last 18 months have busted that open.” There is now “a lot of trust”, she said.

Part of employers’ efforts to retain staff or win back those who left during the pandemic, especially women, involve organisations “signalling what they’re going to do differently,” Balfe said. “Hybrid working or a more flexible approach is a big initial signal” that the firm wants to “ensure women are getting the same access to roles as male counterparts”.

EY is adopting a hybrid model. It will not expect staff to be in five days a week; some individuals will be allowed to work fully from home. Most will do two or three days a week in the office.

Nomura’s hybrid system is based on organising in teams, so people know when each other will be in the office.

But working from home is no panacea. Beedham pointed to a study which found that, when both parents were working from home, for every three hours of uninterrupted work time the man had, the woman got one.

Covid did help here, in one respect. “Employers did see more clearly the role fathers play in home lives,” Beedham said. This was making it easier for fathers to ask bosses to be understanding about their family responsibilities.

Beedham argued: “It’s only when men get access to the same benefits and are culturally accepted as caregivers that women will be able to advance.”

Progress on diversity is not just about numbers — but they are important. Since 2017 the UK has required all firms with more than 250 employees to report their gender pay gaps — how much women and men are paid at different levels of the organisation.

But tracking “stay gaps” — differing retention rates — for women and ethnic groups is also important, Beedham argued.

Ethnic pay gaps do not have to be reported yet, but D&I specialists expect this to come.

Some countries’ laws — for well-intentioned reasons — make it difficult to gather information on people’s ethnicity or religion.

But firms need data on who gets hired and how their pay, careers and experiences progress.

“Although companies might be loudly proclaiming that they are inclusive, the actual experience once [BAME] people are in the door is that too often they don’t have as much of a voice, or access to the same work opportunities,” said Beedham. “So they aren’t happy to stay, or they feel marginalised.”

Careful research can help identify such problems and bring them to management’s attention.

Perhaps the toughest question for capital markets specifically is whether firms can — or even want to — change their traditional culture of high pressure management and exceptionally long working hours.

Doing so could make them more welcoming places for women and people from backgrounds under-represented in the industry. It could also do much for the mental and physical health of all employees.

“In the last six months some employers have been understanding that there’s a disconnect between the working hours people want and what they had before,” said Beedham. “They are realising they can’t work people endlessly at full tilt and expect the same quality of output and positive relationship.”

This is about more than giving staff the odd perk, wellness seminar or extra day off, Beedham argued. Some firms have been extending flexible paid leave arrangements traditionally offered to parents to other staff, to help them balance their lives. But it also requires changes in “the way we work, week to week”.

“It requires a mindset shift,” Beedham said. “Business leaders are quite scared — they are afraid to let go of control. There are different ways of working which allow people more autonomy and control, which allow people to set their own boundaries. A better way can be to describe to people ‘this is what we want to achieve’ and give them more freedom to have influence over how they achieve it.”

Balfe believes the pandemic “has changed the language we use around people, the level of awareness and comfort talking about mental health, resilience and the need for support. Gone is the stiff upper lip and putting a brave face on it. More common is people bringing their whole self to work — it’s a very good and healthy thing.”

Among leaders, she said, “there is a shift to being much more human and personal in the way you lead — to a more holistic approach.”

The mood is changing faster than the substance. “Are hours going to change considerably? Probably not,” Balfe said. “The workload is still there, deals have to be done, there are tight deadlines. But there’s a little bit more flexibility in the system.”

On many aspects of the social side of work in the capital markets, the experiences of the last two years have been revelatory. Staff will no longer put up with what they used to accept as normal. Meanwhile, firms are realising the business benefits of inclusive working practices, in gaining a more diverse, engaged workforce that is more fully able to express ideas.

“I think the greatest piece is acknowledgement,” said Smith. “We have a way to go and we’re not perfect, but we’ll get there.”