The Financial Conduct Authority has reminded asset managers to make inclusion a priority for their own good. Meanwhile the Pensions Regulator made trustee diversity a topic, if not much more, in its latest trusteeship consultation. But with the investment and pensions industries in self-preservation mode, is progress possible without quotas? 

 

Diversity is not a nice to have – it is a commercial, organisational and material concern, as FCA executive director of strategy and competition Chris Woolard outlined at the UBS Hedge Fund COO Conference last week. 

 

“When firms haven’t made diversity a priority, it's a good indication they may not value challenge and internal debate. And in those sorts of cultures, misconduct can flourish. These are no longer issues that firms can sweep under the rug,” Woolard said. 

 

 

Diversity and inclusion have been on the public agenda for some time now, but the reality on the ‘shop floor’ still lags behind the rhetoric.  

 

Asset management as an industry is particularly poor at hiring and promoting people with the 'wrong' gender, skin colour and/or educational establishment on their CV – people who don’t mirror those already present in those companies. 

 

Woolard, who grew up on a council estate and went to a comprehensive school, chastised asset managers for their elitism, highlighting research which shows that 61% of asset management leaders attended independent schools (versus only 7% of the UK population), and just 6% of leaders in asset management are women, while just 1% of investment managers identify as Black, African, Caribbean or Black British. 

 

The FCA executive also hit out at firms’ statements that they seek candidates who are ‘rounded’ or ‘polished’, saying that these attributes go hand in hand with privilege – the leisure time and parental funds to invest in extra-curricular activities and crucially, familiarity with the subtle social ‘codes’ used by the privileged. 

 

“Knowing these codes breeds confidence, which can often be read as ability. But we all know it’s by no means certain that the most confident or voluble person in the meeting will make the most salient contribution,” said Woolard.  

 

 

The FCA’s willingness to set an example and to criticise those who lag behind on diversity is welcome. It may or may not contribute to change; the slow pace so far is a sign that much more may be needed – to the point where the usefulness of a voluntary system should be questioned.  

 

In terms of the proportion of women among Approved Persons under the FCA regime, almost no progress has been made since 2005, for example, said Woolard.

 

The effect of increasing use of technology on the demographic makeup of the financial sector is a further question that needs answering; in fintech, 70% of employees are male, according to Deloitte. And that is before looking at the pay gap, which is stubbornly high. Despite all the rhetoric, it looks almost as if we are in reverse gear. 

 

The fact the FCA has written diversity on its flag also prompts questions about the Pensions Regulator’s approach to the issue. The latest consultation on trusteeship made an attempt at discussing the diversity issue, which has been glaringly obvious for decades now. 

 

The PLSA found in 2016 that a quarter of all trustee boards were all male, and TPR research from the same year showed that around half of trustee chairs and a third of trustees overall were older than 60. 

 

“Our view is that pension boards benefit from having access to a range of diverse skills, points of view and expertise as it helps to mitigate against the risks of significant knowledge gaps or the board becoming over-reliant on a particular trustee or adviser,” TPR said in its consultation, adding that this also supports robust discussion and effective decision-making. 

 

But if that is the case, it is hard to see why TPR immediately follows this up saying that it is against quotas on trustee boards such as the Netherlands operates – on the grounds that “it is difficult to see how many of the smaller schemes, with a much smaller pool of resources from which to select trustees, could meet any quota introduced”. 

 

TPR has not in other recent regulation been shy to make life more difficult for smaller schemes – it is precisely because it considers them to be poorly governed that it has been seeking to push them into consolidation, making rules more onerous and stringent.  

 

For TPR to say that, even though a lack of diversity leads to poorer governance, it would not want to regulate for fear that smaller schemes could not fulfil the requirement is, therefore, baffling. It betrays a general reluctance to grasp the nettle – not just among TPR officials, but regulators generally. 

 

A reporting requirement on diversity, such as TPR has proposed, will do about as much as including a statement on ESG in schemes’ SIP – very little. Unless regulators are willing to do more, all we can hope for is another Greta to go on strike for diversity.