A charter for change in financial services?

On Friday 27 May 2016, we had the privilege of hosting a breakfast briefing at which Vicky Wickremeratne interviewed Emily Cox, co-author of the Gadhia report “Empowering Productivity: Harnessing the Talents of Women in Financial Services."

The report, which was commissioned by HM Treasury as part of the UK Government’s 2015 plan for generating long-term economic growth, examines the obstacles and enablers to the progression of women to senior roles in the financial services industry. The report makes the following overarching recommendations, which HM Treasury is asking financial services firms to commit to implementing, via a voluntary Charter:

• Having one member of the senior executive team who is responsible and accountable for gender diversity and inclusion. HM Treasury’s guidance on the Charter makes it clear that:
  • Firms must appoint a member of the senior executive team responsible and accountable for gender diversity and inclusion within three months of signing the Charter. There is no obligation to publish the name of this senior executive, but details must be provided in confidence to HM Treasury. Firms are welcome to publish these details if they choose.
• Setting internal targets for gender diversity in senior management. HM Treasury's guidance on the Charter makes it clear that
  • Firms should set their own internal targets for gender diversity in senior management. This should ideally be a package of targets designed to improve gender diversity at the senior levels of the organisation. Given the diversity of firms in the sector, organisations have discretion on the detail of these targets and any overarching narrative explaining the rationale for these targets and plans to achieve them. However HM Treasury would expect to see at least one numerical target to address improving gender diversity in senior management.
  • Many firms have committed to improving gender diversity at the most senior levels. HM Treasury encourages firms to also set targets for a range of activities such as flexible working, recruitment, promotion or retention.
  • Internal targets can be set on an annual basis or up to five years. Longer term targets may be set, but this would need to be discussed with HM Treasury.
• Publishing progress annually against these targets in reports on the firm’s website. HM Treasury's guidance on the Charter makes it clear that:
  • Firms should report their internal targets for gender diversity to HM Treasury within three months of signing the Charter.
  • These targets must be published on a webpage on the firm’s website which includes the HM Treasury Women in Finance Charter Mark. Firms must provide a link to this webpage which will be published on the gov.uk website alongside the list of current signatories. The webpage should be easily navigable where the targets are clear and easy to find (eg not buried in a large document).
  • Alongside the targets themselves, the webpage should also include some narrative text which explains why the firm has chosen these targets and how they can help improve gender diversity in senior management. When publishing progress annually against these targets, this narrative should also explain why the firm has or has not met their targets.
  • Firms have 12 months from the date they set their gender diversity targets to report progress against these targets to HM Treasury. This progress should be published alongside the targets on the firm’s webpage. Reporting progress against these targets will then be on an annual basis.
• Having an intention to ensure the pay of the senior executive team is linked to delivery against these internal targets on gender diversity. HM Treasury’s guidance on the Charter makes it clear that:
  • Given the diversity of the sector, firms have discretion on how executive pay is linked to delivery. It is for firms to determine which employees are in scope and the proportion of bonuses affected.
  • Firms that do not operate bonus schemes are still welcome to become signatories, but would need to explain their position on variable pay to HM Treasury.
  • Firms do not have to publish details of how senior executive pay is linked to delivery against gender diversity targets, but must submit a short statement in confidence to HM Treasury to explain this link. Firms are welcome to publish these details if they choose.

The Women in Finance Charter can be found here and the list of original signatories to the Charter here. The second wave of signatories is available here.

Emily was a vibrant speaker who gave a fascinating insight into the methodology and compilation of the report, next steps and Virgin Money’s own work as a result of having been asked to lead the report.

Set out below are our top take-aways from the session. Some reflect recommendations and commentary set out in the report itself, but which came out loud and clear in our discussion with Emily. Some reflect our further discussions with clients considering signing up to the Charter:

Signing up to the Charter

• Seriously consider the pros and cons of signing up to the Government’s Charter. Might it impact your ability to hire top female talent if your brand is not aligned to this initiative?
• Details of the current signatories to the Charter can be found here.
• Workshops, practical help and the sharing of best practice are available for those who sign up to the Charter on how to progress towards the objectives set.
• Businesses can sign up to the Charter on an ongoing basis, and a list of signatories will be published annually.

It’s not just about children - a broader cultural issue

• Whilst family commitments are sometimes a consideration, many women leave financial service firms for reasons other than family. Many dislike the culture within financial services and are voting with their feet.
• In particular:
  • the quality of people management is a key consideration (“star bankers, lousy managers”)
  • the emphasis on “visibility” or “presenteeism” and the lack of value placed on out-of-office contributions
  • “There is still too much public school banter which is very English male”
  • the need for more female role models whose success is viewed as attainable, and
  • ensuring that women see the purpose and value in what they are being asked to do.
• Role models (both male and female) should be clear about what they doing - actively communicating when they are unavailable because they are, for example, dropping off or picking up children - the issue shouldn’t be “fudged” and hidden away.
• Both men and women need to embrace and lead the changes.
• Men with daughters can (perhaps) most easily be convinced of the need for action.
• The training and understanding of line managers will be critical - “People join organisations, but they leave their managers”.
• Key decision makers and line managers (at the least) should have training in understanding the different ways in which men and women operate in the workplace and how sub-conscious bias might impact.

Setting a target and publishing progress against it

• A target is just that - a target, a goal, an aspiration. It is not a mandatory requirement. It does not mean that individuals have to be recruited irrespective of merit in order to meet a mandated quota.
• Why wouldn’t an organisation set a target of 50/50 gender balance at senior levels, in particular, where their gender balance at entry level is equal?
• The report recommends that all firms publish its own inclusion strategy and targets on an annual basis - report against these targets. An overarching ambition of 50/50 does not have to be achieved within that annual period - steps towards achieving the target can be annualised. Virgin Money itself has committed to 50/50 by 2020.

Executive accountability

• Someone from the business side - a profit and loss centre.
• A good case can be made for this being a man.

Linking targets to remuneration

• The report suggests that executive bonuses should be explicitly tied to achieving the internal targets which firms have set.

• Firms might want to think carefully about:

  • who this should apply to if success is to be achieved (the Champion, the Board, line managers who are making the actual decisions)

  • the amount of variable compensation that would be at stake

  • how success would be measured and fed into the compensation process in order to stand up to challenge

• The detail of the proportion of variable pay which is linked in this way does not need to be included in the reporting requirement.

The answer?

• There is no silver bullet.
• No one size fits all.
• Organisations will have to consider (in detail) their own individual response and strategy.
• Sponsorship schemes (where a senior person actively promotes and champions the cause of a beneficiary) appear to be very powerful.

Anne Sammon’s summary of the report itself is available here.

If you would like more detail on the breakfast briefing or have any specific questions in relation to signing up to the Charter please do not hesitate to contact Vicky Wickremeratne, Anne Sammon or your usual Simmons & Simmons contact.