There has been much debate recently about how to bolster the UK's competitive advantage in global financial services, amid a slowdown in initial public offerings (IPOs)and a fall in equity valuations compared with other major markets, the United States in particular.
Much of the debate revolves around market structure and regulation: which rules and incentives to add and which to remove. However, the role of culture – and inclusion in particular – is not always given the attention it needs.
These factors have been on my mind lately for a few reasons.
October is Black History Month in the UK and much of Europe – something I have a strong personal interest in. It's a time to celebrate considerable progress on inclusion over the years, but also to recognise that there's still a long way to go to ensure Britain’s black communities, and those of other ethnicities, are appropriately represented in and by the UK financial services industry. (The annual Race to Equality study by Reboot does a good job of outlining these challenges.)
I also chair the working group for the CFA Institute's Diversity, Equity, and Inclusion (DEI) Code in the UK, which launched earlier this month. In drafting the UK version of the Code, our group had a determined focus on embedding intersectionality – ensuring that different perspectives on gender, race and ethnicity, socio-economic background, disability, and a host of other factors were adequately considered.
What Does That Have to do With Competition?
It will take more than just rules and regulations to deliver the kind of change needed to boost competitiveness in UK financial markets. What's needed is cultural change to build on the UK's existing strengths. Inclusion is foundational to all of it, whether ethnic and racial, gender, LGBTQ+, or any other factor.
It's been demonstrated time and again that a focus on ensuring cognitive diversity by building a genuinely inclusive culture increases innovation within organisations and awareness of risks and opportunities that might not have otherwise been considered.
Greater focus on this can only be of benefit to financial services organisations in future, building on the UK's existing wealth of diversity and global connections. That's why Morningstar has chosen to engage on these matters; for example, by becoming a signatory to the HM Treasury Women in Finance Charter.
This is clearly front-of-mind for the industry regulator too. In its ongoing consultation aimed at setting minimum standards for regulated firms, the Financial Conduct Authority states: "a strength of UK financial services is the exceptional pool of talent that it attracts. Greater diversity can further support the international competitiveness of the UK’s financial services sector […] This means sustainably widening the sector’s talent pool and increasing the attractiveness of the UK as a place to invest and do business."
No to Tokenism
But generating genuine culture change will take more than just the "counting faces" approach that seems to have prevailed in many circles. As the World Economic Forum puts it, "tokenism, and implementing 'diversity' programmes without proper thought, is almost as toxic as inequality." Getting the balance right on accountability for delivering outcomes that can be quantitatively measured (i.e. diversity), against those of a more amorphous but still-important nature (i.e. organisational culture and inclusion) will be critical.
Yes, improving competiveness in the UK market is fundamentally about attracting financial and intellectual capital. But it's also about winning hearts and minds. Inclusion is fundamental to all of it.
Lindsey Stewart is director of investment stewardship research at Morningstar. Lindsey works with the CFA Institute, the Investor Forum, Reboot and other organisations to advance inclusion in asset management and financial services
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