Boston-based State Street, one of the largest investment firms in the world, has made bold plans to diversify its ranks, with a plan to triple the number of female and ethnic minority staff in senior roles by 2023. However, instead of reporting on this goal as an ambitious attempt to level the playing field within an overwhelmingly homogenous financial industry, news headlines rang out that the firm “will need permission to hire white men,” among other similar takes. Not only is this false, it has played into a dangerous narrative that has been catnip for culture wars, that the changes that move us toward a more equal society are unfair. That false narrative shouldn’t go unanswered.
Fairness and Equity are not the Same
The idea that fairness toward individuals and equity among groups are equally important needs to be re-examined. To rightly see how they’re different, we need to understand the context, including history, before we move forward. In this case, the simple act of hiring a diverse workforce ultimately means reckoning with a legacy of societal and institutional structures that have promoted a financial industry in the U.S. dominated by white males at the expense of other groups. By baking these racist and sexist structures into candidate pipelines, organizational cultures, and advancement incentives, whether intentionally or not, the industry has impeded capital flow to Black and Latinx communities. Over time, this has contributed to the racial wealth gap in the United States, since overwhelmingly White asset managers innately did not know or understand communities that were not their own. They couldn’t adequately advocate for their inclusion. At its worst, the financial industry blocked progress, promoted concentration of wealth, and advocated for policies like redlining that made these preferences codified rules. This is the very definition of inequity. Addressing these historical wrongs means moving ahead with tangible actions and goals, as State Street has done.
Righting these wrongs will require people, many whom history has preferenced, to suspend their view of individual fairness or what some may call “power.” In their book, Power for All, pioneering researchers Julie Battilana and Tiziana Casciaro say that most people have deep-seated misconceptions about power. “Most people assume power is predetermined by personality or wealth, or that it’s gained by strong-arming others.” Thus, any act that’s perceived as an “assault” on power is met with an equal defiance. Yet Battilana and Casciaro offer a different definition of power as “the ability to influence someone else’s behavior. This influence is derived from having access to valued resources, which anyone can have, regardless of their income or status in life. Everyone has a resource to offer, so everyone has access to power.”
Companies that prioritize diversity emphasize resources in the form of talent, lived experience and skills that enable better work for groups or customers who’ve been historically excluded from finance and wealth accumulation. This talent often looks like the very communities that financial companies want to serve better. Inevitably, white men may find themselves in more fierce competition with those who have not historically been deemed their peers. Hence, the defensive reaction we’re seeing in media, and no doubt, in some boardrooms. It has nothing to do with fairness. The system has never been impartial or objective to individuals.
Teeth Behind the Pronouncement
A more nuanced look at State Street’s goal reveals real teeth behind its ambition. “Our [diversity hiring initiative] is now front and central for State Street — it’s on every senior executive’s scorecard,” said Jess McNicholas, the bank’s head of inclusion, diversity, and corporate citizenship in London. McNicholas is referring to accountability that “leaders have to demonstrate at their annual appraisals what they have done to improve female representation and the number of colleagues from ethnic-minority backgrounds.” If not, there are repercussions, including facing lower bonuses if these goals are not achieved. There’s no excuse anymore for a lack of qualified candidates or pipelines.
It requires work to shift the norm. Any management theorist knows that strong goals have to be clear, but also require an articulation of what success will look like and a mechanism to incent their teams to achieve them. This is what State Street has done. And they aren’t alone. Goldman Sachs has set goals of having Black and Latinx employees make up 7% and 9% of its vice president ranks, respectively, by 2025. From a gender parity standpoint, Deutsche Bank has a goal of having women make up 30% of its senior executives by 2025, an increase of 6% from its current position.
Secret Diary of a Sustainable Investor
State Street’s efforts are part of a larger movement in the financial industry toward accountability for its larger role in society. The conversation is moving beyond shareholders to the needs of stakeholders, from employees to communities to the environment. Standards — teeth — that in State Street’s case turned its actions into catnip for the culture wars are necessary. Some of these non-financial goals around environmental, social, and governance-related impacts, known as ESG, may be controversial.
When there aren’t goals and standards, organizations instead use “loose half-measures, overly rosy forecasts” and the result is a false sense of security, as the former BlackRock executive Tariq Fancy has written in the widely-shared long essay, “The Secret Diary of a ‘Sustainable Investor’.” We can ill afford a false sense of security as the world faces crises of inequality and climate change. ESG is hard to implement, but there is a general acceptance that the rules need to change and standards are needed to guide this work further as many have been advocating for. The use of the Sustainability Accounting Standards Board (SASB) disclosure metrics (the Value Reporting Foundation) alongside those from Global Reporting Initiative show that this work requires organizational intentionality, industry transparency, and public accountability to move these non-financial goals forward, including the social part connected to diversity.
What we can learn from the State Street example is that goals require bold prioritization and trade-offs if they are truly worth it. So instead of being the anchor dragging along the seafloor as the tide shifts, we can change the narrative to a positive one, moving toward a culture of equality and fairness for all. Correcting past harms within Wall Street, which is at the heart of our current power structures, is worth the good trouble we’ll encounter along the way.
Nate Wong is an adjunct professor at Georgetown University and focuses on reimagining capitalism for societal good. He has launched and grown impact units at Deloitte, Boston Consulting Group, and Georgetown.