Greater talent diversity in finance is unambiguously good for business and for society.

Studies show that higher diversity results in stronger performance, and younger generations of top talent view DEI as mandatory in the workplace. But as the industry seeks meaningful improvement on metrics like gender and ethnic diversity in both the workforce and in leadership, firms must commit to more than just inclusive recruiting; they also need to cultivate and promote talent already present within the organization.

Consider women and women of color in finance. Today, much of Wall Street can point to robust recruitment strategies that emphasize gender, among other diversity metrics, and a recent study found that half of entry-level employees are women. Early parity, however, is not replicated in the senior ranks: in 2018, women held just 17 percent of SVP-level leadership positions, and women of color only 3 percent. Clearly women still face steep odds in the pursuit of career growth. Recruitment, then, is only part of a solution, and diversity efforts risk failure unless firms implement a longer-term strategy.


Understanding Attrition

The process that results in this attrition begins almost immediately. In 2018, women were 24 percent less likely than their male colleagues to reach their first promotion. When career growth develops like compound interest on an investment, the first promotion is a critical inflection point–and missing it can have a significant, long-lasting impact.

In this context, well-intentioned firms are actually operating on a meritocracy fallacy. The perception that all employees have an equal shot at promotion in a sink-or-swim culture ignores that some recruits, especially those from communities historically underrepresented in financial services, might require more or different types of support to build a successful career.

Often, women realize that pursuing the achievements that won them hard-earned access to a career in finance—diligent work, technical mastery and delivered results—left little room for another essential element of career success: social capital. Women, and particularly women of color, need to be able to look up, look around and build sticky relationships with the managers, mentors and sponsors who play critical roles in advancement. That skill is not taught, and it might not come easily to women, especially in social contexts that are male-dominated; Indra Nooyi, former Pepsi CEO, for example, remembers feeling “just happy to be in the room” as a young woman of color in business.


Culture’s Relationship to Retention

There is no shortage of advice directed to these women and, as Llanor Alleyne recently argued in a story on, they should certainly use it to advocate for themselves. But firms that are invested in diversity and retention cannot expect their talent to solve these challenges alone; it is the company’s responsibility to support those who need it most, for everyone’s benefit.

Yet, institutional plans that zero in on “retention readiness” alone misunderstand the challenge. If managing for retention simply means having HR address talent as it heads for the door, then the firm is already too late. Instead, firms must “think at the middle,” proactively addressing the cultural building blocks that collectively impact a team member’s decisions to stay or leave.

Creating a Culture of Equity

Sustained diversity requires coordinated focus at all levels of an organization in order to create a culture of equity. Boards, executives, firms and managers looking to make meaningful progress should start with these actionable steps:

For Board Members:

  • Hold firms accountable for diversity at every level across departments, not just in total population. Review a company’s key performance and power indicators through a DEI lens, setting metrics for areas like representation in P&L roles or equity in compensation packages.
  • Make diversity integral to succession planning. Setting early DEI expectations—by evaluating a candidate’s DEI track record, for example—is no different than expecting excellence from top performers in other areas of management.

For the C-Suite:

  • Check in with team members across identity groups. No single group is a monolith, and markers of diversity are not immediately visible. Social listening through lunches, office hours or all-hands meetings is an easily accessible way to understand how talent segments connect to—or struggle with—their work and the firm.
  • Establish concrete firm-wide standards and expectations for diversity. In her 2014 Ted Talk, investor Mellody Hobson asks why DEI is the only area in finance where organizations accept “activities” over results. Forward-looking companies already measure and tie compensation to DEI progress.
  • Reinforce the tone from the top. Model DEI priorities through visible commitments, courageous conversations and by consistently centering diversity initiatives in communications.

For Firms:

  • Develop a robust talent pipeline that exposes underrepresented groups to important finance skills earlier. Create initiatives designed to close knowledge and experience gaps, like the programming by Girls Who Invest, which provides educational programming, internships and community for women in finance, or the Women in Private Equity Boot Camp.
  • Require manager effectiveness training. Management is one of the most impactful factors for talent success. Training should cover concepts like giving effective feedback, checking implicit bias and creating psychological safety. In finance, as elsewhere, there is truth to the saying, “people quit their bosses.”
  • Staff women of color on big-ticket clients alongside the highest performing managers. Big accounts beget opportunity, recognition and career development in finance’s producer-driven culture. Where does diverse talent tend to fall in the hierarchy of firm projects? A commitment to long-term diversity can mean closing opportunity gaps by allocating women of color—the talent population most at risk of attrition—to positions where there is the most to gain.

For Direct Management:

  • Give effective feedback. Discomfort and fear of misunderstanding often compromise a supervisor’s ability to give valuable feedback. Recognizing that leadership styles can vary, managers must leverage training to give respectful feedback that is clear, direct, actionable and without bias. For example, before suggesting a team member “develop her executive presence”—a common critique for women—first review that understanding of executive presence for bias and, second, get specific about how and why her actions currently impact performance.
  • Advocate for direct reports in group settings. In professional spheres, neutralize the “manterruption” phenomenon with an amplification strategy that helps women have a voice in the room, lends credibility and visibly gives credit where it is due. In social settings, consider and correct for how affinity biases could be making events like golf outings or March Madness brackets exclusionary to certain members of the team.

Ultimately, in financial services as elsewhere, a firm’s culture of equity is essential for achieving lasting diversity. Firms that undervalue the importance of culture and diversity do so at their own cost, as illustrated by severe attrition of high-performing female talent in leadership roles.

Shoma Chatterjee Hayden is a partner and chief innovation officer at leadership advisory firm ghSMART. She helps public and private equity boards and CEOs build the leadership capital needed for profitable and sustainable growth.

Cintia Nojima is a principal at ghSMART, where she serves leaders across Fortune 500 companies and private equity firms.