People of color remain poorly represented in upper ranks of U.S. financial firms, despite roughly reflecting the population in entry-level roles, indicating that white employees are much more likely to be promoted, McKinsey & Company said.
Focusing on banks, asset managers and other financial firms, the New York-based management and consulting firm released a comprehensive report Thursday detailing employment trends at every management level. The consulting firm, in partnership with the W.K. Kellogg Foundation, found that the proportion of racial minorities drops at every level, from 39% at entry-level positions to just 10% at C-level roles.
The phenomenon is even more pronounced with women of color, who represent 21% of entry-level employees, and just 2% of C-level executives, according to McKinsey’s findings.
The report comes as many major financial institutions, spurred by widespread protests over racial equality this summer, assert social justice objectives and take steps to improve diversity within their companies.
Recently, Wells Fargo said it would tie executive pay to diversity hiring targets, Truist Financial said it would increase minority representation in senior roles over the next three years, and Bank of America said it is reconfiguring its asset manager analysis to promote diversity. Numerous other financial institutions, such as Visa, U.S. Bank and HSBC, are taking similar steps.
However, the report from McKinsey suggests that meeting these pledges may require addressing deeply ingrained imbalances in the industry. Along with failing to advance up the ranks, the consulting firm found that Black, Hispanic and Asian employees at the entry and manager levels are more likely to leave the company than their white counterparts.
A related issue is that white employees are more likely to be promoted than others. This is particularly stark compared to Black employees, who are less than half as likely to be elevated to manager, senior manager, or senior vice president roles. Asian and Hispanic employees are also promoted less often than white employees, and especially face barriers reaching the C-suite, which Hispanic executives are promoted to at 40% of the rate white people are, and Asians only 1%.
To address this situation, McKinsey recommended “a transparent hiring process that standardizes the criteria for interviewing and hiring,” and fostering an inclusive culture that values all contributions.
“Belonging — the degree to which individuals feel a sense of connection and build meaningful relationships with others at work — is an important part of this,” the consulting firm wrote.
In order for financial companies to address the promotion gap, McKinsey recommended that “Standard matrices that describe what great looks like at each stage of an employee’s development can help ensure fact-based promotion discussions as well as enable supervisors to give honest feedback in an objective way.”
The authors also pointed out that executives are more likely to sponsor and mentor lower-level employees who look like them, and that addressing this imbalance would help move the needle.
The report examined data from 36 companies in banking, asset management, institutional investment, private equity and consumer finance with a total of about 500,000 employees.
Workplace diversity, in addition to a moral cause, has been shown to lead to better company results, according to a separate McKinsey study. Citing similar research, investment and banking firm State Street said in August that it would ask companies in its investment portfolios how they are addressing risks stemming from lack of diversity.
U.S. government officials have been pressuring financial institutions as well. A Federal Reserve official said earlier this week that banks are not being transparent enough on workplace demographics, and a bill introduced by Democrats in both the House and Senate in August would require the Fed to use its economic levers to promote racial equity.