Promoting diversity and inclusion is the best way to improve your conduct MI
Financial services organisations have worked for many years to improve their conduct towards customers and markets. Firms have also taken steps to improve their employee diversity and inclusion. Each of these topics faces ongoing challenges which can be better resolved by taking a combined approach.
Firstly, there is the challenge of producing effective conduct MI. We have seen many clients respond to this challenge by collecting more data and monitoring more metrics. However, this is an effort-intensive approach. At best, as you increase your metrics you get diminished returns. In fact, it might be counterproductive; it can be difficult to interpret large volumes of data and determine key issues. It is true that machine learning has the potential to assist in identifying areas in need of attention. However, this approach faces the immediate issue of dealing with fragmented data and poor data quality, and the longer-term challenge of training computers to determine fairness – fairness being difficult to codify and therefore to measure.
Secondly, there is the challenge of building buy-in for the business case for promoting diversity and inclusion (aside from it being the right thing to do). Studies show that increased diversity improves business performance and that more cognitively-diverse teams reach better decisions. Despite these benefits, it is common for firms to be unwilling to focus their attention on improving diversity and inclusion, particularly in tough commercial environments.
Is there anything organisations can do differently to address these two challenges?
Organisations should align their approaches in order to better detect conduct risk and better articulate a business case for improving diversity and inclusion.
Increasing employee diversity and inclusion is the best way to improve the detection of conduct risks. A diverse workforce will identify a broader range of concerns. An inclusive culture will lead to more concerns being shared and addressed. And, in turn, these risk management benefits add to the business case for promoting diversity and inclusion.
This approach is based on the principles that, with the right training and encouragement, every employee can identify conduct risks in their area, and that employees will identify different concerns based on the unique situations they each experience at work.
Diverse groups have different perspectives based on their respective experiences and backgrounds. This range of perspectives is particularly valuable when judging whether business practices are fair. Discussions which include different opinions are less likely to result in group-think, and more likely to result in appropriate mitigating actions.
However, it is fair to assume that people will only raise concerns if they think that they will be listened to and not judged for raising issues or asking questions. Therefore, it is just as important to promote inclusion as well as diversity in the workplace.
How can organisations become more diverse and inclusive?
There are several ways in which organisations can adapt themselves in order to become more diverse and inclusive.
- From a ‘people’ perspective, firms should develop a target-driven HR strategy with the objectives of recruiting, developing and retaining a diverse and talented workforce. A key part of that strategy should be to develop a culture which addresses behaviours which some might see as inappropriate but not serious. Training events can start a conversation about inclusion, but they will not change culture overnight. For long-term results, organisations should empower people to patiently educate each other to be more inclusive. Taking such actions can reduce the likelihood of cases which require more serious responses.
- By combining training, technology and process changes, firms can make it less difficult, and more secure and rewarding, for employees to raise concerns.
a. Organisations should provide training to improve their managers’ ability to respond to concerns raised by team members so that they are able to effectively address concerns and preserve confidentiality.
b. Firms should consider using technology to provide alternative ways for people to raise their concerns. For example, accessible digital whistleblowing tools can make the process easier for people with disabilities and neuro-diverse employees who find social interaction more challenging.
c. Where possible and appropriate, organisations should adapt their whistleblowing processes to include the sharing of successful outcomes with employees. This helps whistle-blowers to understand the positive impact that they have had, and makes them, and others, more likely to register their concerns in the future.
- Firms should monitor inclusion metrics, such as the percentage of employees who feel comfortable speaking up and raising concerns. If these metrics show poor results, it is likely that concerns about conduct are not coming to the attention of key decision-makers.
What does this mean for the future of conduct metrics?
If conduct is best detected through employee observations, as I have argued, it would be fair to ask whether this is the end of conventional conduct MI.
While it is important to capture concerns from employees, trusting that they will share all emerging risks and issues is not a robust control. Firms should still track customer satisfaction (including complaints) and review the findings of their Compliance and Audit teams. These mechanisms are key to understanding whether risks and issues are being escalated to senior management quickly and comprehensively.
Conduct MI and employee diversity and inclusion are not typically connected. However, there is significant value in aligning the two initiatives within organisations. A diverse workforce and an inclusive workplace are the most valuable resources for detecting emerging conduct risks. In turn, these benefits are a compelling addition to the business case for promoting diversity and inclusion.