How poor smart kids could help grow the city

Just over a week ago, the British government unveiled its “Edinburgh Reforms”, a set of 30 recommendations to make the country’s financial sector more dynamic and less encumbered by the regulations introduced after the 2008 financial crisis.

Less noticed a couple of weeks earlier was a report by the City of London and the government-commissioned Socio-Economic Diversity Taskforce on how to break the “class ceiling” that holds back those from working-class backgrounds from achieving high office in finance.

It would be easy to caricature the two as being in strong opposition – one a libertarian initiative to loosen the city; the other an “awakened” effort to expand efforts to make the good diversity from gender and ethnicity to socio-economic background.

But skeptics should think again: in reality, both projects are in line with the desire to increase the global potential of UK financial services. Diversifying the city—increasing the quota of female, non-white, or non-privileged financiers—is both morally right and an important way to expand the talent pool and reduce risk to the system by reducing groupthink.

The working group rightly believes that the first key to such a transformation is to measure the status quo and set a target for improvement. This has worked wonders, for example in the area of ​​female representation on boards; British blue chips have tripled their share to 40 per cent in a decade.

It is more difficult to measure socio-economic diversity. The working group surveyed more than 9,000 employees at 49 organizations and found that 36 percent of those in senior roles came from a poor socio-economic background, defined by their parents’ work. It has used this to set a target of 50 per cent by 2030. But the data feels wrong.

The baseline of 36 percent may have been inflated by a methodology that relied on a self-selected group of employees in the organizations that signed up. A smaller preparatory study for this project, carried out by the Bridge Group, a social equality charity, found that 90 per cent of senior roles in finance were filled by those from privileged backgrounds – a ratio which anecdotally feels more accurate and is likely to be even higher in certain financial quarters.

One such is investment banking, where white men from privileged backgrounds hold almost all the senior roles – not just in the City of London, but in financial centers around the world. “People who are white and middle- or upper-class ‘signal’ expertise to colleagues and clients,” the Bridge Group wrote of this type of finance work. “Competence has historically ‘belonged’ to white middle-class men, who therefore have to do the least to demonstrate its possession.”

How should financial groups that are keen to modernize go about finding poor, smart recruits? The working group’s report is thin on details beyond measurement, targeting and management. But here are four concrete ideas.

One, seek out candidates from across the UK. The city has never been very proactive about who it hires: it does little or no outreach to the regions. There are some small initiatives designed to target young people from disadvantaged backgrounds, but they tend to focus only on London boroughs where the major employers are based.

Two, seek out candidates from state schools. According to a 2014 report for the Sutton Trust by Boston Consulting, 37 percent of new hires and 60 percent of senior finance executives had been privately educated, compared to 7 percent of the school population as a whole. It has perpetuated inequality.

Three, seek out candidates from a wider range of universities. Many employers in the financial sector only seek UK staff from Oxbridge or a handful of other Russell Group universities. Other institutions may offer equally talented candidates from a more diverse social background.

Four, seek out masters. New hires in finance – just like in other professions – often say how important it is to see someone like them in a leadership role to help promote aspiration. This is as true for social background as it is for gender or ethnic heritage.

Alison Harding-Jones, a senior M&A banker at Citi, who hails from South Wales, went to comprehensive school and started work, aged 16, as a bank secretary, could be just such a champion. “There are hardly any senior women in my profession, and a very small number of people from modest backgrounds. That needs to change: it is of great value to have people with different points of view.”

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