Culture wars risk killing progress on fintech board diversity

Culture wars risk killing progress on fintech board diversity

Despite consistent empirical evidence that various boards and companies perform bettera backlash of “anti-woke” sentiment is sweeping through the financial services sector. Women occupy only 16% of private company board seats and only 4% for women of color. And even though female fund managers are make progress By entering venture capital boards, the essential force behind private company governance, they risk stagnating as The “anti-woke” culture is becoming more widespread.

The lack of diversity on private fintech boards is not exclusively a culture war issue. A annual monitoring report achieved through collaboration between Him for herthe social impact company which amplifies networks and promotes diversity within company boards of directors, and Basic Crunchhas uncovered at least two significant structural issues hindering board diversity. The first was the enormous homogeneity among investors and entrepreneurs (it turns out that boards of directors tend to reflect the networks that recruit them). The second problem was the ongoing issue of independent director vacancies.

While they recognize that operator diversity brings fresh perspectives and relevant experience (and while venture-backed companies typically designate space for at least one independent board seat), nearly a fifth of the companies studied in their report had no independent directors on their boards. . Nayreen Akhtar, investor at 2150affirmed the importance of independents, saying: “Boards can become unwieldy and lose focus, but they are essential to governance. Lean, purpose-driven structures with industry-specific knowledge from independent members ensure valuable business outcomes and meaningful learning experiences for independent members. younger investors.

Yet, despite these persistent structural challenges, there is room for moderate optimism: 16% of seats on the board of directors held by women in 2023 is up from 14% in 2021 and 7% in 2019. Likewise, the paltry 4% of private company board seats held by women of color represents a ( very slight) improvement compared to the 3% observed in 2022. Although we can note some incremental progress, the pace of change is slow.

Today’s extreme political polarization has managed to make the mere mention of mundane diversity efforts within companies nervous. A few years ago, leaders were happy to tout their environmental, social and governance initiatives. On the other hand, the financial research platform AlphaSense reported that of the 575 earnings calls they monitored in June 2023, mentions of the terms “ESG”, “diversity, equity and inclusion”, “DEI” were down 31% compared to the same period of the year previous.

It is possible that in the name of maintaining neutrality, boards and their members will similarly avoid DEI and social impact topics deemed too controversial by conservative investors and advocacy groups, thereby putting the brakes on “woke” initiatives.

Maria Josife, partner at Erevenaa firm focused on executive searches for venture capital-backed companies, suggested that in addition to “anti-woke” sentiment, the current tough economic climate could also contribute to a diminished appetite for diversity within boards of directors. “Investors and entrepreneurs are under pressure,” Josife explained by email. “There are people in money-destroying positions in prime assets, and it’s often more important to hold on to your bacon than to know where it comes from. So you can extend the concept of “anti-wokism” to simple conservatism. In times of pressure, people prioritize experience over anything else, even though every statistic you read reinforces the fact that diverse boards make better business decisions.

Indeed, progress in diversity within boards of directors has an impact, not only on general indicators, but also in terms of bottom line results. As McKinsey & Company exhaustively documents in their Diversity matters reportpublic companies with more diverse boards financially outperform less diverse teams. This correlation remains statistically significant regardless of gender and ethnic origin. Companies in the top 25% for board gender diversity were 27% more likely to outperform financially than those in the bottom quartile. Similarly, the most ethnically diverse 25% of boards were 13% more likely to outperform those in the bottom quartile. A definitive business case for DEI efforts on boards was presented.

I asked Crista Bailey, director of business development at Him for Her, about the impact of the current culture wars on the financial services industry, particularly whether the market slowdown on diversity could slow progress on diversity in fintech boards. His stance was hopeful: “It makes the work even more important. What we’re seeing is that leaders are doing the right thing for their companies, including diversifying talent. They know that revenue and people are inextricably linked and that when the most important space in the business lacks cognitive diversity, it’s not good for shareholders.

Benign neutrality is not the same as deliberate surveillance. By circumventing diversity measures, board members not only resign themselves to poorer performance, but they rightly run the risk of being accused of negligence with respect to their fiduciary responsibility to shareholders (who require both neutrality on social and political issues and respect for discrimination laws).

In a pivotal global election year, the prospect of a rematch between Trump and Biden in the next US presidential election looms, suggesting that political polarization around initiatives to diversify corporate boards is unlikely to abate. However, amid rumors of IPO markets reopeningPrivate fintech companies have a unique opportunity to transcend the culture wars and shape the financial literacy agenda in the new economy.