Two weeks ago five of the nation’s largest banks did an about-face, asking shareholders to vote against proposals calling for third-party racial equity audits. Just a year ago, the CEOs of these banking giants were making big promises and pledging to support greater racial equity. They were responding to the moment – a horrible moment, in fact, as documented in 8 minutes and 46 seconds of video of a black man being lynched by a police officer, Derek Chauvin.
As we watched the trial and waited as a nation to see if there would be some justice in George Floyd’s killing, the same white men who enthusiastically gave their employees a day off for Juneteenth and shared selfies taking a knee are now telling their shareholders they shouldn’t be measured – let alone held accountable – for improving racial equity within their own institutions. They were responding to a proposal from CtW Investment Group and the SEIU pension fund that Bank of America, Wells Fargo, Citigroup, JPMorgan Chase and Goldman Sachs conduct third-party racial equity audits of their businesses.
Despite the mixed message here – “Black lives matter … just not enough for systemic change in banking” – this turnaround speaks volumes about how the white men leading the largest companies in banking feel about race and how they want to be held accountable.
No One Wants to Act First
Here’s the truth: What you don’t measure, you can’t manage.
Environmental, sustainability and governance (ESG) audits and diversity, equity and inclusion (DEI) audits are strategic for any company looking to make real change on race and equity. Audits help companies understand where inefficiencies and deltas are in a process. They are used in compensation, operations and compliance because those are processes that are important for a community to get right.
If any company wants to move from DEI intention into the positive business impact of DEI, they must work to hold themselves accountable to shareholders and others. Companies will not be able to make sustainable change without internal reflection, which audits enable.
These CEOs are not comfortable being held accountable and are looking for shareholders to give them leeway on equitable action.
“While we disagree with the overall approach in this proposal, we are completely aligned with its stated goal of addressing racial inequity in the financial sector,” Citigroup said in a proxy statement responding to the shareholder proposal.
Statements like Citi’s uncover the real problem with most DEI efforts and why they often have so little impact: Everyone wants to discuss change, but no one wants to actively lead and cause change.
Regardless of how nervous CEOs are, change is here in America. Today, there is significant reputation risk for leaders and organizations that make promises around equity that they do not intend – or have a plan – to keep.
Customers want to see banks change their biased way of business. According to a Deloitte survey in 2017 only 20 percent of Americans trust banks and 50 percent of black and brown families are underbanked compared to 19 percent of white families. The result? Banks are leaving money on the table by ignoring so many bankable communities, not to mention continuing to be easy targets for politicians and other leaders looking to hold them accountable.
Customers Look for Change
Audits feel dangerous because companies already know the numbers are bad, and that is probably true. But don’t worry: Everyone knows that the numbers in the first measurement will need significant improvement.
What America is waiting for is an answer to what banks are going to do about it. Consumers already have very little reason to trust banks. These latest statements, discouraging ways of accountability, make all of banks’ actions and multi-million-dollar commitments ring hollow to the general public and their customers.
Bill Gates reminded people years ago that banking would be necessary, but banks would not be. He saw technological disruption as inevitable. Big banks will not survive, let alone thrive, in the 21st century retail and wealth markets without making significant systemic changes.
This is not just about people of color, it’s also about young people. As the largest generational wealth transfer ever begins to happen as Baby Boomers pass their assets on to their children, those inheriting the money expect a better bank. By continuing to reject the future, big banks give Millennials and people of color just another reason to move their business and assets to a new breed of more relevant, more aligned financial service providers.￼ Just like the historic verdict in the case of George Floyd’s murder, there will be accountability, inevitably.
Malia Lazu is a lecturer in the Technological Innovation, Entrepreneurship and Strategic Management Group at the MIT Sloan School of Management, CEO of The Lazu Group and former Eastern Massachusetts regional president and chief experience and culture officer at Berkshire Bank.