From board members to regulators, women are still largely underrepresented at all levels in the global financial system. But improving the ratio can reduce the chances of financial crime in a firm, according to Sigma founder Gabrielle Haddad.
In a new blog post, citing a study by Cass School of Business at City University of London, Haddad wrote that banks with more women on their boards commit less fraud.
The study surveyed a slew of fines issued by all US regulators across a wide range of offences including sanctions violations, money laundering, market manipulations, tax and accounting fraud among others. It found that financial institutions with greater female representation on their boards were fined less often and less significantly.
In an interview with the Harvard Business Review, Barbara Casu who led the research said that while the findings may not mean that women are more ethical than men, they may be as a result of women being more risk-averse or being nurtured to be more caring at a young age.
Haddad wrote, “Regardless of the behavioural rationale, this study echoes the increased attention we at Sigma see being placed on non-financial risk factors – especially as they relate to governance and financial crime risk at banks. And it is clear that the industry-wide demand for more transparency on these factors – and the implications it has for the financial crime industry – won’t be slowing down any time soon.”
Indeed, while gender diversity has become one of the trends most talked about, Haddad asserted that more needs to be done. “It has been well established in a number of research studies that companies with diverse boards make better decisions and have better performance,” she wrote.
Companies with greater gender diversity have a 15% higher likelihood of financial performance versus the national average, according to a study by McKinsey.
Furthermore, an IMF study found that the “greater inclusion of women as users, providers and regulators of financial services would have benefits beyond addressing gender inequality.” And that “women on banking supervision boards is associated with greater financial stability.” Indeed, the imbalance has economic consequences on the businesses that are lagging behind.
While companies are increasingly pushing for reducing the gender gap, the figures prove otherwise. Women make up 46% of all financial services employees but at the executive level, the figure plummets to 15%.
One of the challenges stopping firms from moving towards greater gender diversity is that it is a costly affair. Casu said, “In particular the transition to more diversity incurs costs, including for the search for board members and recruiting, onboarding, and less obvious things like building the relationships needed to function as a team. And when you finally have a more diverse group, there are more points of view, more negotiations, and more compromise, so decision-making takes longer. Do those costs outweigh the benefits? I don’t think so, but it’s something people use to rationalize the status quo.
“So if we wait for the market to move naturally, for the culture to evolve, we may never get there. That’s my belief. You need to force the issue.”
You can read the blog post here.
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