Higher gender diversity results in higher credit ratings? Zooming in on gender diversity in the European banking industry
The banking industry has been historically a male-dominated industry. Over the past years, numerous European banks have published Diversity, Equity and Inclusion (DEI) plans and they have started to show fruition. Nevertheless, reports have revealed that the biggest banks in Europe are falling behind especially in increasing gender diversity in the executive leadership positions.
Gender diversity in leadership positions
A survey based on a sample of 43 European banks published by DBRS Morningstar on the 20th September 2022 made 2 major findings. Firstly, despite the improvement in gender diversity at board level, women are underrepresented in executive leadership positions. Secondly, and more intriguingly, there is a positive correlation between higher gender diversity and credit ratings.
At board level, female representation was 37% on average in 2021 which rose from 35% in 2020 and 32% in 2019. Looking back to 2014 when the percentage was a mere 22%, it is a huge advancement. The countries leading gender diversity are Nordic countries such as Denmark, Norway and Sweden with the highest female board representation of 55%, 50% and 48% respectively. At the other end of the spectrum, Germany and Portugal are lagging behind with 29% and 33% female board representation respectively.
Furthermore, when considering the gender diversity at the executive level, out of the sample 43 European banks, only four of the banks in the sample had a female chair of the board in 2021 and only five banks had a female CEO in 2021. Data from Bloomberg also reveals that in the past two years, no female CEO has been appointed by Europe’s top 30 banks, despite the fact that nearly half of the CEOs in that group were replaced. This demonstrates the extent to which women remain underrepresented in the banking industry.
Why is there an inconsistency between gender diversity at the board level and at executive level?
One of the reasons may be due to government imposed quotas. In Norway, France, Italy and Spain, listed companies of a certain size are required to have at least 40% female board representation. Elsewhere, in Germany and the Netherlands, listed companies of a certain size are required to have a minimum 30% female board representation. Non-compliance will result in either the company being fined or being required to keep their vacant board seat available until filled by a woman.
However, gender diversity is not a mere quota which companies must fulfil but an essential asset for companies in the upcoming years.
Higher gender diversity results in higher credit ratings?
The second finding by DBRS Morningstar was that gender diversity and credit ratings are positively connected. Although it is unclear whether greater gender diversity results in higher credit ratings or vica versa, it must be noted that greater diversity boosts innovation and creativity which ultimately results in better performance.
Higher diversity means that there is a greater variety of skills, experiences, ideas, views and approaches which opens up possibilities and ideas. By having broader ideas and possibilities, companies can make optimal decisions and with greater confidence. A research published in 2020 states that having a banking board with a significantly high female representation lowers the frequency of misconduct fines, all the while ameliorating the working culture.
Take action
Promoting and increasing gender diversity should not be considered as an obligation set by government quotas but as a way to heighten the company’s performance and working culture. At Ikigai Authentic, we strive to help companies to create a diverse and inclusive work culture to make a business worth working for. As a global diversity and inclusion consultancy firm, we can unleash the potential for diversity and inclusion in your business to achieve greater business growth.
