D&I in FS: practical considerations for designing and implementing an inclusive culture

Published Date
Nov 29, 2023
Developing and maintaining an inclusive environment is crucial for realising the benefits of having a diverse organisation. With this in mind, the UK Financial Conduct Authority (FCA) and UK Prudential Regulation Authority (PRA) are proposing that firms report on six new inclusion metrics to provide consistent, measurable data on speak up culture, approach to employee contributions, and treatment of employees.

Inclusion metrics

The regulators have proposed that firms report annually, with a five-point scale from strongly agree to strongly disagree, on whether employees feel:

  • safe to speak up if they observe inappropriate behaviour or misconduct;
  • safe to express disagreement with, or challenge, the dominant opinion or decision without fear of negative consequences;
  • their contributions are valued and meaningfully considered;
  • they are subject to treatment (for example actions or remarks) that had made them feel insulted or badly treated because of their personal characteristics;
  • safe to make an honest mistake; and
  • their manager cultivates an inclusive environment at work.

Firms must capture this data on an anonymous and voluntary basis, ensuring a ‘prefer not to say’ response option is available, and report the results across three levels of the organisation: board, senior leadership, and all employees.

The importance of speak up culture

A key indicator of an inclusive organisation is whether employees know how to speak up, and feel psychologically safe, supported and encouraged to do so. This support must be felt across the full spectrum of contributions, including in relation to misconduct, honest mistakes, constructive ideas and challenging on the dominant opinions or perspectives.

Both the design and sustainable implementation of a speak up culture is challenging for firms; appropriate mechanisms and oversight must be established, and various practical and operational issues must be addressed to enable successful and long-term implementation. Evaluating the results of inclusion data can help firms understand their current position and areas that need improvement.

Five practical considerations

  1. Speak up culture: Regulated firms are already required to have speak-up channels for reportable concerns. These must be clearly communicated, easy to use, and where individuals choose to report concerns anonymously, their anonymity should be maintained as far as possible. In light of the proposals, firm should now consider how to ensure employees feel comfortable and safe to use these channels for any issues or concerns, including and beyond “reportable concerns” as defined in the FCA Handbook and the PRA Rulebook. Firms should also focus their efforts on encouraging individuals to speak up more widely, such as challenging dominant perspectives and making positive contributions that are valued and meaningfully considered. 
  2. Governance: Establishing clear and robust governance processes for handling and escalating issues raised by employees is a crucial step for firms to ensure the efficacy of speak-up channels. Our recent research into organisational culture in financial services revealed that only 53% of employees felt that their leadership team actively listens to employees and responds accordingly. Firms should therefore ensure that inclusion metrics are actively discussed and supported at the board and executive level, and that any common themes or trends are analysed, addressed and next steps are communicated with employees.
  3. Training: Firms should regularly communicate with and train their employees on the importance and benefits of speaking up, and the expectations and responsibilities of everyone involved. Firms should use realistic and relevant scenarios and ethical dilemmas to help people develop their judgement and skills in dealing with complex and sensitive situations, and provide supervisory upskilling to their managers on how to identify, respond to, and support their teams on whistleblowing and speak up matters.
  4. Tone from the top: Leaders should set the tone from the top, and role model the behaviours, conduct and mindset they expect from everyone in the firm. It is also important in communications that leadership balance the messages they send about misconduct; this could include sharing cases of misconduct based on real events (provided details are suitably anonymised) and the consequences, as well as examples of how speaking up led to positive results. They should also emphasise how valuable it is for employees to share their views and ideas, to foster a culture of engagement and innovation.
  5. Transition phase: Firms should be prepared for a possible increase in the number of issues raised as they transition to a more transparent and open culture. Management should ensure that all escalations are treated fairly and thoroughly in accordance with the firms’ policies, and may wish to consider temporary additional resourcing. Firms should also ensure communications refer to the positive outcomes, as concerns around negative perceptions of increased escalations may discourage speaking up, particularly if there are comparisons across teams or divisions.

Data-collection challenges

Firms may face some practical challenges in collecting reliable and meaningful data from staff in relation to the inclusion measures set out in the proposals. Barriers to achieving high voluntary response rates include fear of reprisal, a perceived lack of anonymity and apathy. When asked whether actions were taken and communicated back to employees during engagement exercises, only 45% of participants answered positively in our research. If staff do not trust the firm's leadership to prioritise their approach to inclusion, they become apathetic and may be less likely to participate or provide honest feedback. This could undermine the effectiveness and credibility of the exercise, and low response rates may, themselves, be perceived by the regulators as indicative of poor culture.

Firms should not treat the data collection as a box-ticking exercise. Firms will need to communicate clearly and consistently with their staff about the purpose, process and outcomes of measuring inclusivity, and how they will use the data to inform their strategy, policies and practices. Firms should have clear governance and processes in place for analysing, verifying and acting on the data, and should also recognise that the culture may vary across different divisions or functions, and tailor their interventions accordingly.

An inclusive culture where employees feel safe to speak up is not only a matter of compliance or risk management, but also a source of competitive advantage and organisational resilience for financial services firms. The efficacy of efforts to create a speak up culture will be significantly impacted by the foundational culture of the firm. By investing in and nurturing these aspects of their culture, firms can enhance their reputation, performance, and innovation.

In our next post, we consider the implications and challenges of the proposals in relation to non-financial misconduct.

Content Disclaimer
This content was originally published by Allen & Overy before the A&O Shearman merger