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Diversity at the Top Makes Banks Better
Blog Post by Frank Elderson and Elizabeth McCaul
Frankfurt am Mn, 9 May 2023
Banking remns a male-dominated field. Over the period from 2020 to 2022, out of the 361 CEO appointments made at the significant institutions SIs directly supervised by the ECB, along with their subsidiaries, more than 300 were men, as our data shows. Additionally, only 36 of newly appointed board members during this same period were women. Why is this an issue? Diverse boards make better business decisions. As supervisors, it is our responsibility to ensure that banks take steps to create the best conditions for sound governance.
To address these issues, we have been gathering information on governance in SIs. While there have been some improvements, such as the introduction of diversity policies which now include considerations beyond ger-such as education, experience, geographical background, and age-the data reveals a mixed picture. For example, while many banks have improved their diversity policies over the past two years, setting targets for board diversity, the actual targets themselves are disappointing.
On average, bank diversity targets for management bodies increased from 32 in 2020 to just 34 by the of 2022. Furthermore, only one-third of SIs have met their own targets and plan to meet them within the next three years. While 28 out of the 56 banks directly supervised by us increased the number of women on their boards in 2022, 16 made appointments that actually reduced ger diversity. This is concerning as research shows that diverse boards can lead to better decision-making and improved financial performance.
We are committed to ensuring that these targets are not only set but also achieved. Our approach involves using existing supervisory tools within the boundaries of national legislation to insist on improvements in internal governance, particularly related to ger diversity. We will also work tirelessly to encourage banks to set more credible and ambitious diversity targets for themselves and ensure they are met.
Why is improving diversity important? A diverse board can lead to more informed decision-making and safer banking practices, which ultimately benefits the broader public by ensuring stronger bank governance. Therefore, striving for ger balance in leadership roles is not only a priority for us at the ECB but also aligns with broader European goals.
In fact, the co-legislators recently adopted the Women on Boards Directive, setting a clear target: the corporate board of a publicly listed bank must be considered balanced when each ger makes up at least 40 of its composition. While some countries have already set targets and others have not, all EU Member States are expected to incorporate this directive into national law within two years.
Once implemented, this legislation will create a powerful tool for benchmarking and peer pressure to drive improvements in diversity among boards. We will use our supervisory tools to ensure that banks address any internal governance shortcomings related to ger diversity.
Improving diversity is not just good for individual banks; it benefits the entire banking sector and society at large by fostering better-informed decision-making and stronger, safer institutions.
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See also European Banking Authority 2023, “Report on the benchmarking of diversity practices and the ger pay gap,” 7 March.
ECB Banking Supervision 2022, “Supervisory Priorities for 2022-24.”
Af Jochnick, K., Quagliariello, M. 2022. Charting the course: our supervisory priorities, The Supervision Blog, ECB Banking Supervision, 12 December.
Official Journal of the European Union 2022, Directive 20222381 of the European Parliament and of the Council of 23 November 2022 on improving the ger balance among directors of listed companies and related measures.
European Commission 2022. Ger Equality: The EU is breaking the glass ceiling thanks to new ger balance targets on company boards, 22 November.
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Diversity in banking leadership Gender diversity in banks Board diversity targets ECB bank supervision Women on boards directive Improved bank governance