Why the City isn’t fair and diversity doesn’t work

By Dr Louise Ashley, below, Associate Professor, Queen Mary’s business school

Today saw the inaugural report from the City of London Corporation-led Socio-Economic Diversity Taskforce, commissioned by the Treasury and Department for Business in 2020. The report finds that while around half of employees in financial and professional services are from non-professional backgrounds, they’re likely to progress slower (only a third reach senior positions) and be paid less regardless of performance (on average £17.5k).

These statistics are shocking – but not surprising. My own research and extensive wider evidence show how elite City firms directly feed these inequalities, through their everyday activities in the highly financialised economy they have helped create, along with pay practices that exacerbate gaps between rich and poor.

Bearing in mind that social mobility is less likely in countries with steep inequalities of income and wealth, the UK is among the most unequal of all. Action is needed to address class pay and progression gaps, but this can’t just be a vague commitment to meritocracy and social mobility, offering an illusion of change while justifying the bumper rewards given to a select few as being somehow ‘fair’. We must challenge these issues and not let City elites control the debate in ways that suit them best.

The taskforce has set a target for half of senior leaders in the City to come from working class backgrounds by 2030, urging firms to “act now” to address the ‘class ceiling’ and facilitate social mobility by ensuring the workforce becomes more socio-economically diverse. But tackling inequalities isn’t a conversation that financial and professional service firms really want to have, because City leaders benefit from these wider systems of inequality.

The City’s financial elite is homogeneous according to gender, ethnicity and social class. Nearly  90% of senior leaders in eight financial service organisations are from the most privileged backgrounds, compared to c.30% of the population. Half the partners at leading law firms are white, male and privately educated. This is significantly at odds with the City’s preferred narrative of ‘merit’, developed since ‘Big Bang’, which supposedly encouraged a revolution in its demographic make-up.

We might ask, who cares? The answer is: we all should.

There is evidence that rather than appointing the ‘brightest and the best’, the IQ of new entrants to elite financial service jobs has gone down over the past 40 years. Through my research, bankers often tell me the characteristics ideally required to excel in these roles – such as initiative and creativity – are poorly developed in the privileged candidates they typically appoint, hot-housed by helicopter parents toward academic achievement and CV-points. One corporate financier said new entrants are characterised by “immense IQ but weak EQ” while an executive head-hunter explained how investment bankers moan about having to “babysit”.

50 years after the end of ‘gentlemanly capitalism’, the City remains drenched in class hierarchies, contributing to the type of deference which enables group think and exacerbates risk. Who gets these highly remunerated jobs distorts the UK’s class structure and acts as a launchpad into the political elite – and, as recent events show, current members of the Cabinet who have taken this route appear comfortable pursuing policies which solely benefit the financial elite.

Given these dysfunctions, we should also ask why these practices persist? And how has the City got away with this for so long? Nowadays, exclusion is often attributed to ‘unconscious bias,’ but this individualised approach obscures the systemic and structural issues at stake. Exclusion, on the basis of social class (and gender and ethnicity) has a purpose: namely, to build status, which helps generate and justify high fees.

One way this is done is to appoint people with the highest-status social identities (in Western European societies, that generally means white, middle-class, men) who ‘lend’ their own status to these jobs. This means diversification is carefully managed, to ensure status is not lost. Another is to define ‘talent’ in narrow terms, as the property of ‘polished’ people, with credentials gained at a narrow slice of the ‘Russell Group,’ or Ivy League in the US. There is limited evidence that a degree from either is technically necessary for many City jobs. However, the ‘natural’ authority associated with the ‘right’ education, accent and mannerisms helps privileged professionals get away with bluster and bluff.

In my experience, many hiring managers in the City understand the problem but have little idea how else to define or identify ‘talent.’ Meanwhile, hiring in this way helps them manage risk. Further, as the City’s elite firms have fought with each other to appoint from this narrow group, a phoney ‘war for talent’ has offered the useful impression that the necessary skills are both valuable and scarce.

The key concept which helps us understand these dysfunctions is ‘legitimacy,’ which many sociologists have explained provides organisations and individuals with the authority to act. For City firms, legitimacy rests in part on impressions of exclusivity which drive status, as outlined above, though unfair practices must be obscured. A meritocratic reputation does this and acts as cultural myth. It offers a misleading impression that rewards are fairly allocated and richly deserved for talented people, working exceptionally hard in unusually complex jobs.

Balancing status and reputation has helped City elites legitimate high pay, which is implicated in problematic inequalities of income and wealth. However, legitimacy cannot be guaranteed. Often, financial elites work with their political peers to jointly secure the necessary ‘social contract,’ which makes the howls of outrage from the very people most likely to benefit from attempts to remove the cap on bankers’ bonuses and the 45p income tax rate especially interesting. For some who protest this is a question of social justice. However, once inequalities become so visible and extreme, they are more difficult to sustain. These proposals from Truss and her chancellor Kwarteng threaten this delicate balance, and financial ‘winners’ fear their unjustified privileges will be removed.

A similar crisis of legitimacy followed the financial crisis. In response, City leaders doubled down on narratives of scarcity, saying tight regulation would cause valuable talent to flee the country. Favouritism and bias continued, but leaders re-asserted their commitment to merit as a mark of ‘professionalism’ and to signal a more responsible attitude to risk.

Now, elite investment banks, law and accountancy firms are expanding their diversity and inclusion initiatives to include those from working class backgrounds. Thousands of young people have been supported to secure one of the City’s ‘top jobs.’

While such polices are publicly positioned as an institutional commitment to ‘talent,’ insiders tell me they are primarily driven by reputational concerns, which signals no real commitment to organisational change. The young people involved offer firms reputational capital while often encountering hostile organisational cultures, leading to disillusion and dismay.

When diversity and inclusion policies demonstrably don’t work, often the response from City leaders and practitioners is that diversity should be done ‘better.’ But what if the policies aren’t meant to work?

Such thinking requires acceptance of an underlying paradox: namely, that diversity policies offer cosmetic change, which protects the privileges of existing elites, and attention to ‘social mobility’ distracts from the very inequalities of income and wealth City firms help to create. The current status quo is not working for the UK. We need more radical change which gets to inequality’s root cause, rather than tinker around the edge. This urgently requires leaders in the City and elsewhere to acknowledge and address these inconvenient truths.