The world of high finance has a well-known diversity problem: Despite its efforts to elevate more minorities and women, the industry’s upper reaches remain overwhelmingly white and male.

There has been progress at the lower rungs. Half of entry-level employees at North American asset management firms are women, and minorities account for about 40% of associate-level positions at North American private-equity firms, according to research from consultancy McKinsey.

Yet that diversity gradually melts away along the path to the C-suite, where only 19% of women are represented at those same asset management firms, and minorities fill fewer than a tenth of the spots at those same PE firms. Similarly, a 2020 analysis of the banking industry by the U.S. House Financial Services Committee found that women comprised 29% of senior executives and minorities 19%—roughly half of those groups overall representation at the same banks.

And research by the Knight Foundation shows that just 1.3% of U.S.-based assets under management are under the control of firms whose ownership includes substantial diversity.

“We’re not ascribing bad intent,” says Shundrawn Thomas, president of Northern Trust Asset Management. “But ultimately, this is going to be measured in real outcomes, and real, meaningful progress—the representation actually has to go up, participation has to go up, the equity has to go up.”

The stakes are especially high, given the outsize compensation levels for the financial elite, as well as the role the industry plays in distributing capital throughout the economy. A more diverse financial sector would directly boost minority wealth creation by minting a new class of Wall Street (or LaSalle Street) titans. Additionally, those new leaders could bring valuable new perspectives to their firms. Research from Harvard economist Paul Gompers suggests that diversity can lead to improved investment decisions.

So what’s the holdup? It turns out that identifying the cultural blind spots and barriers that make it challenging to recruit and develop diverse talent is difficult work—even for leaders such as Thomas, an outspoken advocate for diversity, equity and inclusion, and someone who encountered many of those barriers himself while rising…[Read More]