In this weeks column, Julia Rampen explores generalisations about bankers and the tribes and subcultures that make up the financial services industry and asks if more diversity might reduce risk?

The financial crisis

A decade ago, photographs of Lehman Brothers employees leaving their offices with cardboard boxes in hand sparked widespread sympathy. A 15 September 2008 Guardian article, “Wall Street crisis: Lehman staff tell their stories,” was typical. The article described in detail the plight of a graduate trainee and highlighted the worries in the office about the bottom line.

It was the start of the financial crisis – and although few realised it at the time, the end of any sympathy for those who worked in finance. They would soon be known simply as “bankers” and “fat cats”, rarely spotted apart from their bonuses. Bank bosses who had previously enjoyed relative obscurity were now household names, and in the case of “Fred the Shred”, received a derogative nickname to match. A YouGov report in 2013 found three-quarters of the public considered senior management at banks to be arrogant and only 13 per cent agreed that people working at investment banks in the City of London were honest.

Financial tribes

By the time I started working as a financial journalist, these headlines were appearing on a daily basis. So it was something of a surprise to learn that not only was the stereotype untrue, the word “banker” – applied liberally to the financial services – failed to capture the huge differences in subcultures. In the mortgage industry, I discovered brought-up-by-my-bootstraps brokers who collected football shirts, went on cruises and loved karaoke (and Margaret Thatcher). I suspect they would have struggled to get on with some of the more blue-blooded fund managers I later encountered, who went to Oxbridge and preferred rugby, racing bikes and choral music. And both would have been somewhat intimidated by the hard-working, hard-partying senior bank executives who took holidays in Kyrgyzstan.

Of course, there are exceptions to all these financial tribes – such as the brilliant and slightly obsessional fund manager who revealed to me he watched his favourite films 30 times in a row – but I think it’s worth identifying them.

Diversity of employees and diversity of thought

First, the good news. Financial subcultures are a reminder that motivation isn’t just about cold hard cash (although that’s important too). As in any other industry, it’s also about the respect of your peers, having friends in the workplace and feeling included.

But the subcultures also revealed two more problematic aspects of the financial services industry: a lack of diversity of employees, and a lack of diversity of thought.

Drill down into the data, and it seems some of the financial tribes I’ve described are harder to join than others. A 2014 McKinsey report found that there was a statistically significant relationship between greater diversity in a company’s leadership team and its financial performance. In the UK, the percentage of black and Asian workers employed in finance is similar to the national average, but that doesn’t really tell us very much for a category that covers everything from one-man insurance brokerages to the towers of Canary Wharf. In the fund management industry, which includes many smaller companies as well as the big banks, BME investors have described finding themselves to be the only non-white face in the room. By contrast, the multinational investment bank JP Morgan describes 58 per cent of its US hires as “ethnically diverse”.

The big picture and risk

Meanwhile, as I’ve written before, women are inadequately represented in finance, and particularly poorly in certain sectors. A 2016 report by the 30 Percent Club, a campaign to get more women on boards, found 24 per cent of executive committee members at challenger banks were women, and a similar proportion at building societies, but just 11 per cent of those at hedge funds (“hedgies” have their own subculture of eccentricity, well-documented in the film The Big Short). Disappointingly, it seems that the same criticism of “tech bros” levelled against Silicon Valley translates into its offshoot, fintech, where just 16 per cent of executive committee members were women. Disruption? Not of gender norms.

Then there’s the second issue with the financial tribes – if you’re too comfortable, you miss the signs of the coming storm. The crisis established that while banks, building societies and investment funds might be private entities, they were considered “too big to fail”. The crucial fact about Lehman Brothers is not that it was the first of the financial behemoths to collapse, but the last. The government stepped in and bailed the banks out.

Shaking up the financial tribes might help those in the industry see the bigger picture – something sadly lacking in the run-up to 2008. Mortgage brokers sold high-risk no-deposit loans in 2006 with little inkling of how mortgage-backed securities worked. Traders made profits on the same securities without questioning how the riskiness of the asset actually related to the loans handed out on the ground. The investment arm of the world’s biggest banks became increasingly detached from the promises its retail arm made to customers on the high street.

Bankers, diversity and innovation

Hiring people from different financial subcultures could also help companies reach new markets. At a time when half of British customers are still not comfortable managing their finances purely online, maybe fintech companies should try to recruit beyond millennials with smartphones slung around their hips. When women are saving but appear intimidated by investing, perhaps the asset management industry should train up employees who have never heard of star fund managers before. Building societies began as a radical innovation by ordinary people who wanted the chance to own their own home; what might happen in the 21st century if housing crisis campaigners joined the ranks of suits and ties?

Since the financial crisis, one significant new industry has already emerged to fill the vacuum left by traditional players: peer-to-peer lending. Such companies combine digital platforms with the kind of lending previously done by banks while offering savers relatively high returns in a low-interest rate environment. It’s tantalising to think what other industries could emerge, if enough people stepped outside their comfort zone to look at the financial industry as a whole, and join the dots. The last decade has seen a financial regulatory overhaul. Now it’s time for the cultural one.