Banking, perhaps more than most industries, relies on what economists charmingly call “human capital.”
Human capital does not mean that everyone has to be a high-skilled worker. Instead, it is about having the right person — in the right job — at the right time.
This is more important in an industry like banking, which faces ever more challenging situations in ever more complicated markets. A monoculture of ideas creates risk: If everyone thinks the same way, things get overlooked.
As the world becomes more complex, having
Research shows that embracing diversity and fighting prejudice leads to better economic performance — thus banks have a strong incentive to minimize prejudice and encourage diversity. In the case of gender or race, identity can often be difficult to conceal. However, in terms of sexual identity people can choose to be out, making diversity particularly hard to get right.
According to UBS’s analysis of data from surveys and other sources, LGBTQ+ individuals make up somewhere between 8% and 10% of the population. However, in the United States today, only around half of the LGBTQ+ community are open about their sexual identity.
The fact that so many people choose to avoid the costs of prejudice by hiding their sexual identity indicates how expensive the costs must be. These costs can include lower income and reduced promotion opportunities. In 60% of the world’s economies, being out at work can also cost an employee their job.
Those who are not out at work are still affected by prejudice. The strain of hiding who you are has been repeatedly shown to hurt productivity. Energy that could be put into work is instead directed at maintaining a false persona. A company that wants to get the most from its staff must not only attract a diverse talent pool, but also create an environment where people can be open about their sexual identity.
U.S. law has not always treated LGBTQ+ people as equal. But on June 15, the Supreme Court made a momentous decision protecting this community, in deciding that an employer who fires an individual for being gay or transgender violates Title VII. Prior to that ruling, half of those who are LGBTQ+ (meaning around 5% of the total population in the country) could have been fired if their boss objected to the person they were dating or to their sexual identity.
It is unlikely that any large banks would have fired workers on those grounds, at least not explicitly; aside from the direct costs, the potential damage to a bank’s national or international reputation would be considerable.
However, while banks could act as a safe harbor for members of the LGBTQ+ community living in states with prejudicial laws, there was still damage to employees being legally branded as second-class citizens outside of work. In addition to the negative personal consequences, research shows that people often underperform at work if they feel as if society is prejudiced against them.
Sexual identity prejudice has also undermined one of America’s economic advantages — labor mobility. If an LGBTQ+ person was the right person for a job, but the job was in a state that treated them as less than other people, it would be hard to persuade a person to move to that state. Even if a bank guaranteed staff their employment rights, what happened if the employee was married? An employee would be reluctant to move if their husband, wife or partner could lose employment protection by moving with them to the new state. The Supreme Court ruling helps resolve that problem.
Is changing the law enough? It is not. When it comes to prejudice, it is the culture of a company that matters. Following legal rules can still allow prejudice to do serious damage.
But changing the law can help bring about a change in corporate culture over time. The Supreme Court ruling cannot prevent firms from being prejudiced. However, it does make it more difficult for a firm to act on its prejudice.
