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Women in financial services face harsher penalties than men for misconduct

Tiffany Robertson

06 Jul 2017

A recent study conducted by the National Bureau of Economic Research (NBER) released in March 2017 found that women in the financial services industry face harsher disciplinary action when it comes to misconduct.

Review of disciplinary measures among 1.2 million financial professionals

While studies often highlight gender discrimination by providing data on pay gaps or biased hiring practices, the NBER examined the issue as seen in the disciplinary measures meted out for ethical violations. To do so, the study reviewed data on 1.2 million U.S. financial services employees — both brokers and investment advisors — registered with the Financial Industry Regulatory Authority between 2005 and 2015. Of these subjects, the researchers noted that 83% of firm managers and 83% of firm executives or owners were men.

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In the report, researchers found evidence of “taste-based discrimination” — unconscious bias — where men preferred to hire and work with men. Furthermore, they found that firms with a higher percentage of male executives issued more severe punishment of female advisors for misconduct and were much less likely to hire women with a history of misconduct.

Other key findings of the study include:

  • A disproportionate number of misconduct complaints against women stemmed from the firm (41% versus 28% for men), rather than customers or regulators;
  • Women had a 20% higher chance of losing their jobs than men;
  • Following the exposure of misconduct, 55% of women resigned or were terminated versus 46% of men;
  • Women received substantially lower benefits in severance packages; and
  • Men secured re-employment 47% of the time, while only 33% of women were able to do so.

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Women less likely to engage in costly misconduct

The study also found that women received stiffer penalties regardless of their performance, and despite engaging in less-damaging conduct or having a lower risk of repeating bad behavior. Researchers stated that “men are three times as likely to engage in misconduct, are twice as likely to be repeat offenders, and engage in misconduct that is 20% costlier.”

Results not restricted to financial industry

Although the study only considered the financial sector, the findings mimic those found in other traditionally male-dominated industries, such as technology, law and medicine. For example, an analysis of 500 disciplinary cases before the American Bar Association found that female lawyers had a 35% chance of being disbarred, while men only had a 17% chance.

Companies taking note of diversity in the workplace as a business issue

It is thought that companies in a wide range of industries have historically struggled with gender diversity, particularly when it comes to hiring in leadership positions. Yet, companies are beginning to take note of the importance of diversity and inclusion as the public demands more transparency.

In August 2016, the Business Roundtable — an organization of CEOs representing 15 million workers — for the first time included diversity as one of the characteristics of board composition in its guide “Principles of Corporate Governance.” And just last month, more than 150 CEOs from some of the world’s leading companies signed the CEO Action for Diversity & Inclusion™, pledging to actively cultivate a workplace that fosters diversity and inclusion.

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Women help companies enhance performance

Studies consistently show that embracing women in the workplace can offer companies significant benefits. For example:

·  A 2016 study of more than 20,000 firms in 91 countries found that having more female executives was tied to increased profitability for the business;

·  According to global management consulting firm McKinsey & Co., gender-diverse companies are 15% more likely to outperform their competitors and ethnically diverse companies increase that to 35%; and

·  A 10-year study of 300 U.S. start-up firms determined that those with a female founder performed 63% better than firms with male-only founders.

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Diversity in the workplace crucial in today’s global economy

In a globalized marketplace, a diverse leadership and workforce can lead to better organizational effectiveness, enhanced productivity and innovation, and better customer relationships.

Fostering an inclusive workforce begins with conveying the importance of issues through employee training, such as our Thomson Reuters online Inclusion and Diversity Training, Preventing Sexual Harassment and Preventing Discrimination and Harassment training courses.