DEI Practice Bundles Lead to Higher ROA, Net Income: Filene

Credit unions that are still on the fence about implementing practices to further diversity, equity and inclusion (DEI) may want to check out new research from Filene Research Institute, which indicated a direct correlation between the presence of strong DEI practices and a higher return on assets (ROA) and net income.

In an Oct. 14 webinar, the Madison, Wis.-based think tank revealed the complete findings of its first annual DEI Practices and Policies Survey. The findings will be published in a series of reports this month; the first report is available for Filene members to download here.

Dr. Quinetta Roberson, a co-author of the research, professor of management and psychology at the University of Michigan and Filene fellow, said implementing “bundles” of DEI practices – sets or groups of practices that revolve around a single purpose – matter more than putting individual practices into place. She and her research co-author, McKenzie Preston, a doctoral candidate of management at the Wharton School at the University of Pennsylvania, identified eight DEI practice bundles in place at credit unions: Strategy, goals, tracking, staff recruitment, staff selection, career development, employee groups and supplier diversity.

They found that the first three bundles made the biggest impact on a credit union’s financial performance: Strategy, which encompasses having a strategic DEI plan or policy in place and/or aligning DEI with business outcomes, as well as assigning accountability for the DEI strategy to an employee or group of employees; setting DEI-related goals; and tracking progress toward those goals.

Roberson said those three key practice bundles not only correlated with increased ROA and net income, but helped maximize the impact of practices within the remaining five bundles. “Having staffing, recruitment and selection bundles might be important for diversifying the pipeline, and creating consistency in opportunity, but being able to have strategy and goals in place and tracking those goals is going to amplify the effects of those other types of bundles,” she said.

Preston revealed average ROA and net income numbers for credit unions based on specific practice bundles they have in place:

• Credit unions with high levels of tracking, goals and strategy bundles had an average ROA of 0.91, 0.89 and 0.91, respectively.
• Credit unions with low levels of tracking, goals and strategy bundles had an average ROA of 0.81, 0.80 and 0.82, respectively.
• Credit unions with high levels of tracking, goals and strategy bundles had average net income of $18.7 million, $18.1 million and $19.3 million, respectively.
• Credit unions with low levels of tracking, goals and strategy bundles had average net income of $16.4 million, $16.6 million and $16.6 million, respectively.

Researchers then measured financial performance by grouping credit unions into three clusters: Credit unions with no DEI practices, credit unions with tactical DEI practices (high levels of tracking and goals practice bundles and low levels of strategy practices) and credit unions with strategic and tactical DEI practices. They found:

• Credit unions with no DEI practices had an average ROA of 0.78 and net income of $16.4 million;
• Credit unions with tactical DEI practices had an average ROA of 0.90 and net income of $18.1 million; and
• Credit unions with strategic and tactical DEI practices had an average ROA of 0.93 and net income of $20.7 million.

“We have a very compelling case where individual bundles of practice really make a difference, but we really see a gain when they have a comprehensive set of all the bundles,” Preston said.

The research covered data from 204 unique credit unions that represent 25% of all credit union assets, which Roberson said “gives us an accurate perspective on DEI approaches in the industry.” Fifty-four percent of respondents were C-suite executives, 15% of credit unions represented were Community Development Financial Institutions (CDFIs) and 6% were minority member-serving credit unions.