New Filene Research Reiterates DEI’s Impact on ROA, Net Income

Similarities between the results of Filene Research Institute’s first and second annual DEI Practices and Policies Survey helped confirm that the results of its 2021 research – which revealed a strong connection between a credit union’s diversity, equity and inclusion efforts and financial performance – were not just a fluke, the Madison, Wis., think tank said in a webinar Tuesday.

In the webinar, “Effectiveness of DEI in Driving Organizational Change: DEI Survey Read-Out,” Dr. Quinetta Roberson, a professor of management and psychology at the University of Michigan and Filene fellow, presented preliminary findings from Filene’s 2022 DEI Practices and Policies Survey, which Filene noted is the only research of its kind to be conducted thus far in the credit union industry. Complete findings will be presented at Filene’s big.bright.minds. conference, a hybrid event scheduled for Oct. 25-26 online and in Denver.

Matching trends from last year, the research found that credit unions focusing their DEI efforts in the following three areas saw the biggest impacts to their bottom line: Strategy, which includes actions such as hiring a chief diversity officer, appointing a DEI committee, and implementing a written DEI policy and strategic plan; goals, which encompasses setting goals resulting from DEI-related efforts such as hiring underrepresented individuals; and tracking, which refers to collecting data as the credit union works toward its goals.

And as they did last year, researchers 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 practices and low levels of strategy practices) and credit unions with strategic and tactical DEI practices.

They found that when comparing the return on assets (ROA) for credit unions in each of the three clusters, those with no practices and tactical practices saw similar outcomes (with 86.77% and 89.71% average ROA, respectively), while credit unions with strategic and tactical practices saw an average ROA of 112.63%. “It was being higher on all three [practices] that really drove return on assets, meaning, by having those practices in place, credit unions were able to extract more value from their assets,” Roberson said.

When comparing net income for credit unions in each of the three clusters, it turned out that credit unions with tactical practices and credit unions with strategic and tactical practices saw few differences in their results, with the first group averaging net income of $18,572,367 and the second group averaging net income of $18,647,640. Credit unions with no DEI practices fared worse with an average net income of $15,410,234. “What this suggests is that through its goals and tracking, that may be helping the credit union leverage its DEI practices in a number of ways that creates efficiency,” Roberson noted.

Filene made several tweaks to its DEI Practices and Policies Survey this year, the most notable being the addition of an Employee Experience Survey, an optional survey that participating credit unions could distribute internally to gain employees’ perspectives on the credit union’s DEI efforts.

In a panel discussion during the second half of the webinar, Miguel Polanco, director of the Office of Minority and Women Inclusion for the NCUA, said Filene’s research was in line with how the agency structures its Credit Union Diversity Self-Assessment program, but that it went further by assessing performance outcomes – something the NCUA’s DEI assessment tool does not do.

Polanco also spoke to the power of conducting formal DEI evaluations, pointing out that 84 credit unions participated in the Credit Union Diversity Self-Assessment the past two years in a row, all of which saw improvements of 3-5 percentage points in each DEI area explored in the assessment in the second year. “That suggests that assessing how you’re doing reinforces the intention behind the practice,” he said.