(The Root) — In late August it was revealed that Merrill Lynch, one of the nation's oldest financial institutions, would settle a class action lawsuit brought by African-American employees alleging discrimination.
By settling, the firm became one of the few major players on Wall Street to acknowledge something that has been whispered about for years but has been nearly impossible to prove: that institutional racism has made it tougher for black Americans to make it to the top on Wall Street than just about anywhere else — including the White House. Though the 2005 suit, initiated by longtime Merrill broker George McReynolds, was filed on behalf of 700 black brokers, a portion of the $160 million settlement will be available to any black broker or trainee at the firm since May 2001.
Unlike some previous discrimination cases, the Merrill suit did not accuse the firm of bias in hiring. Instead it alleged that black brokers were not provided a pathway to leadership positions. According to the New York Times, during a deposition for the case, E. Stanley O'Neal, Merrill's first black chief executive, acknowledged that black brokers might have a tougher time because white prospective clients might not trust their wealth to black brokers.
While the size of Merrill's settlement generated worldwide headlines, it is not the only Wall Street firm with a diversity problem, or the only firm to be sued for racial discrimination. In 2008 Morgan Stanley settled a discrimination suit brought by black and Latino bankers. A 2011 report from the City University of New York's Center for Urban Research found that while Latinos and Asians have increased their presence on Wall Street over the last decade, African Americans have not.
Even with the increasing presence of minorities on Wall Street, the median earnings of white males still outpace those of women and racial minorities by a margin of nearly 2-to-1. Data from 1993 to 2008 compiled by the Equal Employment Opportunity Commission showed that minorities held only 10 percent of senior management positions in the financial-services industry, a number virtually unchanged during that 15-year period. In 2008 the EEOC found that white males held 64 percent of all senior jobs, while African Americans held only 2.8 percent.
So why are the leadership ranks on Wall Street so overwhelmingly white? What is the key to making senior management more diverse?
The Right Relationships Are Key
Carla Harris is the highest-ranking African-American woman at Morgan Stanley and one of the highest-ranking women of color on Wall Street. In an interview with The Root, she shared what she believes are the most important strategies for African Americans who want to ascend to her level within the industry. (She is currently vice chairman of wealth management and senior client adviser.)
When asked if she believes that her race or gender had ever hindered her career, she said no, before adding, "Coming into it, I certainly thought race might play a factor. I didn't think that sex would play a factor, and as I started to go through the journey, I realized that race wasn't as big an issue as sex could be, depending on who you were talking about." She was quick to add, however, that she never sensed that internally at Morgan Stanley.
That's an important caveat, considering that five years ago the firm paid $16 million to settle a suit brought by black and Latino brokers, and in 2004 it paid $54 million to settle a bias suit brought by female employees. But Harris explained that even when she sensed the possibility of bias, she used it to her advantage. "You can't really control what baggage anyone else comes to the table with internally or externally," she said. "But I never let that thought [that someone might be biased] be an impediment for me. If I thought I sensed it, then that just strengthened my resolve so I could own that relationship despite whatever happened."
Harris said there are three essential elements that determine who makes it to the top on Wall Street and who does not (she elaborates on them in her book Expect to Win: Proven Strategies for Success From a Wall Street Vet). The most important, she said, is nurturing and retaining the right relationships. As Harris explained, women and racial minorities often spend more time focused on proving themselves at their desks through the work they do, unaware that investing in relationships is just as essential to long-term career success.
"Women trade on performance currency," she said. "We are always very focused on making sure we do a terrific job, our work is beyond reproach, that you can't ever debate our deliverable, and that is a good currency to have early in your career because that is how you lay the foundation for respect, for people to take notice. But as you get more senior, the relationship currency becomes even more important, making sure you invest in the right relationships, the sponsor relationship, making sure you have good peer relationships. I think especially as women, we don't invest enough in the relationship currency, and there gets to be diminishing margin utility around the performance currency."
She explained that this ultimately determines who gets the plum assignments and the corner office. "I think that for both women and minorities, you need to spend more time investing in the relationships around you, because it will be those subjective things, those relationships, that will make the difference, with someone saying, 'Let's give them that stretch assignment. Let's give them that really important client. Let's make sure they have an opportunity to work on this important execution.'
"All of which adds to your scorecard that allows you to be supported broadly when we say, 'We're thinking about having this person as a partner' or 'We're thinking about promoting this person to executive director,' because so often it is about the relationship," she adds. "If you don't have enough people that know you that are willing to spend capital on you — that's what a sponsor does. They spend capital on you behind closed doors."
This sentiment was echoed by Sonnia Shields, managing director of the Leadership Institute at the Council of Urban Professionals, known colloquially as CUP. The organization is devoted to diversifying corporate boards and the leadership ranks of fields such as finance and law. Before joining CUP, Shields spent nearly 11 years as head of pipeline development in the Americas for banking behemoth Goldman Sachs, responsible for talent-development initiatives for women and employees of color.
"One of the things that we're trying to do at CUP is help people learn to play the game successfully and understand the unwritten rules for success," she explained in a conversation with The Root. "One of the rules is knowing who the key decision-makers are within your firm … You have to understand who the decision-makers are so you can build strategic relationships with those people, so when opportunities come up for promotion or that high-profile assignment, you're going to be considered."
She explained that having a mentor is important, but having a sponsor is key: "Sponsorship is having someone advocate behind the scenes for you, which is very different from a mentor. A mentor can help you navigate the firm, but a sponsor has the power and ability to actually make things happen for your career."
Carla Harris' overall takeaway is that laying the foundation for future success is something one has to strategize about early to ensure long-term success. Having the right projects early in one's career is the second priority for professionals of color who want to make it to the top on Wall Street, she said.
Shields also said that it is crucial for professionals of color to ensure that they are working on the kinds of projects that senior decision-makers consider when determining promotions. She noted that in her work, she found that lawyers of color often had fewer billable hours than their peers, which ultimately played a role when decisions were made about who would become partner. But often those hours were fewer simply because of which cases these lawyers took on.
The same challenge applies on Wall Street. According to Shields, "Professionals of color really aren't getting the plum assignments. You have to get the right assignment and be on the right project team early on in your career because that really will take you and carry you for years to come. This not only positions you in front of the right senior leaders, but once you're able to prove yourself one time and work on that key assignment, that senior leader will keep requesting that you work on that team. A lot of people get left behind because they're not on the right project at the beginning."
But What About Racism?
When asked about the role of bias in blocking minority advancement, Shields replied, "It does play a part. Let's be real." The key, Shields and Harris agreed, is to find strategies for maneuvering around it, or in some cases plowing through it. For instance, when asked about Stan O'Neal's deposition in which he acknowledged that some white clients might experience discomfort working with minorities, Harris replied, "If you sense that and are very clear [client racism is] the issue, you should move on to the next client because there are a lot of people out there who want to have the best managing their money. That's where you're going to get the best yield on your time."
Shields explained that much of CUP's leadership-training program is devoted to helping prepare aspiring leaders to overcome some of the unspoken hurdles that can trip up minorities. For instance, minority candidates passed over for leadership opportunities in organizations are occasionally given subjective feedback such as "You lack gravitas." So Shields says that training focuses on coaching candidates on how to command a room and command respect.
She also acknowledged that some of it comes down to the fact that certain clients and colleagues feel comfortable with those who are more like them — which is a challenge, when so much of Wall Street is white and privileged. That makes the hurdles for a minority from a nonprivileged background even higher. "Diverse professionals have to make more of an effort," Shields said. "If your uncle is not head of [the] investment-banking division and you didn't go to [a] certain school, you have to make more of an effort." She laughed out loud and expressed shock when asked about business writer Andrew Ross Sorkin's defense of nepotism on Wall Street in the New York Times before adding, "Easy to say when you are part of the inside circle."
She concluded, "Does everyone have to play the game? Well, not as hard as diverse professionals."
What the Future Holds
Early versions of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act included language empowering the federal government to terminate a contract with any financial firm that was not committed to fair representation of women and minorities in its ranks. It became a point of contention for conservatives who tried to frame it as a battle over quotas. In the end the bill required the creation of an Office of Minority and Women Inclusion at financial regulatory agencies.
But there are solutions that aspiring leaders can undertake themselves.
Shields advised, "Go on social outings with colleagues." Early in her investment-banking career, she felt that she missed opportunities because as someone who does not drink alcohol, she would rarely join colleagues at bars. She soon discovered that she was missing valuable networking opportunities. "You have to go to drinks with your colleagues, and if you don't drink, get a Shirley Temple."
Next she advised, "Do not be afraid to ask a senior colleague for coffee." But beyond that she said, "When you go to their office, notice what's on their wall or desk and find some area of interest that's similar to yours." That provides a jumping-off point for establishing a relationship, possibly with a sponsor. Last, "Get involved with professional organizations like CUP. If you have broad relationships externally and can turn that into relationships for the firm, you become an asset."
When asked what advice she would give a young professional who has spent a few years working in finance but has not yet secured a sponsor, Harris said this: "Start right then and there investing in that [sponsor] relationship. If you can't tell me right now who is [speaking for you behind closed doors], I will tell you to stop working so hard and start investing in that sponsor relationship."
Harris also explained that for those without a strong social network, wealth management — the side of the industry she is on now — can present a more unusual set of challenges than the investment-banking side, the domain she began her career in.
But ultimately, she said, the third element that determines who makes it to the upper ranks of Wall Street's leadership has little to do with networking or sponsors or policy; it's about priorities and sacrifice. "Not everybody wants to come to this business and take the [10- to 15-year] journey to make it [to the top]." Citing the travel and demands on one's personal life, she concluded that some "people opt out."
Editor's note: This article has been updated to reflect Carla Harris' current title at Morgan Stanley.
Keli Goff is The Root's special correspondent. Follow her on Twitter.
Keli Goff is The Root’s special correspondent. Follow her on Twitter.