A Deficit of Diversity on Wall Street

In Wall Street's world of white shirts, white paper, and white men, people of color stand apart.

They are people like Stanley O'Neal, new manager of investment banking for Merrill Lynch and, as such, one of the highest-ranking African-Americans in this arena of high finance.

But for Mr. O'Neal, as for many top black professionals on Wall Street, the latter title is one he'd rather not discuss.

"I have two reactions when the focus on me happens to be diversity," said O'Neal in an interview at his corner office in New York. "It's inevitable, I guess, and not altogether bad.... But I don't think I am where I am because of any diversity issues."

Yet the fact remains that, despite some recent improvement, investment houses rank near the bottom of corporate America in naming blacks to top positions.

Many outside observers put the blame not on deliberate racism so much as on an unintended "passive bias."

"It's a form of bias that they are not even aware of," says Lawrence Otis Graham, an expert on workplace diversity and author of a new book titled "Proversity." "It's a bias toward people who make them feel comfortable and are just like them."

This type of racism is not unique to Wall Street. Indeed, it is one of the central issues President Clinton faces as he undertakes a year-long effort, launched last week, to grapple with racial tensions in America.

Yet experts say the problem may be acute in the financial sector, especially investment firms.

Consider: Four percent of officials and managers in financial services are black, compared with 5.5 percent in all businesses, according to the federal Equal Employment Opportunity Commission.

And of the thousands of stockbrokers in the United States, only 600 are black, estimates Tony Chapelle, publisher of Securities Pro, a New York-based newsletter that reports on blacks in the financial industry.

At some firms, he says, the number of blacks has actually fallen in recent years.

"Part of the problem," he says, "is that Wall Street doesn't know how to make it possible for African-Americans to stay or be successful."

Merrill's O'Neal, a Harvard Business School graduate who joined the firm 10 years ago after a long career at General Motors, agrees.

"I live in a world where I have very few conversations during the course of my business day about race," he says. "Yet I think the issue of race exists all the time."

Higher hurdle?

Wall Street firms often set the bar higher for black candidates, demanding stronger credentials than from whites, argues Mr. Graham, who heads Progressive Management Associates, a diversity consulting firm in White Plains, N.Y.

"When I look at the top blacks in financial services," he says, "a lot of the people that they end up recruiting have rsums that far outshine their white counterparts."

But it is the passive bias, say Mr. Graham and others, that - more than any factor - hurts recruiting, mentoring, and promoting African-Americans in financial services.

Companies that are not alert to passive bias, Graham says, "lose out on the recruiting possibilities ... because minorities who are considering jobs there want to know that these companies want them."

Part of the problem, O'Neal says, is that "the average [white] American above a certain social economic class, in particular, has virtually no interaction with anyone of their same socioeconomic class who is of African-American descent."

"That," he says, "tends to breed discomfort at a minimum and sometimes worrisome generalizations ... about people that have never had much of an opportunity to be tested."

The passive bias may also help explain why Merrill Lynch's O'Neal and other African-American executives balk at pointing out their industry's racial shortcomings.

Still, Wall Street has made strides in recruiting, many experts agree.

Many companies, including Merrill Lynch, now actively recruit at historically black colleges, and Merrill claims to be the first Wall Street firm with minority recruiters.

But companies say it's still difficult to find qualified minorities.

"We don't see the number of candidates needed to bring in and fill up the pipeline," says Pat Walsh, head of human resources at Merrill Lynch.

Education seen as key

O'Neal agrees that education is key in helping to get more blacks into Wall Street jobs.

"Until that pipeline is as robust as it can be, which I don't think it is at all today," he says, "it is hard to see how one can make sufficient progress in any particular sector of the economy."

Yet a bigger problem is retention. Merrill Lynch's Mr. Walsh says African-Americans have a higher turnover rate despite a higher percentage of promotions and raises. The primary reason, Graham argues, is a lack of mentoring. "Nobody is advising or guiding these individuals, and they end up leaving because they feel as though no one is looking out for them."

THE CORPORATE DIVERSITY GAP - BIGGEST AT TOP

* Racial minorities make up 21 percent of the work force, but in no industry do they make up more than 13 percent of managers. In many industries it's less than 1 percent, according to the bipartisan Glass Ceiling Commission.

* Minorities hold less than 3 percent of senior posts (vice president and above) at US corporations.

* Of 14.5 million blacks at work in America, 22 percent hold service jobs (twice the level of whites); 29 percent, blue-collar jobs; and 48 percent, white-collar jobs.

* Black men earn 26 percent less than white males, the same as in 1974. For black women, earnings are up but not as much as for white women.

Source: John Wright, "The American Almanac of Jobs and Salaries" (Avon Books, 1996)