Did Silicon Valley Bank implode because one (1) of its 11 board members is Black? Or because one (1) of those 11 board members is LGBTQ+? One of the nation’s most prominent economic columnists is wondering.
In a column for the Wall Street Journal, Andy Kessler writes: “SVB notes that besides 91 percent of their board being independent and 45 percent women, they also have ‘1 Black,’ ‘1 LGBTQ+,’ and ‘2 Veterans.’ I’m not saying 12 white men would have avoided this mess, but the company may have been distracted by diversity demands.”
One does not have to do much to imagine how a board of 12 white men would have acted; 10 of SVB’s 11 directors are white, all of them are rich, and the youngest is 53 years old. SVB's board, it should be noted, is less diverse than any of the United State's top five banks, according to their own annual reports.
There is, of course, literally no evidence whatsoever to suggest that SVB was “distracted” by diversity demands, and less than zero evidence that any token corporate interest in diversity led to its downfall. There is ample evidence to say, however, that while the story is complicated, the most important factor appears to have been the Trump-era rollback of various regulations put in place after the last financial crisis to prevent banks from imploding. All of the banks that have imploded so far were totally concentrated on highly speculative, overheated sectors of the economy (cryptocurrency and startups), and slammed into the brick wall of rising interest rates and the deleterious effects on securities they held when depositors panicked.
And yet, the idea that Silicon Valley Bank was somehow a “woke” bank and that this wokeness somehow led to its downfall has immediately taken hold by culture warriors on the right and made its way into the largest economic newspaper in the United States. This idea of SVB as “woke” seemingly originated on Twitter, when an account called The_Real_Fly posted a screenshot of a quote from senior SVB U.K. employee Jay Ersapah about representation and creating “a sense of community for our LGBTQ+ employees and allies.”
“Head of Financial Risk at SVB Jay Ersapah might’ve been busy with more important projects at the bank, such as LGBTQ issues, rather than assessing risk,” they tweeted. It should be noted that Ersapah is not the head of financial risk for SVB, just for its UK entity, which was acquired by HSBC for £1 Monday due to the failure of the larger company, but was found to be "without solvency concerns." In any case, this tweet went viral, and its message was spread far and wide by right-wing pundits.
On Monday morning, former Trump administration official Stephen Miller tweeted that the “House GOP must subpoena SVB to learn, among other things: “How many hours & dollars were spent on equity/DEI/[environmental and social good]/climate scams.” Donald Trump Jr. tweeted that “SVB is what happens when you push a leftist/woke ideology and have that take precedent over common sense business practices.” Fox News, meanwhile, had on Home Depot cofounder Bernie Marcus to “rip ‘woke’ companies for prioritizing ‘diversity’ and ‘social policies’ and, separately, Tennessee Rep. James Comer said on air that SVB was “one of the most woke banks.”
It should be stated clearly that banks are notoriously not known for being unbiased arbiters of fairness, and, in fact, have a decades-long history of redlining and systemic discrimination. This discrimination, in part, led to the last banking disaster, some might recall. For example, Black and Latinx people were “much more likely to receive high cost, high risk loans than white borrowers during the housing boom, even after controlling for credit scores, loan to value rations, subordinate liens, income, assets, expense ratios, neighborhood characteristics, and other relevant variables” in the lead to the 2008 housing crash, researchers at Princeton, Brigham Young University, MIT, and Northeastern University wrote in a 2018 paper, citing four previous statistical analyses.
Those researchers then did a qualitative study that pulled from interviews, depositions, statements, and other primary sources created by people involved in that crisis and found evidence that “speak directly to the racialized knowledge, intent, and motivations of those who marketed high cost, high risk lending products to minority borrowers during the housing boom.”
“We offer these qualitative data as powerful direct evidence of racial discrimination in U.S. lending markets, complementing the strong indirect evidence provided by earlier quantitative studies,” they add.
This is just to say that SVB was not “woke,” and neither are any other major banks. To the extent that any gigantic corporation—we are talking about the boards of directors at banks—cares about diversity, they do so in terms of revenue and profitability. Study after study has shown that having a more diverse workforce leads to better business outcomes and higher profits, which the boards of directors of major corporations are obligated to hold above all else.
In the same prospectus the WSJ’s Andy Kessler uses as evidence of the company’s wokeness, that very same highly diverse board of 10 white people and one Black person said it was recommending a stockholder vote “AGAINST” a proposal that would have required an independent racial justice audit. The proposal stated that "Given the many companies across sectors embroiled in race-related controversies, any company without a comprehensive third-party audit and plan for improvement of its internal and external racial impacts could be at risk." In its vote against the proposal, that board said SVB was already doing enough on its diversity initiatives.
That SVB gave a halfhearted nod to diversity and inclusion in an official statement is not surprising nor is it unusual in the corporate world or in the world of banking. While no bank is actually doing that well on diversity, it should be noted that each of the top five banks in the United States have a more diverse board of directors than Silicon Valley Bank did, and that each of them give the same platitudes to diversity and inclusion that SVB does:
JP Morgan Chase: “Our Board reviews its composition for the right mix of experience, refreshment, skills and diversity.”
CitiGroup: “Citi’s Board is committed to ensuring that it is composed of individuals whose backgrounds reflect the diversity represented by our employees, customers, stockholders, and stakeholders.”
Wells Fargo: “In identifying first-time candidates or nominees for director, and in evaluating individuals recommended by shareholders, the current composition of our Board and the interplay of the candidate’s or nominee’s experience, education, skills, background, gender, race, ethnicity, and other qualities and attributes with those of the other Board members. The GNC also incorporates this broad view of diversity into its director nomination process by taking into account all of the factors above.”
Bank of America: “We value and promote diversity and inclusion in every aspect of our business and at every level of our organization. Our commitment to creating a diverse and inclusive environment starts at the top with oversight from our Board and CEO.”
Bancorp: “Our company is committed to diversity, equity and inclusion. Our Board is focused on diversity within its membership in order to benefit from a variety of perspectives, experiences and skill sets in exercising its oversight role.”
Is it "woke" to invest in American startups, to take deposits from biotech firms and cryptocurrency protocols, and to invest in government bonds? This is exactly what SVB did, and as risky or short-sighted as it may be, it's certainly not "woke." It's exactly the type of risk-seeking capitalism that low interest rates fueled for years, and is now being at least temporarily cooled off along with the rest of the economy. What happens next in terms of the effects on the U.S. banking sector—and whether this will ultimately benefit big players—is worth talking about, and maybe even getting mad about, but it has nothing to do with how many Black or LGBTQ people sit on a board.