When Citigroup Inc. named Jane Fraser its next CEO in September, she became the first woman ever appointed to run one of the Big Four U.S. banks — a group that includes peers JPMorgan Chase & Co., Bank of America Corp. and Wells Fargo & Co., all with over $1 trillion in assets.

She will also become the 15th member of a small club that is growing slowly: female CEOs of billion-dollar banks. In a year when investors are highly focused on gender and race diversity, observers expect more C-suite appointments of women and minorities will follow.

Trillium Asset Management CEO Matt Patsky said he was "thrilled" to see a woman promoted into a senior role at a large bank but cautioned that the pace of change is slow in the industry.

"If it all is done by merit, at least half the CEOs should be women," said Patsky, whose firm is dedicated to sustainable and responsible investing.

As in many other industries, executive teams at banks remain predominantly male. This is especially true of larger institutions. An S&P Global Market Intelligence analysis finds that just 32 public banks — representing 4.0% of the industry — have a female CEO. Only 14 of those have more than $1 billion in assets, representing only 3.3% of the industry.

"You can make up all the reasons why, but the reality is it's because of a gender bias that exists in the entire way in which all of these different systems operate," Patsky said of the low number of female CEOs. "How you break through that and how long it takes, I don't know. Is it reasonable to get to 50% of the CEOs of big banks being women in our lifetime … I don't know."

Before Fraser's appointment, the largest bank with a female CEO was CIT Group Inc., with $61.70 billion in assets. Until recently, Beth Mooney was CEO of KeyCorp, a regional bank with $171.19 billion in assets. She was replaced by Christopher Gorman in May 2020.

Investor focus could expand from boards to management teams

ESG-minded investors have been advocating for increased gender diversity for years, but that push has largely been focused on corporate boards. This could be poised to change, however.

"Diversity has definitely been the primary issue that investors have been concerned about in recent years," said Courteney Keatinge, senior director of ESG research at proxy advisory firm Glass Lewis.

Proxy advisory firms like Glass Lewis play an influential role, providing investors with recommendations about how to vote on management and shareholder proposals at company annual meetings. In 2020, Glass Lewis recommended shareholders vote in favor of a proposal at IPG Photonics Corp. that requested the laser manufacturer prepare a report on its plan to make its management team more diverse in terms of race, ethnicity and gender; the proposal received 44.9% support.

"Given the potential benefits of ensuring diversity within IPG's leadership, we believed that the requested disclosure could benefit shareholders by allowing them to gain more insight as to how the company approached the issue of diversity in relation to both the current leadership team and the pipeline for future talent," Glass Lewis stated in its 2020 proxy season review.

A similar proposal at household goods maker Newell Brands Inc. in 2019 received 56.6% support.

"This could indicate that shareholders are moving beyond the board and the broader employee base to more closely examine the composition of companies' management teams and that they are increasingly placing emphasis on that cohort of employees," Glass Lewis wrote. "Considering the concerns regarding women and minorities in executive and board positions, it is likely that shareholders will continue to examine and target companies where they believe that the pipeline of talent is not sufficiently diverse."

More banks could follow Citigroup's lead in the near term. Keatinge noted that many companies have been laying the groundwork for appointing more women to senior roles by putting more emphasis on developing their pipeline of female talent over the past five to 10 years.

"That could be a significant contributing factor if we do see the appointment of more female CEOS," she said.

Observers also caution that the pace of change in the banking industry has historically been very slow.

But the current environment could accelerate change in terms of both gender and racial diversity at companies. The coronavirus pandemic, which has had an outsized impact on communities of color, and the death of George Floyd while in police custody have brought issues of systemic inequality and racism to the forefront of the national dialogue.

"We're kind of in the middle of a broader social focus on diversity," Keatinge said. "What I'm seeing is companies, frankly, and investors responding at a very rapid clip to some of the issues that have happened in the last several months and taking steps to try to address those."

Trillium's Patsky started researching company diversity and inclusion policies as a sell-side analyst at Lehman Brothers in the 1980s, long before D&I was part of the common corporate lexicon.

"I can still remember the comments [when calling companies], like: 'Wow, you're the first person to ask these questions, and no one ever asks to talk to the director of HR,'" Patsky recalled. "And I'm like, yes, I'm asking, and I want to spend an hour minimum with them. Because if you don't know how they're treating their people, you don't know how sustainable this business is."