Black History Month Coverage: Diversifying Diversity for Better Results
Leadership diversity pays off, and a new study by McKinsey “Why Diversity Matters” has the hard numbers to prove it. It also points out that most corporate diversity programs don’t go far enough to be inclusive of ethnically diverse leaders.
The Glass Hammer has long upheld the “business case for diversity,” and senior women in the corporate space will be pleased to see statistically significant results supporting this argument. More women at the top will indeed help a company perform better. But the study is also a reminder that the definition of diversity extends beyond the group of white women who make up the bulk of those taking part in leadership diversity programs. According to McKinsey, including more ethnically diverse individuals in the leadership tier of companies will produce even better financial performance.
“Diversity matters because we increasingly live in a diverse world that has become deeply interconnected. It should come as no surprise that more diverse companies and institutions are achieving better performance,” write the report authors, McKinsey’s Vivian Hunt, Dennis Layton, and Sara Prince.
According to the study, the top quartile of companies for racial/ethnic diversity in leadership were 30% more likely to outperform the industry median.
Companies in the bottom quartile for gender and for ethnic/racial diversity underperformed compared to their peers. McKinsey urges companies to be more intentional on increasing diversity. While acknowledging that there is more to do before companies approach gender parity at the leadership level, the report shows that efforts toward raising the percentage of women in executive leadership have made a difference.
“The data appears to show that less attention has been given to the attainment of racial and ethnic diversity,” McKinsey says. “By this measure it becomes apparent that for US companies, a dedicated effort would be needed to achieve leadership diversity that begins to reflect the demographic composition of the labor force and the national population.”
Comparatively, companies still need to do much more to improve ethnic diversity in leadership. And according to these numbers, the difficult work of addressing implicit racial biases in the workplace is worth the effort.
“Organizations are often uncomfortable with the discussion of race here in the U.S. and abroad,” says Katherine Phillips, Paul Calello Professor of Leadership and Ethics Management at Columbia University. “Targeting women is easier for organizations because it doesn’t feel as controversial somehow.”
But, Phillips says, there is much that companies can do to broaden their efforts toward improving diversity in leadership and throughout the organization.
“Organizations can better incorporate racial or ethnic diversity targets by first acknowledging that their organizations may not currently be designed for racial minorities to thrive. That was the first step with women – there was an acknowledgment that women had not been so welcomed before and that their needs were not being met. The same acknowledgment needs to happen with racial/ethnic differences to help change things.”
According to Phillips, senior women can help push for more meaningful change at their companies. She encourages the leadership to mindfully sponsor of people of color which will “diversify their own networks and build a broad coalition across these various groups,” she says.
Women who’ve focused on gender diversity have the tool kit to push their companies toward addressing the need for more ethnically diverse leaders as well, Phillips says.
“The barriers and issues may be different but the process of moving the needle is the same – sponsorship and mentorship, vocal advocacy, acknowledgment of biases both explicit and unconscious, and a commitment to changing the status quo are all critical.”
According to the research, businesses with the most women in leadership were 15% more likely to produce above average financial returns. Studies have long shown that diversity makes business sense – teams with greater diversity produce smarter, more collaborative decisions. Research has also shown that companies with more women in the boardroom outperform the market.
But this new research, which crunched companies’ average earnings before interest and taxes (EBIT) between 2010 and 2013, dug deeper. It tracked the gender, ethnic and racial demographics of senior management and boards of 366 large, public companies in the U.S., Canada, U.K., Brazil, Mexico and Chile, and while greater gender diversity produced better returns, greater ethnic diversity produced an even bigger result.
As we move toward a more diverse and global economy, companies that fall to the back of the pack on diversity will also find themselves lagging their peers in terms of corporate performance as well, this study indicates.
Diversity is the competitive edge that most companies are not taking advantage of. By empowering women and ethnically diverse leaders to push into the upper echelons of corporate management, companies will enjoy outsized performance. Unlocking the potential of leadership diversity will take constant and careful work, like any business transformation. But in the end, that work will pay off.
By Melissa J. Anderson
