McKinsey has released the third report in a series investigating the business case for diversity and inclusion. Including results from over 1,000 companies, Diversity Win – How inclusion matters shows that the relationship between executive-level diversity and inclusion, and the likelihood of financial outperformance has strengthened over time.
The report’s findings
McKinsey’s 2019 analysis found that companies in the top quartile for executive-level diversity outperformed those in the fourth quartile by 36% profitability. Although more than a third of companies still have no women on their executive teams, those with more than 30% of executives who were female were more likely to outperform other companies. The same can be said for ethnic diversity, as even though ethnic minorities are underrepresented at an executive level, companies with a higher percentage of ethnic diversity perform better than those who don’t.
Nicole Sahin, CEO and Founder of Globalization Partners, echoes these findings: “This research shows that ethnic minority groups continue to be underrepresented on UK business boards. However, the findings reinforce the idea that the organisations that have a high percentage of executive-level diversity financially outperform their competitors. I’ve seen first-hand the powerful results that occur when people with different perspectives work together to create business solutions.”
“When team members of different ethnicities or gender are part of a team where they can share their viewpoints, businesses quickly realise what a diverse talent base can do for the company. It’s been proven time and again that companies with employees who are diverse in both inherent and acquired traits are more likely to achieve market growth. It’s a little harder for executives to find people outside of their network but doing the hard work to create executive-level diversity upfront has a multiplicative impact on the bottom line of the business.
“Companies we work with generally see the benefits of executive-level diversity because we make it fast and easy for them to expand globally. By hiring local people on the ground in various countries, our clients are able to sell more easily into overseas markets or truly understand their third-party vendors better. At first, they’re overwhelmed by the idea of hiring in a new country, but fairly quickly, they realise that taking the leap of hiring local talent in-market is by far the best way to do business across borders.”
By incorporating a “social listening” analysis of employee sentiment in online reviews, the report also provides new insights into how inclusion matters. Despite the strides made in recent years to improve diversity and inclusion, the sentiment of employees is still not positive towards inclusion in their companies. Employee sentiment on diversity was only 52% positive, while the sentiment on inclusion was only at 29%. The drastic lack of positivity towards inclusion shows that successfully implementing diversity and inclusion is more than simply hiring a diverse workforce.
What to do next
As employee sentiment across the report is low towards diversity and inclusion, the report concludes by recommending what companies can do to better how diversity and inclusion are implemented in their business.
The report took a close look at the data set’s more diverse companies, which are more likely to outperform financially. The common thread for these diversity leaders is a systematic approach and bold steps to strengthen inclusion. Drawing on best practices from these companies, the report highlights five areas of action:
- Ensure the representation of diverse talent: This is still an essential driver of inclusion. Companies should focus on advancing not just executive-level diversity, but also in management, technical, and board roles. They should ensure that a robust D&I business case designed for individual companies is well accepted and think seriously about which forms of multivariate diversity to prioritise. They also need to set the right data-driven targets for the representation of diverse talent.
- Strengthen leadership accountability and capabilities for D&I: Companies should place their core-business leaders and managers at the heart of the D&I effort—beyond the HR function or employee resource-group leaders. In addition, they should not only strengthen executive-level diversity but should also more emphatically hold all leaders to account for progress on D&I.
- Enable equality of opportunity through fairness and transparency: To advance toward a true meritocracy, companies must ensure a level playing field in advancement and opportunity. They should deploy analytics tools to show that promotions, pay processes, and the criteria behind them, are transparent and fair; de-bias these processes; and strive to meet diversity targets in their long-term workforce plans.
- Promote openness and tackle microaggressions: Companies should uphold a zero-tolerance policy for discriminatory behaviour, such as bullying and harassment, and actively help managers and staff to identify and address microaggressions. They should also establish norms for open, welcoming behaviour and ask leaders and employees to assess each other on how they are living up to that standard.
- Foster belonging through unequivocal support for multivariate diversity: Companies should build a culture where all employees feel they can bring their whole selves to work. Managers should communicate and visibly embrace their commitment to multivariate forms of diversity, building a connection to a wide range of people and supporting employee resource groups to foster a sense of community and belonging. Companies should explicitly assess belonging in internal surveys.