We recently highlighted a study on what is required for women of color to advance to the executive suite. We referenced a study by McKinsey and Company, Delivering on Diversity. We wanted to dig a little deeper into that study to determine what it takes for executive team diversity. The study is the second on inclusion and diversity (I&D) by McKinsey, the first being, Why Diversity Matters, published in 2015. This new study expanded on the original and surveyed more than 1,000 companies in 12 different countries.
If you’re still doubting the impact of I&D, the studies have been consistent in their findings, “Companies with the most ethnically/culturally diverse boards worldwide are 43% more likely to experience higher profits.” And, “Companies in the top-quartile for gender diversity on their executive teams were 21% more likely to have above-average profitability than companies in the fourth quartile. For ethnic/cultural diversity, top-quartile companies were 33% more likely to outperform on profitability.”
There is a relationship between I&D efforts and financial performance. Top performing companies are significantly out performing those companies that either ignore I&D or have yet to take it seriously. These companies were 29% less likely to achieve above-average profitability.
To understand what top performing companies are doing differently, McKinsey did a deep dive on 17 companies that are applying I&D principles effectively and found that companies that are diverse are not only more able to attract top talent, they improve their decision making, increase employee satisfaction, improve their image, increase innovation, and better serve customers. The study identified four imperatives for I&D success:
Commit and cascade – CEOs and leaders must articulate a compelling vision, embedded with real accountability for delivery, and cascade down through middle management.
Link I&D to growth strategy – The I&D priorities must be explicitly defined based on what will drive the business growth strategy. Leading companies do this in a data-driven way.
Craft an initiative portfolio – Initiatives in pursuit of the I&D goals should be targeted based on growth priorities, and investments made to both hard- and soft-wire the programs and culture of inclusion required to capture the intended benefits.
Tailor for impact – I&D initiatives should be tailored to the relevant business area or geographic region context to maximize local buy-in and impact.
These steps will put you on the right track but there is no silver bullet that works overnight. The study noted, “…while progress on representation can be brought about relatively rapidly with the right set of initiatives, embedding inclusion sustainability within the organization can take many years, often requiring action outside the organization. Companies that do this well are able to create a strong corporate ethos that resonates across employee, customer, supplier, investor, and broader stakeholder groups.”
If you are looking for ways to improve executive diversity, Sheer Velocity can help. Our team of retained search consultants have worked with companies on executive hiring, culture fit, and I&D initiatives since the first day we opened. Finding the right people and creating an inclusive culture is smart business and the data backs it up. To learn more, send us a note.