Why Diversity Matters

McKinsey (a consultancy) has produced a report, “Diversity Matters” (McKinsey Quarterly Feb 2015), which “examined proprietary data sets for 366 public companies across a range of industries in Canada, Latin America, the United Kingdom, and the United States.” The report compared financial results (such as total revenues, earnings before interest and taxes, and returns on equity for the years 2010 to 2013 and the composition of top management and boards (gender information, ethnicity, race, or both).

Here are the findings which highlight why diversity matters (along with further considerations ‘et alors’):

Why Diversity Matters

Some of the key findings per the McKinsey report (verbatim):

·         Companies in the top quartile for racial and ethnic diversity are 35 percent more likely to have financial returns above their respective national industry medians.

·         Companies in the top quartile for gender diversity are 15 percent more likely to have financial returns above their respective national industry medians.

·         Companies in the bottom quartile both for gender and for ethnicity and race are statistically less likely to achieve above-average financial returns than the average companies in the data set (that is, bottom-quartile companies are lagging rather than merely not leading).

The report further states that “the case for greater diversity becomes more compelling. We live in a deeply connected and global world. It should come as no surprise that more diverse companies and institutions are achieving better performance. […] That’s particularly true for their talent pipelines: attracting, developing, mentoring, sponsoring, and retaining the next generations of global leaders at all levels of organizations. Given the higher returns that diversity is expected to bring, we believe it is better to invest now, since winners will pull further ahead and laggards will fall further behind.”

Et alors

The insight is pertinent and the news is relevant, but the message is not new. Not least since this latest McKinsey report is a follow-up from the one they published in 2010 with similar results. Many large corporations have been attempting to increase diversity and inclusion for the last decade, but with limited results: they are trying to ‘win’ but ending up as ‘laggards…’ There are a number of reasons why diversity ‘initiatives’ may not work (lack of accountability, not ‘walking the talk’, having recruitment but not retention targets, etc.), so what can be done now that’s new; what’s the solution?

There was a very interesting interview with Renee James, the president of Intel Corporation, in the Economic Times of India, “Corporate Dossier” (Feb 13-19, 2015) where she highlighted their recent initiative to ‘walk the talk’ by dedicating $300 million to increasing workforce diversity. Part of a two step plan (1/ do the same as before but better; and 2/ ‘go public’ with the initiatives), she highlighted one of the key issues why diversity initiatives did not appear to work in the last decade: ‘micro inequity sensitivity.’ At the ‘macro’ level, companies and their staff are making broad gestures towards diversity; however at the micro level diversity becomes a ‘good cause’ but ‘someone else’s problem’. At the micro level, no one is accountable for their actions. This may not be malicious and/or ‘anti-diversity’ behavior – many staff will at once and the same time subscribe to the macro initiatives but sub-consciously still exhibit micro inequality when it comes to matters such as talent development.

An example might be if there are two candidates for a post, one of whom is ‘diverse’. In line with macro diversity initiatives, the senior manager will be glad to see a diverse candidate but then ignores that diversity: ‘there is no difference between these two candidates except for their experience and qualifications…’ But then the micro inequality starts to take effect when the senior manager selects only according to these criteria. Let’s say the candidates are equally competent but the ‘diverse’ candidate is female (whose experience was interrupted with a few years maternity leave) and is a graduate from a ‘foreign’ university which the senior manager is not familiar with; whereas the other candidate is male (with no interruptions to work experience) and is a graduate from a ‘local’ university which the senior manager is very familiar with. Who is going to get the job? There is therefore the need to highlight ‘micro inequality sensitivity’ principally amongst senior executives… Hence Intel’s initiatives to ‘go public’ (thereby increasing accountability at both the macro and micro levels) and directing funding to continue to ‘find out what is really going on’ when it comes to diversity…