Diversity wins

Diversity wins is the third report in a McKinsey series investigating the business case for diversity, following Why diversity matters (2015) and Delivering through diversity (2018).

Their latest report shows not only that the business case remains robust but also that the relationship between diversity on executive teams and the likelihood of financial outperformance has strengthened over time. These findings emerge from a data set encompassing 15 countries and more than 1,000 large companies.

Main headlines:

• The business case for diversity in executive teams remains strong:
  • Diverse companies are more likely to outperform their peers by 25% (gender) and 36% (ethnicity)
  • The penalty for lagging on gender diversity is growing (-19%), while top quartile companies are more likely to be at an advantage (11%)
• Gender and ethnic diversity in leadership teams progressed slowly and is currently at 14% (gender) and 7% (ethnicity)
• There is a widening gap between leaders and laggards, with Leaders and Laggards being two of the five cohorts identified by the research based on their progress on executive diversity from 2014 to 2019 (the other three being: Resting on Laurels, Moderate Movers; Fast Movers)
• Overall sentiment on diversity was more positive than negative, but sentiment on inclusion was markedly worse

Drawing on best practices for diversity leaders, the report also highlights give areas of action:

• Ensure the representation of diverse talent. This is still an essential driver of inclusion. Companies should focus on advancing diverse talent into executive, management, technical, and board roles. They should ensure that a robust I&D business case designed for individual companies is well accepted and think seriously about which forms of multivariate diversity to prioritize (for example, going beyond gender and ethnicity). They also need to set the right data-driven targets for the representation of diverse talent.
• Strengthen leadership accountability and capabilities for I&D. Companies should place their core-business leaders and managers at the heart of the I&D effort—beyond the HR function or employee resource-group leaders. In addition, they should not only strengthen the inclusive-leadership capabilities of their managers and executives but also more emphatically hold all leaders to account for progress on I&D.
• Enable equality of opportunity through fairness and transparency. To advance toward a true meritocracy, it is critical that companies 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; debias 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 behavior, such as bullying and harassment, and actively help managers and staff to identify and address microaggressions. They should also establish norms for open, welcoming behavior 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

The full report can be downloaded here.