While the world fights for greater diversity and inclusion in corporate structures and positions of leadership, it’s worth noting where industries are and where they’ll need to go from here.
In short, inclusion is inadequate and progress toward change in recent years has been slow-going, McKinsey & Company said in May, before the world erupted into a fight against systemic racism couched within its fight against the pandemic.
In 2019, people of color made up just 14 percent of executive teams at companies across the U.S. and U.K., and that number was up a nominal 0.8 percent year over year. When it came to boards of directors, McKinsey said people of color held 16 percent of those seats, a number that inched up 1.1 percent over the year. Bringing gender into the fold, inclusion isn’t much better. Women only make up 15 percent of executive teams and 24 percent of board roles.
But addressing diversity’s effect on profitability, which has long been the common way to appeal to corporations still stuck in old ways with the same faces and perspectives, McKinsey said the business case for diversity in executive teams “remains strong.”
“The greater the representation, the higher the likelihood of outperformance,” the consultancy said. Companies in the top quartile for ethnic diversity on executive teams in 2019 were 36 percent more likely to see above-average profitability, according to McKinsey, which noted that outperformance continues to be higher for diversity in ethnicity than it does for gender.
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Though overall progress on representation and inclusion has been slow—“most [analyzed companies] have made little or no progress, and some have even gone backward,” McKinsey said—some organizations are outperforming others, and the gap between the leaders and those they’re lapping, is widening.
Over the five-year period beginning in 2014, when consultants compiled their initial data on this diversity and inclusion research, “diversity leaders” and “fast movers,” those on the winning end of the widening gap, increased their ethnic representation from just 1 percent in 2014 to 18 percent in 2019. On the other side of that coin, the “laggards” haven’t made any progress at all. In 2014 they had no ethnic representation at all, and by 2019 they could say nothing to the contrary. Those laggards, McKinsey said, were 40 percent more likely to underperform their industry-median profitability.
If companies can take meaningful action on hiring a representative workforce and ensuring that they’re in, and elevated to leadership roles, the next step is to be actively inclusive. To be diverse on its own won’t suffice.
In taking a read from employees and what they regard as significant, McKinsey said while sentiment on diversity was 52 percent positive across industries with the highest levels of executive-team diversity (financial services, technology and healthcare), sentiment on inclusion was “markedly worse” at just 29 percent positive.
“This encapsulates the challenge that even the more diverse companies still face in tackling inclusion,” McKinsey said. “Hiring diverse talent isn’t enough—it’s the workplace experience that shapes whether people remain and thrive.”
Action over words
That workplace experience should include equality across staff of all ethnicities, a sense of belonging and an openness to acknowledge and address bias and discrimination.
Further, McKinsey said there are five key steps companies should be taking as they navigate increasing demands for diversity and inclusion.
For one, companies should ensure the representation of diverse talent.
“This is still an essential driver of inclusion,” McKinsey said. “Companies should focus on advancing diverse talent into executive, management, technical, and board roles. They should ensure that a robust I&D [inclusion and diversity] 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.”
From there, corporate environments should prioritize strengthening leadership accountability and capabilities for diversity and inclusion.
“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,” McKinsey said. “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.”
Opportunities in the workplace should also be equal and fair and enabled through transparency. And this transparency is something consumers leading or supporting the renewed movement against racism, have already begun to expect. C-suite executives heading companies that can’t consciously claim they’ve been inclusive in their hiring or marketing have stepped down one after the other in recent weeks amid consumer calls for it. Reformation was one among them.
“To advance toward a true meritocracy, it is critical that companies ensure a level playing field in advancement and opportunity,” McKinsey said. “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.”
Microagressions should also fall into trainings surrounding discriminatory behavior so that employees will better understand when their comments are backhanded.
“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,” McKinsey said. “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.”
In that same vein, the fifth action McKinsey said companies endeavoring to be active about their diversity policies should take, is to create an environment that unequivocally supports multivariate diversity.
“Companies should build a culture where all employees feel they can bring their whole selves to work,” McKinsey said. “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.”