Get some women on your executive teams for the sake of profitability

Get some women on your executive teams for the sake of profitability

May we present…Yet more evidence on the business case for diversity in leadership.

This one should be compulsory reading for anyone hiring, promoting and supporting leadership and board positions in 2018.

It should also be essential reading for anyone interested in the profitability of the companies they invest in, purchase from, support, own or work in.

This latest report from McKinsey & Co is massive, examining the financial performance of 1000 companies in 12 countries and following up on its 2015 Why Diversity Matters study.

The study found that those companies in the top quartile for diversity at the executive level, are 21% more likely to be more profitable than their industry peers in the bottom diversity quartile.  

Ethnic diversity improves performance even more, with companies once again in the highest quartile on ethnic diversity being 33% more likely to be more profitable that those in the bottom quartile.

Diversity’s not just an opportunity, a lack of diversity could also be a risk.

McKinsey found that companies in the bottom quartiles for both ethnicity and gender were 29% less likely to outperform on profitability.

A quick look at who gets to the top of some of Australia’s largest listed organisations indicates we have a very long way to go. And that’s not only on gender and ethnicity, but also on which backgrounds make it to the pointy end of leadership.

Robert Half’s latest CEO research finds that 94% of ASX 200 CEOs in Australia are male, and 47% are based in Sydney. Meanwhile, the good majority have a background in finance and accounting (indeed just 6% have a background in tech).

Australia could really use a shake-up at the top, given not one Australian company made it into BCG’s latest list of the world’s 50 most innovative companies.

McKinsey hypothesises that the levers driving the link between diversity and profitability may include diverse companies being able to better attract top talent, as well as diverse teams improving their customer orientation, employee satisfaction and overall decision making.

So what can be done to create more diverse teams? McKinsey offers a number of suggestions, including four imperatives it believes have been crucial to companies that have successfully achieved better inclusion and diversity.

Those four imperatives include:

A strong commitment from the CEO. The CEO must be able to galvanise the organisation into action, and see that commitment cascade down to middle management. They must encourage role models, hold their executives and managers to account and ensure efforts are sufficiently resourced.

Define diversity and inclusion priorities based on drivers of the business-growth strategy. McKinsey finds that companies leading on diversity are investing in internal research to better understand which specific strategies can support their business growth priorities. This may mean identifying the right mix of differing traits that are most relevant to their organisations.

Create a targeted portfolio of diversity and inclusion initiatives. Initiatives must be carefully considered, adequately resourced, and align with the overall growth strategy.

Tailor strategies for localised impact. Diversity strategies must be tailored to meet the needs of geographic locations and different aspects of an organisation. It’s not a one sized fits all approach across teams and offices.

Further awareness of the stats indicating the strong business case for diversity does not automatically translate to change and immediate buy-in from the individuals who can make a difference.

But getting these figures on the table is a great start to 2018. As is getting more women on your executive teams.

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