Almost four in 10 UK organisations had no ethnic minority representation on their executive teams between 2014 and 2019, which put them at significant risk of being outperformed by their competitors.
Companies in the top quartile for executive-level ethnic diversity financially outperformed their rivals in the bottom quartile by 36% on average in 2019, up from 33% in 2017 and 35% in 2014, according to McKinsey & Company.
Diversity and inclusion
The management consultancy has been tracking the performance of 1,039 companies across 15 countries since 2014, and reporting on how this correlates with gender and ethnic diversity at leadership level.
When gender equality in leadership positions is investigated, McKinsey & Company found those in the top quartile had an EBIT (earnings before interest and tax) that was on average 25% higher than those in the bottom quartile (2017: 21%, 2014: 15%).
Its report, Diversity Wins, estimated it would take UK businesses around 24 years to reach gender parity at executive level if this rate of progress were to continue.
“Yet again, our research has shown that aside from the moral imperative for increasing inclusion and diversity, many companies are missing out on the opportunity to critically boost to their bottom line. However, we must remain vigilant: as our research shows, progress is too slow,” said UK and Ireland managing partner Dame Vivian Hunt.
“While there has been great enthusiasm from many companies on improving inclusion and diversity, these efforts are not cutting through to employees on the ground or are the wrong set of interventions. More than ever, leaders and managers will need a great deal of resolve and resilience on these matters as they seek to navigate an economically and socially viable path toward a ‘next normal’.”
The report stated that diversity and inclusion was more important now than ever, especially as business faced a global crisis brought on by the Covid-19 pandemic.
Deprioritising D&I would impact both their bottom line, and the lives of their employees, it says.
“Research and experience warn us that diverse talent can be at risk during a downturn for several reasons, including that downsizing can have a disproportionate impact on the roles typically held by diverse talent,” says the report.
“There is ample evidence that diverse and inclusive companies are likely to make better, bolder decisions – a critical capability in the crisis. For example, diverse teams have been shown to be more likely to radically innovate and anticipate shifts in consumer needs and consumption patterns – helping their companies to gain a competitive edge.”
Many organisations had shelved their D&I initiatives as they focused on addressing the impact Covid-19 had on their businesses. Some told the report’s authors that D&I was “luxury [they] cannot afford”, which McKinsey & Company warns is an attitude that may “tarnish their licence to operate in the long term” and means they could “lose out on very real opportunities to innovate their business model and strengthen their business recovery”.
There were, however, some firms that were continuing to prioritise diversity as they adjusted to the new agenda. The CEO of a European consumer-goods company told the report’s authors: “I know we have to deal with Covid-19, but inclusion and diversity is a topic too important to put onto the back-burner”.
The report said that the shift to remote working to protect employees’ health also presented an opportunity for companies to accelerate D&I, as it could facilitate retention of women and minority groups who often took on a disproportionate share of family duties.
Other steps to build diverse and inclusive cultures outlined in the report included:
- ensuring the representation of diverse talent through diverse appointments and by fixing the “broken rungs” of the ladder to leadership – for example, investing in technology to support fair decision-making in hiring and promotions
- strengthening leadership accountability and capability for D&I. The report finds just 15% of the companies hold managers accountable for diversity metrics
- ensuring that leaders enable equality, promote openness, and foster belonging, while considering the impact biases can play.