Businesses drag feet on diversity despite potential for improved outcomes

26 April 2018 4 min. read

Closing the gap for women and other minorities in the business world, as part of wider social changes, continues to be on the agenda of companies globally. However, despite significant potential increases to profitability, change remains a slow process.

Mounting public pressure has seen diversity become a prominent workplace issue, following reports highlighting various forms of harassment, gaps in remuneration and wider biases, whether implicit or explicit. While the issues are relatively clear, a majority of businesses are failing to take a proactive stance on the matter – with a recent study showing that less than 50% of investors and businesses prioritise inclusion and diversity.

Now, a new report from McKinsey & Company has explored how women continue to be underrepresented at the executive level, as well as key areas where change may affect outcomes. The first edition of McKinsey & Company’s Women Matter report, published in 2007, showed that the number of women at the executive level at top European companies stood at 11%. A decade later little has changed, with 17% of executive committees now female. Across the G-20, the share of women in executive level roles stands at 12%, with varying degrees of performance between countries – the US and China fare relatively well, at 22% and 20% respectively, while Japan and Saudi Arabia perform well below 5%.

Levels of representation

Long road ahead

The status quo remains difficult to transform, even with the positive correlation between the improved business outcomes and the number of women in executive teams continues to be shown. Another recent report from McKinsey showed that the likelihood of financial performance above national industry medians between top and bottom quartiles relative to gender diversity in executive teams, saw a 21% increase in profitability and a 27% increase in value creation.

However, while there are various studies that show correlation between diversity and improved financial figures, the firm also notes that there are areas in which there is correlation between company performance and ethnic and gender diversity in executive teams. Researchers found that the likelihood of financial performance above national industry medians for profitability between the 1st and 3rd quartiles and the bottom quartile came in at -29%.

Lack of diversity effects on profitability

As quoted by McKinsey, Iris Bohnet, professor of public policy at the John F. Kennedy School of Government at Harvard University, remarked, “The evidence is very strong that diverse teams outperform homogeneous teams, whether these are all-male or all-female teams. This occurs across all kinds of different dependent variables, from creative problem solving to analytical tasks to communication skills. Diversity helps because we have a complementarity of different perspectives, or what we call ‘collective intelligence.’”

Efforts to change

One of the most significant aspects of improving top-level figures, according to the firm, is maintaining a strong pipeline for women throughout the corporate hierarchy. Early efforts to appoint more women to board level positions quickly hitting a bottleneck. As it stands in the corporate sphere, research for the public sphere shows much stronger performance, women are less and less represented the higher up the corporate ladder.

Reaching the top

The reasons for the decrease are complex, and differ between sectors – with tech showing low promotion across the board, while in others, women appear to accrue in middle management positions, and in ‘soft’ executive positions such as personnel management (ironically one area charged with hiring decisions).

Women may also be discouraged from attempting to rise in the ranks, in part because of being faced with implicit biases in how they are treated across a range of levels in the business, while additional burdens, including considerable domestic work, create further drains on womens’ ability to overcome barriers.