Business leadership diversification slows in UK and US

Despite mounting evidence suggesting diverse firms perform better than businesses with more homogenous leadership, progress on gender balance in senior levels of global businesses continues to proceed at a snail’s pace. A new report has even found that progress at UK and US firms has slowed drastically in the last two years when it comes to promoting ethnic and gender diversity in their upper-ranks.

The reported potential to improve business outcomes still does not seem to constitute enough of an incentive for most organisations to change their HR strategies when it comes to diversity and inclusion (D&I). While firms with improved gender and ethnic diversity in leadership often enjoy improved results, according to a 2019 report from Grant Thornton, only 15% of CEO roles are presently held by women. Meanwhile, a study from diversity and inclusion organisation, INvolve, published at the start of 2020 found that of the major businesses of the UK, US and Canada, only 5% of CEOs were from an ethnic minority background.

Now, a further study from McKinsey & Company has further highlighted this disconnect, something which will likely raise questions about the ability of businesses to self-regulate on the matter. The management consulting giant analysed data from more than 1,000 companies across 15 countries over the course of 2019, and found that companies in the top quartile for gender diversity on executive teams were 25% more likely to have above-average profitability than companies in the fourth-quartile.

This represented an even greater performance boost than McKinsey’s previous data suggested, rising from 21% in 2017 and 15% in 2014. In terms of ethnic diversity, McKinsey found the same story again, as in 2019, the top-quartile companies for ethnic diversity in executive teams outperformed those in the fourth-quartile by 36% in profitability, rising from 33% in 2017 – making an even more compelling case D&I improvements in business leadership.

Despite this, McKinsey also found that diversification of executive teams at most companies have slowed in recent years, particularly in the US and UK. While they still outperformed the global average when it came to the gender and ethnic diversity of board rooms and executive suites, British and American businesses have seen a marked drop-off in the rate at which they are improving on this basis.

The growth of diversity in UK and US firms’ boards at least remains strong. In terms of gender, it increased by 3% between 2014 and 2017, and 4% between 2017 and 2019, suggesting it is accelerating, as was the case for ethnic diversity, though by a slimmer margin.

Problematically, however, growth on both fronts seems to have collapsed when it comes to executive representation. UK and US executive teams saw a 4% improvement in gender diversity and 5% in ethnic diversity leading to 2017, but that slowed to just 1% in both cases by 2019.

Lack of LGBT+ representation

On another front, another recent McKinsey study similarly found that despite a growing business case for inclusion has not translated into solid gains for the LGBTQ+ community within the workplace. Trans people face especially sharp barriers to advancement in the workplace for example. According to a study of people made up of cisgender lesbian, gay, bisexual, queer and transgender workers of the same age, transgender respondents were much more likely to be in entry-level positions than cisgender people.

Transgender workers are also less likely to have management, evaluation, or hiring responsibilities, while view their gender or sexual orientation as a barrier to advancement. This shows the limitations of broader D&I metrics, as while wider inclusivity might seem to be high, it can be inflated by progress on certain fronts, while disguising a lack of progress on others.

Following the findings, McKinsey recommended five key ways to improve D&I in a company’s executive team and board. These steps included setting the right data-driven targets for the representation of diverse talent; and holding leaders to account for progress on D&I.

McKinsey also encouraged firms to improve senior diversity by enabling equality of opportunity via analytics tools for promotions, pay processes, and the criteria behind them; and upholding a zero-tolerance policy for discriminatory behaviour. Finally, the firm stated that having managers should communicate and visibly embrace their commitment to multivariate forms of diversity would help improve a company’s culture in its approaching of D&I drives.

For some, however, such advice is likely to be seen as too little, too late. While corporate entities remain hostile to regulation or diversity quotas, observers of the current state of affairs could well argue that after decades of being asked to become more diverse, firms should not need to be reminded of upholding zero-tolerance policies against discrimination, or to hold their leaders accountable for failing to improve their business’ progress on the matter. Critics might claim that the fact that they apparently do need to be informed of this suggests more stringent government regulation may be required.