Diversity Wins: How Inclusion Matters
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Diversity wins How inclusion matters May 2020 Preface In the COVID-19 crisis, diversity and inclusion matter more than ever For business executives the world over, the employees need to feel and perceive equality COVID-19 pandemic is proving to be one of the and fairness of opportunity in their workplace. greatest leadership tests of their careers. Not only Companies that lead on diversity have taken bold must they protect the health of their employees steps to strengthen inclusion. and customers, they must also navigate far- Early signs suggest that the COVID-19 crisis could reaching disruption to their operations, plan for deepen these trends. Companies that already recovery, and prepare to reimagine their business see I&D as a strength are likely to leverage it to models for the ‘next normal’. bounce back quicker—and they will use this time In this challenging context, the task of fostering to seek new opportunities to boost representation inclusion and diversity (I&D) could easily take a and inclusion to strengthen performance and back seat—and the painstaking progress made organizational health. As the CEO of a European by many firms in recent years could be reversed. consumer-goods company told us: “I know we have As this report shows, however, I&D is a powerful to deal with COVID-19, but inclusion and diversity is enabler of business performance. Companies a topic too important to put onto the back burner”. whose leaders welcome diverse talents and include On the other hand, some of the companies we have multiple perspectives are likely to emerge from the spoken to are viewing I&D as a “luxury we cannot crisis stronger. In short: diversity wins, now more afford” during the crisis. We believe that these than ever. companies risk tarnishing their license to operate This report was originally due for release in in the long term and could lose out on very real March 2020, but we put publication on hold as the opportunities to innovate their business model and COVID-19 crisis ensued. Since then, in talking to strengthen their business recovery. CEOs, CXOs and CHROs and assessing the radically If companies deprioritize I&D during the crisis, changed business landscape, we have come to the the impact is felt not just on the bottom line but in conclusion that its findings are even more relevant people’s lives. Research and experience warn us right now. that diverse talent can be at risk during a downturn The report demonstrates that the business case for for several reasons, including that downsizing can gender and ethnic diversity in top teams is stronger have a disproportionate impact on the roles typically than ever. Since we first published Why Diversity held by diverse talent. 1, 2 As companies send Matters in 2015, the likelihood of diverse companies staff home to work, this could reinforce existing outperforming industry peers on profitability has exclusive behaviors and unconscious biases and increased significantly. The data also shows that undermine inclusion. In addition, unequal sharing there is a clear divergence in how companies are of childcare and homeschooling responsibilities, engaging with I&D. A third of the firms we have and unequal availability of home workspace and tracked over the past five years have significantly access to broadband could be putting women and improved both gender and ethnic diversity on their minorities at a disadvantage during this time of executive teams, while the majority have stalled or working remotely. gone backwards. Companies and their leaders can seize this We also find that the dynamics around inclusion are moment—both to protect the gains they have a critical differentiator for companies. Our evidence already made, as well as to leverage I&D to position is that an emphasis on representation is not enough; themselves to prosper in the future. 1 How “Neutral” Layoffs Disproportionately Affect Women and Minorities, HBR, June 2016 2 McKinsey & Company, Women in the Workplace 2019 Diversity wins: How inclusion matters There is ample evidence that diverse and inclusive purpose and values even more closely, potentially companies are likely to make better, bolder even more so in the current pandemic. Those that decisions—a critical capability in the crisis. tap into the growing sense of solidarity that is a For example, diverse teams have been shown to be characteristic of the crisis—by reaffirming their more likely to radically innovate and anticipate shifts commitment to I&D, supporting vulnerable talent in consumer needs and consumption patterns— who are at greater risk of infection, and reaching out helping their companies to gain a competitive edge.3 to local communities—could strengthen employee motivation and win lasting approval. In this context, the shift to technology-enabled remote working presents an opportunity for The findings and case studies presented in this companies to accelerate building inclusive and agile report will be of enduring relevance to companies cultures—further challenging existing management in every industry, long after the world has emerged routines. With its benefits of increased flexibility, from the COVID-19 crisis. But we are convinced remote working can facilitate retention of women that, as companies and their leaders navigate the and minorities, who are often shouldered with a crisis itself and plan their emergence from it, they disproportionate share of family duties. It thus will find that I&D is an essential enabler of recovery, widens access to an array of diverse talent that may resilience, and reimagination. not have been available to companies previously.4 Moreover, a visible commitment to I&D during the crisis is likely to strengthen companies’ global image and license to operate. In times of crisis, stakeholders typically interrogate a company’s 3 Ibid. 4 https://www.nytimes.com/2020/03/31/us/equal-pay-coronavirus-economic-impact.html Vivian Hunt, DBE Sara Prince Senior Partner, McKinsey & Company Partner, McKinsey & Company London Atlanta Sundiatu Dixon-Fyle Kevin Dolan Senior Expert, McKinsey & Company Senior Partner, McKinsey & Company London Chicago May 2020 Diversity wins: How inclusion matters Contents Executive summary 3 Introduction 10 A stronger business case for diversity, but slow progress overall 13 Citigroup: strengthening equality of opportunity 22 The widening gap between winners and laggards 24 Pentair: building an inclusive culture 31 How inclusion matters 32 Target Corporation: staying open 39 Winning through inclusion and diversity: taking bold action 41 Lockheed Martin: breaking down barriers to inclusion 46 Conclusion 47 Methodology 48 About the authors 52 Acknowledgments 52 Diversity wins: How inclusion matters 1 2 Diversity wins: How inclusion matters Executive summary The business case for inclusion and diversity (I&D) is stronger than ever. For diverse companies, the likelihood of outperforming industry peers on profitability has increased over time, while the penalties are getting steeper for those lacking diversity. Progress on representation has been slow, yet a few firms are making real strides. A close look at these diversity winners shows that a systematic, business-led approach and bold, concerted action on inclusion are needed to make progress. Diversity Wins is the third in a McKinsey series A stronger business case for diversity, investigating the business case for diversity, but slow progress overall following Why Diversity Matters (2015) and Our latest analysis reaffirms the strong business Delivering through Diversity (2018).1 This report case for both gender diversity and ethnic shows not only that the business case remains and cultural diversity in corporate leadership— robust, but also that the relationship between and shows that this business case continues diversity on executive teams and the likelihood of to strengthen. The most diverse companies are now financial outperformance is now even stronger more likely than ever to outperform than before. These findings are underpinned by our non-diverse companies on profitability. largest data set to date, encompassing 15 countries and more than 1,000 large companies. The report Our 2019 analysis finds that companies in the top also provides new insights into how inclusion quartile of gender diversity on executive teams were matters, through an analysis of employee sentiment 25 percent more likely to experience above-average in online reviews; this shows that companies need profitability than peer companies in the fourth to pay much greater attention to inclusion, even in quartile. This is up from 21 percent in 2017 and relatively diverse industries. 15 percent in 2014. By following the trajectories of hundreds of large Moreover, we found that the higher the companies in our data set since 2014, we find that representation, the higher the likelihood of overall slow growth in diverse representation in outperformance. Companies with more than fact masks a growing polarization between these 30 percent women on their executive teams are firms. While most are stalled or even slipping significantly more likely to outperform those with backwards, some are making impressive progress in between 10 and 30 percent women, and these improving diversity, particularly in executive teams. companies in turn are more likely to outperform We show that these diversity winners are adopting those with fewer or no women executives. systematic, business-led approaches to I&D, with As a result, there is a substantial performance special focus on inclusion. And we highlight the differential—48 percent—between the most areas where companies should take far bolder and least gender-diverse companies. action to bring about lasting change in inclusive culture and behavior. 1 The data set for Diversity Matters was assembled in 2014, while that for Delivering through Diversity was assembled in 2017. Likewise, this report, published in 2020, is built on data gathered in 2019. We therefore refer to three data sets in this report—for 2014, 2017 and 2019. Diversity wins: How inclusion matters 3 In the case of ethnic and cultural diversity, the The widening gap between winners findings are equally compelling.