When I was invited to talk about reducing inequalities (SDG #10) at the SDG Week in September, I sought to answer a big question that should be top of mind for any future leader: How diversity, equity, and inclusion (DE&I) matter for companies.
At McKinsey, we believe that diversity, equity, and inclusion are integral to our dual mission – to help our clients make substantial, lasting performance improvements and to build a firm that attracts, develops, excites, and retains exceptional people. Our teams incorporate diverse perspectives which strengthen our client impact, and our inclusive culture enriches our creativity, innovation, and problem-solving.
We have also produced extensive global research that examines the business case for DE&I – in 2020, we published Diversity Wins, building on Delivering through Diversity (2018), and Diversity Matters (2015). Our latest research shows that the business case is stronger than ever:
- Diversity in leadership matters most. Worldwide, top quartile companies for gender diversity in executive teams had a 25% higher chance of outperforming their bottom quartile industry peers on profitability. This is up from 21% in 2017 and 15% in 2015
- The higher the representation, the higher the likelihood of outperformance. Companies with more than 30% women on their executive teams are significantly more likely to outperform those with between 10% and 30% women, and these companies in turn are more likely to outperform those with fewer or no women executives. As a result, there is a substantial performance differential – 48% –between the most and least gender-diverse companies
- Inclusion of highly diverse individuals – and the myriad ways in which diversity exists beyond gender (e.g., LGBTQ+, age/generation, socioeconomic background) – can be a key differentiator among companies. Companies in the top quartile for ethnic/cultural diversity on executive teams were 36% more likely to have industry-leading profitability.
- There is a performance penalty for less diverse companies, and the gap is widening between leaders and laggards. Companies in the bottom quartile for both gender and ethnic/cultural diversity were 27% less likely to achieve above-average profitability than all other companies in our data set.
- DE&I is critical to attract and retain the best talent. 52% of employees of color will not work for a company that fails to speak out to on addressing racial inequality, and 39% of global job seekers have turned down or decided not to pursue a job opportunity because of a perceived lack of inclusion.
We also took a closer look at the companies achieving higher levels of diversity – and benefitting from an increased likelihood of financial outperformance. The common thread for these diversity winners is a systematic approach, together with bold steps to strengthen inclusion. Drawing on best practices from these firms, we found five areas of action for companies:
- Ensure representation of diverse talent. This is still an essential driver of inclusion. Companies should focus on advancing diverse talent into executive, management, technical and board roles. They should ensure that a robust, bespoke business-driven case for DE&I exists and is well accepted, while being thoughtful about which forms of multivariate diversity to prioritize (for example, going beyond gender and ethnicity). They also need to set the right data-driven targets for representation of diverse talent.
- Strengthen leadership accountability and capability for DE&I. Companies should place their core business leaders and managers at the heart of the DE&I effort – beyond their HR functions or employee resource-group leaders. They also need to strengthen inclusive leadership capabilities among their managers as well as their executives, and more emphatically hold all leaders to account for progress on DE&I.
- Enable equality of opportunity through fairness and transparency. It is critical that companies ensure that there is a level playing field in advancement and opportunity, in pursuit of true meritocracy. Companies should deploy analytics tools to build visibility into the extent to which promotions and pay processes and criteria are transparent and fair. They should de-bias these processes and work to meeting diversity targets across long-term workforce plans.
- Promote openness and tackle microaggressions. Companies should uphold a zero-tolerance policy for discriminatory behavior such as bullying and harassment – and actively build the ability of managers and staff to identify and address microaggressions. They should also establish norms for what constitutes open, welcoming behavior, and ask leaders and employees to assess each other on how they are living up to that behavior.
- Foster belonging through unequivocal support for multivariate diversity. Companies should build a culture in which all employees feel they can bring their whole selves to work. Managers should communicate and visibly embrace their commitment to multivariate forms of diversity, building connection with diverse individuals and supporting employee resource groups to foster a sense of community and belonging. Companies should also explicitly assess belonging in internal surveys.
Have a great and impactful week!
André Osório
Manager, Lisbon Client Capabilities Hub
McKinsey & Company
This article refers to edition #115 of the "Have a Great and Impactful Week" Newsletter.
Subscribe here to receive the weekly newsletter