Beyond Talk: Diversity is the new business competency, and it’s a competitive differentiator
Reasons for taking action more compelling each day
There’s a lot of talk about diversity in corporate America these days – rightly so. Apart from promoting equity, greater ethnic and gender diversity in the workplace has repeatedly shown bottom-line benefits to businesses. But all this talk, what one could call the “diversity discourse,” isn’t necessarily translating into action or sustained gains for all employees, leaders, or organizations.
For instance, since Fortune began listing the top 500 companies in the U.S. in 1955, there have been only 16 black CEOs on that list (the only black woman was Xerox CEO Ursula Burns). The diversity landscape for other executives is equally sparse. African-American men and women account for just 4.7 percent of executive teams in Fortune 100 companies.
Progress is slow, partly because change never comes easily, and diversifying its executive ranks is one of the biggest socio-economic and cultural challenges in corporate America. But the importance and benefits that come with moving towards diversity and inclusion in executive teams can’t be overstated. In my conversations about increasing diversity and inclusion, I tend to emphasize that:
- Companies that increase diversity create a significant competitive advantage for themselves and their shareholders.
- The ability to recruit and lead a diverse workforce is now a critical business competency within talent management. Companies that do not invest in mastering this competency risk falling behind in the war for talent.
- Companies and managers that don’t hold leadership accountable for improving diversity and inclusion hurt their bottom lines.
Greater diversity leads to bottom-line advantages
The argument that increasing diversity brings financial benefits to companies isn’t vague or idealistic, it’s empirical. Research by McKinsey indicates that companies in the top quartile for gender diversity on their executive teams are 21 percent more likely to see above-average profitability than companies in the bottom quartile. The same report revealed that companies in the top quartile for ethnic diversity are 33 percent more likely to outperform the national industry median on profitability.
Why does diversity have such net positive impact on a company’s bottom line? I think it’s partly because managers who value integrating diversity into an organization’s norms are strong leaders. They naturally seek to partner with other leaders who have successfully operationalized their diversity and inclusion aspirations. This, in turn, inspires other business leaders to seek opportunities for collaboration with like-minded leaders and organizations.
Another factor that can’t be overlooked is the aging U.S. population. Every day, 10,000 baby boomers turn 65, and a changing U.S. demographic continues to lean towards a more ethnically mixed America. Organizations whose ethnic and cultural makeup mirrors societal and demographic changes will be better positioned to respond to the expectations of consumers, partners, and stakeholders.
Diversity and inclusion is a fundamental business competency
This changing workforce expects its leaders to be socially and environmentally responsible, to better understand talent management, and to create places where diverse contributions are maximized for the enterprise’s strategic benefit. In short, a commitment to full inclusivity is now a leadership and business competency. Deficiencies here will limit a leader’s effectiveness and advancement in much the same way as a lack of financial acumen. This glaring deficit will risk the company’s longevity. So how do leaders begin to master this competency?
First, they need to be intentional about it. If they are, they will be thought of as essential to the company’s high-value talent pool. Second, they need to understand how and where to learn this skill. For instance, working in companies that have diversity-specific goals can lead to real learning. Numerous groups are also ready and willing to help leaders become better diversity allies within their organizations and beyond. Third, leaders need to inspect and respect the evidence before them. Like it or not, and ready or not, our world is changing. Those organizations unable to change will get left behind. Importantly, the decision leaders must make is whether they will be on the right side of history.
Changing norms takes time, but our successes should give us confidence
Commitment is the key to real and transformational action. Here at the Federal Reserve Bank of Boston, the Office of Diversity & Inclusion, or ODI, reports to me. As an African-American who has, far too often, been the “first” in companies to hold various leadership positions, I’m used to a frontline diversity advocacy. But ODI has adopted a more structured approach which has strengthened diversity at the Boston Fed, while keeping the larger bank community engaged. I am learning from their programmatic approach.
Changing structural and cultural norms takes time. It requires talking openly about diversity as a first step and holding our leaders accountable. A strategic approach gives people confidence in the organizational direction, and it moves the organization forward by harnessing the energy of people passionate about co-creating the world they envision. None of this is easy, but our successes to date show we can give people the tools to resist the temptation to revert back to what’s easy when things get tough.
My sense of hope is matched by my competitive urgency. I am convinced that the organizations that tackle diversity and inclusion will be better off today and better prepared for tomorrow. As we look back on Black History Month, we must continue to look forward. We must commit to changing our leadership paradigm to prepare for the future in a changing environment where – of all the skills needed for success – effectively leading in diversity and inclusion is chief among them.