COVID-19 is dictating how we lead our lives, run our businesses and our economies. As countries lift stay-at-home restrictions, attention has now shifted to how to restart businesses and revive a world economy that is expected to shrink by 5.2 % this year, according to the World Bank.
It has been a challenging year for most businesses with leaders faced with changing business models, accelerating digital transformation, managing remote teams and avoiding public health issues in the workplace.
Dr Anino Emuwa is the founder and managing director of Avandis Consulting, an international management consulting firm providing strategy and financial advisory services to entrepreneurs and business leaders. Below, Dr Anino Emuwa explains why in this economical climate, there are plenty of untapped opportunities.
Against this backdrop, there was some concern at the beginning of the crisis that D&I initiatives would be put on a back burner by some organisations. Yet studies show that diversity in leadership should be a priority for businesses particularly at this time, because of its strong positive effects on any firm’s performance. McKinsey’s “Diversity Wins: Inclusion Matters” report, based on a global sample of firms, was published in May at the height of the pandemic. It found that companies in the top quartile in terms of gender diversity on executive teams were 25% more likely to experience above-average profitability than peer companies in the fourth quartile. Further, they found that there is a substantial 48% performance differential—between the most and least gender-diverse companies. A similar pattern was found with more ethnically diverse leadership teams performing better.
However, the record of global firms with gender balance in top leadership in recent times is disappointing. Fortune magazine’s Global 500 publication on the world’s largest firms released in August, found that only thirteen out of the five hundred, a dismal 2.6%, were led by women, with Intersectionality being a further issue as none of the women was black.
Here in the UK, the Parker Review (Ethnic Diversity Enriching Business Leadership” Feb 5th 2020, Sir John Parker: The Parker Review Committee) showed slow progress by top firms in achieving ethnic diversity on boards with 37% of FTSE 100 boards having no ethnic representation. The target of at least one person from an ethnic background on each of the boards by 2021 does not look likely to be met with these figures.
Why organisations struggle to achieve diversity in leadership is at least partially due to historical reasons and the culture of the modern workplace that has developed over time. Simply put, workplaces and practices with its antecedents of the industrial revolution were primarily designed for a male workforce led by male leadership. Whilst women were very active in manufacturing in the 18th century, their contributions were in providing cheap labour and were largely excluded from progressing into the management class.
In the early 20th century, managerial training, specifically the business school and the MBA, rose out of the need to prepare people for managerial leadership. Harvard Business School created the world’s first MBA programme in 1908, yet it wasn’t until almost 50 years later in 1962 that women were admitted for the first time.
In terms of business education today, the good news is that this gender gap is narrowing and almost 40% of admissions are women. Gender parity in higher education is translating to access to corporate jobs for women. McKinsey’s 2018 data shows there is almost a gender balance in the corporate pipeline at the entry-level with 48% being women. However, organisations are losing female talent as they rise through the organisation. A funnelling effect emerges as women climb up the corporate ladder. At middle management, the proportion of women drops to 34% percent, further falling to 22% at the C-Suite level and finally only 5% of CEOs end up being female.
Whereas the benefits of a diverse team are multiple: diverse teams and leadership have been shown to make better decisions. At a time when talent is in demand, businesses need to tap into the entirety of the available talent pool. Women, for example, now account for 60% of new graduates.
External to the organisation, diversity in the workforce is beneficial to how the organisation is perceived. Increasingly, customers are attracted to do business or to buy from companies whose team composition they resonate with. They feel that diverse teams that look like them, understand their needs better and can produce products and services for them. Further, the economic power of the female and ethnic minority markets is growing, thus presenting growth opportunities for businesses to tap into. According to Frost and Sullivan’s Global Mega Trends to 2030 released in March this year, global female income is growing quickly (up from $20 trillion in 2018), bigger than the GDP of the US, the largest economy in the world, with women controlling $43 trillion of global consumer spending.
Yet the message about the gender and ethnic diversity dividend is not filtering through to organisations or not resulting in changes to be expected. The Hampton Alexander review set the end of 2020 for women to be appointed to a third of board positions. Whilst steady progress has been made- it has reached 30%-the news is mixed as the Financial Times in June reported a return of all-male boards to the FTSE, like Domino and Aston Martin voted in boards without a single woman at their annual meeting.
For organisations to work towards gender balance, it has to be made a strategic objective rather than an HR project. Achieving meaningful change is the top leadership responsibility and should be a CEO and board priority. Like any other strategic objective, metrics need to be assigned, with targets and KPIs. On a positive note, the number of female CEOs of US Fortune 500 has reached an all-time high of 37% (May 2020). Cultural change needs to come about within organisations to make diversity count and avoid tokenism. Diversity is about numbers but inclusion is about actions leaders take to ensure that every member of their diverse team has a voice.
Whilst there is a way to go, firms that recognise the opportunity presented by the diverse leadership and work workforce, as well as the economic power of diverse customers, will gain a competitive advantage.
Two recent major events have highlighted the imperative of diversity and inclusion; firstly, the report showing that female Heads of State fared remarkably better than their male counterparts in managing the COVID-19 crisis in their countries, and secondly the civil unrest in the US following the police force leading to the death of George Floyd which spread to worldwide protests against racial inequality. This has led to many large companies publicly pledging to support more diverse leadership.
As the world’s most innovative and increasingly largest firms are entrepreneurial, female entrepreneurship is also another area of opportunity. Yet female-led businesses enjoy less than 3% of global VC funding despite evidence that ventures which are female-led are some of the best performings in industries such as fintech.
Diversity provides opportunities for businesses as well as positive outcomes for society, and actions need to be taken from the start at the top. In a post lockdown world faced with complex challenges, it will be instructive to see how firms embrace diversity to solve these complex problems and capture opportunity.