Board and executive diversity continue to be a top priority for many corporate directors and investors as diversity, equity, and inclusion (DEI) initiatives have been linked to improved company performance. McKinsey found in its research Diversity wins: How inclusion matters that companies with diversity in senior leadership roles outperform companies with less diversity in executive teams.

The study said that companies with more than 30% of women executives were more likely to outperform companies where the percentage ranged from 10% to 30%. “In the case of ethnic and cultural diversity … in 2019, top-quartile companies outperformed those in the fourth [quartile] by 36% in profitability.”

Research from employment-focused websites Indeed and Glassdoor found that 72% of workers ages 18–34 said they would consider turning down a job offer or leaving a company if they did not think their manager supported DEI initiatives.

While diversity plays an important role in metrics and company culture, many organizations need to extend robust DEI initiatives to senior leadership roles. Data from PwC and Cranfield University research teams found areas where progress could be improved.

DEI efforts continue to face criticism

PwC’s 2022 Annual Corporate Directors Survey found that board diversity has been a critical focus area for investors and directors in the U.S. for years, and 64% of directors say increasing board diversity can improve stakeholder trust.

Among directors, PwC’s survey identified gender as the most commonly cited response when asked what is important to create diversity of thought (88%), followed by race and ethnicity (83%) and age (79%).

“The percentage of directors who think diversity of socio-economic background is important has increased significantly since 2019, from 39% to 58%,” the report said.

More than nine out of 10 directors (93%) say that diversity brings unique perspectives to the boardroom. However, while most directors also see benefits, such as improving relationships with investors, some need to learn the value of DEI initiatives. The survey found that while board diversity has increased, the percentage of directors who agree with the benefits of DEI has declined since 2019.

“Directors are quite a bit more likely to say that efforts to diversify boards results in unneeded candidates (34%, up from 27%),” the report said. “Almost one-third of directors (31%) say that the push for diversity results in unqualified candidates — up from just 23% three years ago.”

Male directors are more likely to question elements of board diversity, with 64% saying these initiatives are driven by political correctness and 61% saying that shareholders are too preoccupied with the topic — compared with 29% and 30%, respectively, of female directors, the report said.

The report found that female directors are more likely to support diversity and inclusion metrics — 73% compared with 45% of male directors.

The number of directors who feel that DEI initiatives are driven by political correctness has increased by 6% since the 2021 survey, while the percentage of directors who say diversity brings unique perspectives to the boardroom remains the same as last year’s figure.

Sal’s Insights: Although there may be some push-back regarding DEI, overwhelming data supports that having a diverse leadership team can improve financial outcomes. Another McKinsey study Delivering Through Diversity, found that companies with the most ethnically diverse executive teams are 33% more likely to beat their competition in profitability. In addition, 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—up from 21% in 2017 and 15% in 2014.

Companies that foster a culture of trust, respect, and belonging are typically more successful in implementing DEI initiatives within their organizations. It also helps to take an organizational change management (OCM) approach to ensure sustainable change is made within the organization.

Source: FM (Financial Management)