Business and Ethnicity with McKinsey and the Institute of Directors - diversity does matter.

Sandra Kerr OBE

 

 Blog by Sandra Kerr OBE

On Wednesday evening  (19 November 2014)  I spoke at the Institute of Directors’ Summit on Business and Ethnicity in London, along with Sarah Churchman of PwC and Vivian Hunt of McKinsey UK. It’s great to see this issue is on the agenda of both large and small businesses alike. I believe the event will have encouraged more employers to ensure that we have fair and inclusive workplaces for all.

At the summit, Vivian Hunt, Managing Partner, McKinsey UK presented key findings from their Diversity Matters report based on research with 366 companies across seven geographies in the UK, US and Latin America. The report provides evidence of a correlation between racially diverse boards and senior executive teams and business performance, as stated in the Executive Summary:

The analysis found a statistically significant relationship between a more diverse leadership and better financial performance.  The companies in the top quartile for gender diversity were 15% more likely to have above median returns relative to their national industry median.  Companies in the top quartile of racial/ethnic diversity were 30% more likely to have above median financial returns relative to their national industry median.  Companies in the bottom quartile for both gender and race were statistically less likely to achieve above average financial returns than the average companies in the dataset.”

It is compelling research will go a long way to help engage senior leaders that have so far refused to or failed to grip the business argument for diversity and equality. I for one look forward to being asking ‘How shall we move forward, take action and make change?’ instead of ‘Why does this matter?’

The McKinsey Diversity Matters report also shows that companies that are good at gender diversity are not automatically good at race diversity (and vice versa), but if a company is good at both there is a higher payback – and a penalty if they are not good at either. 

Quotas are not a magic bullet. Only through systemic changes is there going to be lasting impact. Instead, we need to focus on ensuring that there is good leadership which ensures strong talent pipelines, provides workers with the right skills and creates opportunities for sponsorship and mentoring.

But this is not something that businesses can tackle alone – we need engagement from senior political figures too.

In our ‘Race at the Top’ report, published June 2014, we called for a review of Black, Asian and Minority Ethnic (BAME) representation at senior levels – and earlier this year both Vince Cable and Chuka Umunna announced plans to carry out a race review if they are elected in 2015. Vince Cable has also set out a goal of 20 per cent of FTSE board members being BAME by 2020. I believe this target needs more thought. Although many FTSE 100 are international, currently, one in ten of the current UK working population and one in eight of the working age population is BAME.  Targets must reflect this demographic, and then be set out in tandem with action plans to support businesses in achieving them. Only then, along with regular reviews, can we ensure sustainable and robust progress.

The public sector should not be exempt from action. Many BAME workers are employed in public sector jobs, yet ‘Race at the Top’ found gaps in BAME representation at the most senior levels of the public sector and as the police and judiciary. The public sector has an obligation to ensure BAME employees have the same opportunities to progress as their white counterparts. This obligation extends to ensuring diversity in public sector procurement and supply chains.

This brings me on to a crucial question: do we need quotas to increase BAME representation? On their own, no. Quotas are not a magic bullet. Only through systemic changes is there going to be lasting impact. Instead, we need to focus on ensuring that there is good leadership which ensures strong talent pipelines, provides workers with the right skills and creates opportunities for sponsorship and mentoring. Our sister campaign Opportunity Now has recently published research on inclusive leadership, which is beneficial to leaders in getting the best out of all team members – including those from BAME backgrounds – and helping them progress in their careers.

Organisations must also be transparent by using the data they have to monitor the representation of BAME staff at all levels within their organisation and set out how they are going to improve it. For example, our Gender and Race Benchmark 2014, which we will publish next month, has found that BAME employees are less likely to be identified as ‘high potential’ or receive top performance ratings. Action is need to reverse these negative trends. 

The UK’s diversity demographics are changing; one in four of the UK population in primary and secondary education is from a BAME background. This is the current and future population of talent, customers, clients, service users and business owners.  Employers that plan with the future in mind and embrace these changes can be hopeful of a good payoff, both in terms of business profitability and creating a workforce that reflects the clients, customers and communities they serve. By harnessing all the diversity of talent available and ensuring they receive the right support enables an employer to embrace of a world of new opportunities.