Blog

“Diversity on Boards makes business sense” proves Mckinsey

by ParentalChoice
in Working Mum, Career
0 comment

Lisa Buckingham OBE FRSA, is the Senior Diversity Adviser at the Institute of Directors and is a strong supporter of women on boards not just from a gender point of view but also crucially from a strategic business stand as well. Parental Choice asked her for her views on women on boards.”Women in the boardroom has now moved firmly out of the touchy-feely world of Corporate Social Responsibility and has burst right onto centre stage of the business agenda.

Only the most hide-bound of bosses would query any longer the notion that greater diversity at the to of an organisation leads to better decision making and improved financial performance.

English: Looking at the Boardroom of the 33rd ...

Powerful new research from McKinsey, the consultancy group, recently revealed a compelling correlation between diversity among the senior levels of a business and the likelihood of top quartile performance.

The report, Diversity Matters, analysed the results of hundreds of corporations in the UK, America, Canada and Latin America. it said :” The analysis found a statistically significant relationship between a more diverse leadership and better financial performance. The companies in the top quartile of gender diversity were 15 per cent more likely to have above median financial returns relative to their national industry median.”

Interestingly, companies in the top quartile for racial/ethnic diversity were a stunning 30 per cent more likely to have above median financial returns.

Even more telling, those organisations with poor diversity appear to be suffering a “diversity penalty – i.e. they are considerably more likely to fall below the top quartile companies.

The McKinsey research showed that in the UK there is an increase of 3.5 per cent in earnings before interest and tax for every 10 per cent increase in gender diversity in the senior executive team – a far more marked performance gain than has so far been noted in the US.

Britain now has no all-male boards in the FTSE100 and next year our major companies are likely to meet Lord Davies’s target of 25 per cent of women in the boardroom in 2015. That is an increase from just over 12 per cent when Lord Davies carried out his initial review in 2011. And organisations such as the 30% Club as well as Lord Davies himself are joining the IoD is focussing the ambitions on the proportion of executive women rather than just non-executive roles.

Indeed, Lloyds Banking Group has just become the first of our large companies to set itself the target that 40 per cent of its top executives should be women in the coming few years.

When top talent is scarce it hardly makes sense not to nurture about half the workforce – and let’s not forget that young women now emerge from university with better degrees than their male counterparts.BusinessLady_148x148

In addition to the improved decision-making widely recognised to come from challenges to opinion, diversity should also improve an organisation’s ability to anticipate and meet the requirements of its entire customer base. Employee satisfaction improves the more inclusive the organisation.

Too often, organisations, particularly smaller ones, tend to see diversity as involving lots of “red tape” and a great deal of expense.

Certainly there are likely to be some costs associated with innovations such as flexible working in order to build a better balanced executive pipeline.

But the costs of losing expensively trained staff can be very significant – one of our large consultancy groups estimates the loss of senior level women costs it about £3 million a year. And, as the McKinsey research shows, there are some large performance gains to be had.

Management does need to shift its focus to assess the “outputs” of employees rather than the “inputs” i.e. how many hours does someone work.

It is interesting, in this context, to note how many successful women there are in professions where performance and subsequent promotions are easily measurable rather than being dependent on the predilections of a more senior executive – fund management is a clear case in point witness Helena Morrissey, chief executive of Newton, Katherine Garrett-Cox of Alliance Trust, Anne Richards at Aberdeen Asset Management not to mention so-called “superwoman” Nicola Horlick and her one-time boss Carol Galley.”

Many thanks to Lisa for her article. For more information on the Institute of Directors,  please go to http://www.iod.com/.

Membership-banner-148x148

Leave a Reply

Your email address will not be published. Required fields are marked *