Diversity and Inclusivity are hot topics in most businesses, particularly following the recent report from the Department for Business, Energy and Industrial Strategy (BEIS). Focussed on the FTSE 350, it made for lurid headlines and uncomfortable reading. With the moral argument won a long time ago, businesses increasingly understand how more diverse talent pools can bring solutions to a range of challenges. As McKinsey stated in Diversity Matters:
“We know intuitively that diversity matters … it’s also increasingly clear that it makes sense in purely business terms.”
One part of the business world where a more diverse workforce can make a difference quickly, is within smaller companies. Smaller companies tend to be nimble, quicker to adapt, and often in need of creative solutions which a more diverse talent pool can create. For example:
Diversity enhances performance and fosters innovation: McKinsey stated that companies in the top quartile for gender or racial and ethnic diversity were more likely to have financial returns above their national industry medians than companies in the bottom quartile. When companies commit themselves to diverse senior leadership, it brings a level of competitive advantage in attracting and retaining talent. As they argue, more diverse companies “are better able to win top talent.”
Actions related to diversity help mitigate reputational risk: In the information age, Boards increasingly understand the need to manage their public profile. This includes the need to reflect society as a whole, and the clients/markets they serve. Shareholders are similarly aware and often exert pressure on Boards to become more inclusive.
From our many years of experience advising companies in this space, we recommend four clear actions for Boards to consider:
- Implementing and communicating targets and objectives around future Board and Senior Leadership composition
- Adopting a longer-term focus to strategically build a more diverse executive talent pipeline, feeding future board appointments, and creating diversity at leadership/sub-leadership levels
- Adopting and carrying out clear policies around recruitment processes to promote diversity and minimise the risk of unconscious bias
- Understanding in detail any ‘diversity’ pay discrepancies and having corrective action(s) in place.