In Defense of The Business Case for Gender Diversity on Boards
A 2022 Harvard Business Review publication entitled “Stop Making the Business Case for Diversity” argues against the “Business Case” for diversity – i.e. the argument that frames the need for workplace diversity in terms of its benefits for a company’s bottom line. At the 2017 Women’s Forum of NY Breakfast of Corporate Champions, former CEO/Chair of Merck, Ken Frazier, to some degree, alluded to this argument. When asked whether gender diversity on boards actually impacts financial performance, Ken replied, “We have never measured the impact of homogeneity (men) on boards, I don’t see why we should measure that for women”. Nevertheless, study after study by all the major consulting firms has demonstrated a strong correlation between significantly greater financial performance and the number of women in the boardroom and/or C-suite. While correlation does not necessarily imply causation, the sheer volume of research strongly suggests that executives who dismiss the Business Case do so at their own shareholders’ peril.
Let’s take a look at a few of these studies in reverse chronological order:
- Research by Credit Suisse concluded that companies in which women held 20 percent or more of management roles were more profitable than companies with 15 percent or less women in management.
- According to McKinsey’s research, companies in the top quartile for gender diversity are 25 percent more likely to have above-average profitability than companies in the fourth quartile, while companies in the top quartile for ethnic and cultural diversity were 36 percent more profitable than those in the fourth quartile.
- Catalyst research shows that diversity reduces groupthink, that cognitively diverse teams solve problems faster and that mixed-gender teams can better manage group conflict compared to homogenous teams.
- A study by the Petersen Institute conducted a global analysis of 21,980 firms from 91 countries. Corporate leadership is positively correlated with firm characteristics, such as size, as well as national characteristics such as girls’ math scores, the absence of discriminatory attitudes toward female executives, and the availability of paternal leave.
- Research by Deloitte Australia shows that inclusive teams outperform their less-inclusive counterparts by 80 percent in team-based assessments.
The Obstacles to Diversity:
The Unconscious Bias Syndrome
Fundamentally, people are more likely to hire others that they naturally identify with, thus creating a homogenous workforce. As in a country club, people recommend people who share similar backgrounds and experiences. Everyone has some sort of bias, and oftentimes it is unconscious. So without a diverse C-suite to correct unconscious bias, it bleeds into the hiring process.
Unconscious bias prevents candidates from landing jobs for which they are well-qualified. Unconscious bias keeps women and underrepresented groups from getting promotions or choice assignments that can lead to positions with greater responsibility. One candidate may be chosen over another based on their prestigious alma mater, or an unconscious bias for one name over another.
Overcoming unconscious bias leads to better diversity – including diversity in race, socioeconomic status, gender, and sexual orientation, among others – consequently encouraging a plurality of voices and perspectives on the world, which fosters an environment of innovation, inclusion and more effective problem-solving.
As an example of addressing bias. Ursula Burns, the former CEO of Xerox, was the first Black woman to ever helm a Fortune 500 company. She was sponsored by the previous CEO, Anne Mulcahy. This shows the importance of representation in the C-suite to help underrepresented groups break the glass ceiling. Underrepresented groups have been historically excluded, so correcting for bias in the recruitment process is part of undoing structural racism, sexism, ableism, and anti-LGBTQ+ discrimination.
The Self-Perpetuation of Inequality: Upward Mobility and Lack of Sponsorship
Research by the Stanford Graduate School of Business, which analyzed each of the Fortune 100 companies, shows that women are underrepresented in positions that directly feed into future CEO and board roles, and have greater representation in positions that are less likely to lead to CEO and board roles, such as Chief Human Resources Officer and General Counsel positions. As a result, women are not only underrepresented in the C-suite but are also underrepresented in the pipeline for future leadership.
The same study also shows that only 16 percent of C-suite positions are held by racially diverse executives. Twenty-six of the Fortune 100 have no ethnic diversity at the C-suite level and only 16 have a non-white CEO. Racially diverse executives are more represented in positions that have less potential for advancement.
The pipeline to executive leadership relies on the sponsor-sponsee relationship.
The Harvard Business Review’s study, How a Lack of Sponsorship Keeps Black Women Out of the C-Suite, indicates that it is more challenging for Black women to obtain sponsorship. Women in general face exclusion challenges that prevent them from gaining sponsorship, including a lack of opportunity to build camaraderie with white males and concerns regarding the appearance of their relationships to others – e.g., the appearance of favoritism. The study showed that only one-third of Black women’s sponsors were white men; fifty-seven percent were Black, and 29 percent were women. Given the lack of representation of gender and racially diverse executives in the C-suite, sponsorship opportunities are limited, and the lack of inclusion perpetuates itself.
“Regardless of education, motivation, and personal and professional success factors,” wrote Stephanie Bradley Smith in the Harvard Business Review, “Being sponsored by a white man remains the primary accelerant to the career mobility of Black women.” Smith suggests the way forward is increased representation of Black women in the highest level of organizations and successor positions through BIPOC and gender-diverse executive recruiting.
Lack of Upward Mobility and the Pay Gap
Organizations should take into account that some people experience more than one barrier to equity. As referenced in Women of Color and the Wage Gap, while white women earn 81 cents for every dollar a white man earns, a Black woman earns 63 cents, an American Indian or Alaska Native woman earns 60 cents, and a Hispanic woman of any race earns only 57 cents.
Research shows that black women have fewer opportunities to develop their careers, as compared to white women. This entails less access to training, mentorship, and sponsorship, and fewer opportunities to interact with leadership.
While 21 percent of C-suite leaders in the US are women, only four percent are women of color, and only one percent are Black women.
McKinsey research shows that stress increases when an employee encounters “onlyness,” or being the only person on a team or in a meeting with their given gender identity, sexual orientation or race. LGBTQ+ women are seven times more likely than white men to report being an “only,” while LGBTQ+ women of color are eight times more likely than straight white men to report being an “only.” The same study also shows that LGBTQ+ women aspire to C-suite positions with the hopes of being role models for others like them, thus sparing others the experience of “onlyness” and the accompanying stress.
A Harvard Business Review study analyzed what it refers to as 2-D Diversity. This includes two different types of diversity: inherent and acquired. Inherent diversity involves traits a person was born with – gender, ethnicity and sexual orientation. Acquired diversity refers to traits you gain from experience – e.g. working abroad, which can help you appreciate cultural differences, or working with female consumers, which can give you insight into gender differences. The study found that companies with 2-D diversity are 45 percent more likely to report growth in market share over the previous year and 70 percent more likely to report capturing a new market.
Acquired diversity, according to the Harvard Business Review study, is a necessary component of inherent diversity for leaders to foster an environment where all employees speak up and feel free to contribute ideas. The study found that employees in this type of inclusive environment were 3.5 times more likely to contribute their full innovative potential.
Without diverse leadership, women are 20 percent less likely than straight white men to be endorsed for their ideas. People of color are 24 percent less likely, while LGBTQ+ people are 21 percent less likely.
More Reasons for Top-Down Diversity
- Studies show that candidates seeking out diverse work environments where they can see others like them who have made it up the corporate ladder to be the decision-makers. To be a preferred employer, diversity matters
- Consumers want to see that the S in ESG is being practiced. They want to see that good corporate governance includes people like them around the boardroom table.
- Institutional Investors: Blackrock, State Street, Vanguard and others have a vote, and they will use it if boards are not representing women and underrepresented groups.
- Exchanges like the NASDAQ have put in rules that require listed companies to meet board diversity benchmarks that will increase over time.
Corporate leaders have a unique opportunity to fight the injustice that pervades our society. “Time and again, Black and brown communities receive and digest messages communicating that our contributions are worth less, that our lives have less value,” said Lanaya Irvin, CEO of Coqual. BIPOC executive recruiting can help counteract those messages. A team with a variety of backgrounds, experiences, skills and knowledge will produce more innovative and creative ideas. Not only does this lead to a company’s success on a global scale, but it also impacts society: innovation drives economic growth and can combat societal problems such as the climate crisis. Innovating new technologies, products and services meet a critical social need.
How Ellig Group is Leading the Pack in diversity recruiting
An Impressive Track Record of C-Suite Diversity Recruiting
A certified (WBENC) Women-owned and -operated company, Ellig group is a leader in identifying, recruiting, and developing diverse executive talent for senior-level C-suite and board positions. Over the past five years, more than 80 percent of our executive appointments and 85 percent of our board director placements have been women, people of color, and leaders from other underrepresented groups. CEO Janice Reals Ellig is committed to the appointment of more women and diverse executives in C-Suites by 2025. “The supply is there; it is a demand issue,” said Ellig. “The large pool of highly qualified women and diverse candidates should not be overlooked.”
Commitment to Enhancing an Executive’s Success and Impact
Diversity goes beyond merely recruiting diverse candidates. Our leadership consulting practice offers programs that aid in the long-term success of our candidates, including executive coaching, leadership development, talent assessment and onboarding initiatives.
Our Board-Readiness Coaching Program (BRCP) is a six-month-long program that prepares executives for a successful, rewarding board role. This includes guidance from International Coaching Federation-certified coaches and personal brand specialists, as well as writing and research support and access to our extensive network of executives and directors.
Because we believe that leadership development is a lifelong journey, we offer curated programs including team and group facilitation and on- and offsite meetings on topics including transformation, team building, resiliency, and communication.
Data-Driven Executive Assessment
As part of our holistic approach to talent development, we have expanded our Executive Assessment methodology to include new online assessment tools and in-depth consultations.