How to Boost Business Profitability: Improve Diversity Within Your Business
In my earlier blogs I have written about the importance of fairness and compassion in society from a social justice viewpoint. However, there is also a wealth of evidence to show that businesses which have a culture of diversity and inclusiveness outperform businesses which are not diverse. In light of the huge disruption caused by COVID, I am going to highlight why it is even more important than ever before to make sure your business has the best people at all levels if it is to thrive.
Some key facts
BAME hold less than 7% of director positions across FTSE 350 companies (Guardian, December 2019).
3 % of FTSE 100 and 11% of FTSE 250 do not have a policy on board diversity
11 Black partners out of 3000 of the Big 4 Accountancy firms
"The UK's record on boardroom ethnicity is poor. It is unacceptable that talented people are being excluded from succession and leadership simply because companies are failing to put in place appropriate policies on boardroom ethnicity"
Sir John THompson, CEO Financial Reporting Council
Until the unfortunate events of George Floyd, diversity has been a subject which struggled to gain much attention within the business world. Of course there's been the obligatory reports from the Government such as the Parker Report but what impact did it have? And how much attention did UK companies pay to it?
And then, around the same time, the full impact of COVID 19 started to take affect which has impacted every person and business. Six months later, it's clear that there will be lasting and fundamental changes in our lives - in how we work and how businesses operate. Those who thrive will be the ones who can adjust the best to the new environment and who are shrewd enough to grasp new opportunities.
For businesses, this means making sure they have the best people working for them - they will ensure they are using the talent, skills and experience available from a diverse community. Those businesses who continue to operate as before such as those who have a very narrow leadership and management structure devoid of diversity (typically white, male and middle aged!) will struggle against other more open minded and talent based businesses due to better inclusivity and diversity. Consequently, profit, performance and productivity and even reputation are all likely to be better in those diverse businesses.
But why is diversity so important for business success?
"The business case for diversity in the workplace is now overwhelming"
World Economic Forum
1 Employees are much more demanding about the culture of organisations
A new generation of young people is much more aware of their environment and the culture within the workplace. They are much more likely to ask potential employers "What's your policy on diversity and how diverse is your business?"
If employers want to attract and retain the best talent, they will need to meet the expectations of their employees - poor practices or even tokenism related to the above issues will lead to dissatisfied employees who will view such businesses as having a poor culture and poor moral leadership. It will also deter potential recruits from joining those businesses too, affecting the quality of its business over time.
2 The world has changed: Doing business as normal in abnormal times will lead to failure
The huge disruption caused by COVID has affected every aspect of society and business, in most cases significantly. The Economist stated that COVID has caused the biggest disruption to economies and businesses since World War 2. Businesses have to change if they are to survive. New ways of thinking, new ideas, new experiences are needed to navigate such momentous times as well as the need for innovation and be creative.
Diversity amongst leadership and within the organisation is required to maximise the chances of success of navigating in the new world. Businesses need to adapt quickly, their culture needs to embrace change and be capable of embracing new ideas and approaches. We've already seen the demise of businesses which have struggled to adapt and have failed to keep pace with the changing world. Some of the more famous names include Debenhams, Laura Ashley, Cath Kidston, Harveys Furniture. The BAME population represents 14 % of the UK population - this represents a huge wealth of talent and experience - successful and switched on businesses will recognise the folly of ignoring such a big pool of talent and will be doing everything they can to attract and use such talent.
3 Spending power of BAME communities is significant and is ever growing in significance
The BAME community represents a huge spending power in the economy and this impact will grow. Recent estimates show that purchasing power is valued at £300 billion. History has also shown that consumers act favourably towards companies which take a stand on diversity and inclusion.
A recent example of this relates to Colin Kaepernick (CK), the former NFL quarterback who, together with Eric Reed took a stand in 2016 to kneel whilst the American anthem was being played before the start of each NFL game as a protest at the number of illegal deaths of black people by US police officers. He was, in effect hounded out of the game and no team has had the moral courage to hire him since then. However, Nike has shown their support for him and produced various trainers with CK initials emblazoned on them - all sell out extremely quickly. This year they produced a replica CK NFL jersey and it sold out within a minute despite its cost of $150! This is a powerful example to show the influence of consumers which no corporation can afford to ignore. Can companies really afford NOT to be inclusive??
4 Facts show that Diversity leads to better corporate performance
Still wondering if there are facts to support the need for diversity? In short, yes!
McKinsey, one of the world's most respected management consultancies, has conducted 3 surveys (2015, 2018 and 2020) into the impact of diversity on business profitability. Its conclusions are clear;
"The business case for inclusion and diversity (I&D) is stronger than ever. For diverse companies, the likelihood of outperforming industry peers on profitability has increased over time, while the penalties are getting steeper for those lacking diversity. Progress on representation has been slow, yet a few firms are making real strides. A close look at these diversity winners shows that a systematic, business-led approach and bold, concerted action on inclusion are needed to make progress."
The data used comprises 1000 companies in 15 countries proving the significance of the sample size used in the survey. The report recommends a number of "bold" actions companies should take to ensure the implementation of effective diversity and inclusion policies summarised as:
Ensure representation of diverse talent
Promote openness and tackle microaggressions
Strengthen leadership accountability and capability for diversity and inclusiveness
Foster belonging through unequivocal support for multivariate diversity
I hope I've shown the ever-increasing importance of diversity for business success. My experience of working as a business coach has shown that it's not only businesses that need to look and reconsider how inclusive and diverse their structures are, but also charities as well. One common theme when I am asked to help senior management solve business issues of growth, strategy, revenue generation, etc is the struggle with innovative and creative thinking; and that is caused, in part to the very narrow vision and experiences of the homogenous structure of the senior people within those organisations.
If your organisation is devoid of diversity, how can you expect to meet the demands of the diverse community which you are trying to serve?