2016 has got off to a flying start when it comes to the business community’s focus on gender equality and diversity management.
ISS kicked off the debate by inviting to a conference on 13 January to present the comprehensive research the company had undertaken in partnership with PwC and proacteur; “Diversity management boosts earnings”. The conference hall was filled to capacity; hundreds of participants and a gender balance that made it hard to determine which gender outnumbered the other in the audience. A good sign in itself.
The team has collected data from among 6012 executives in 321 companies spread across 12 industries. The selected companies have at least 130 employees and generate more than DKK 500 million in annual revenue. The convincing diversity business case, which was previously analysed and presented on the basis of international corporate data, is now available in a Danish equivalent version. The result shows – not surprisingly – the same as the international analyses: Increased diversity in management improves the bottom line.
Diversity management lifts the bottom line significantly
One of the prime movers behind the study, partner in proacteur Morten Kamp Andersen, phrased it as follows: “Now we have measured and documented that value growth in financial terms is actually stronger than expected. By ranking all large and mediumsized Danish companies by how diverse their managements are according to four diversity criteria, viz. gender, ethnicity, age composition and seniority, we can see that the companies displaying the highest degree of diversity also generate the highest earnings. Millions can be gained from securing the right match between diversity and business.”
“If we take a look across industries, companies with the highest diversity at the top earn on average 12.6 percentage points more than companies with the lowest diversity at the management level.”
If we take a look across industries, companies with the highest diversity at the top earn on average 12.6 percentage points more than companies with the lowest diversity at the management level. If we compare companies within the same sector, the most diverse companies earn on average 5.7 percentage points more than their competitors. This is staggering sums indeed and such a convincing competitive parameter that it should encourage shareholders to take a serious interest in working out how diversity can become an integral part of the corporate strategy.
Besides, if we want to draw inspiration from the report, it establishes that gender and ethnicity are still the two parameters that need to be addressed, whereas the age composition and seniority distribution have already improved.
Why, then, do diverse teams perform better? The report offers various good explanations for the value chain that high-diversity management teams bring along.
Through the entire value chain
Basically, the measurable and value-adding impact comes about in two ways: A diverse management team paves the way for a more diverse organisation, which again engenders a range of positive effects for employees, customers and shareholders alike. The management takes a more innovative approach in its work, makes better decisions and is more productive as a group, if it has been diversely composed. In short, management decisions and the impact of leadership become better, according to the report.
In 2011, ISS analysed their own teams and found that the diverse teams earn on average 3.7 percentage points more than non-diverse teams. And that is no wonder because a management capable of composing and leading high-diversity teams will be rewarded on all levels; from employees to customers and from product to service. This materialises in lower sickness absence and employee turnover rates combined with higher productivity. Research suggests that diversely-composed management groups create a more customer-oriented organisation as well as substantially higher innovation in the organisation. On top of this, diversity – especially in gender terms – fosters better ideas, more perspectives and a greater insight into the market. This again means that the target group is served better. And finally, studies show that the more diverse organisations are, the more likely it is that they will be successful in obtaining new patents, solving complex problems and implementing new ideas**.
Women younger and better educated
In spite of the obvious benefits, Danish management groups are still dominated by men, regardless of company size. The women who are part of the management layer are better educated, but have the same seniority as the men. Most top-level executives are still 50-plus years of age, but the women are slightly younger than their male colleagues and then there are obviously major differences between industries. Pharma-ceutical, textile and consultancy companies, for instance, are significantly more diverse than construction companies and companies in the financial sector and the automotive industry. Finally, ISS observed in their report that there is unexploited potential in ethnic diversity – which is good news, considering all the new citizens arriving in Europe these years.
The people behind the ISS report also offer good advice on how to approach the task of ensuring greater diversity in your company. Set some clear targets and success criteria, present the value in a financial context and remember to communicate the posi-tive examples and stories. Finally, it cannot be stressed enough that top management support is a must – and not just as a politically correct initiative, but, as emphasised by Group CEO in ISS Jeff Gravenhort: you should not work with diversity merely to be able to tick it off your to-do list. It is a question about fundamental respect for diversity, and it will have to come from the heart.
To round off with style, the month ended with the “Women’s Board Award”. In yet another packed conference hall, with an equal number of men and women, Danish Crown Princess Mary was one of the keynote speakers. She highlighted that “Gender equality is the single most important thing we can work with to improve the world”.
“The question now is who will be first when it comes to turning the words into reality and creating gender equality, diversity, inclusion and, thereby, improved bottom lines in their companies.”
Rufus Gifford, the US Ambassador to Denmark, said that to work with diversity, you need to be both extremely patient and aggressive at the same time.
Finally, Lars Rebien Sørensen, President and CEO of Novo Nordisk, shared how they are working with diversity. Much of their efforts are successful, but he also told the audience honestly how laughter had been spreading, first in the hall and later also on the stage, at a senior management conference when seven male executives, all from Denmark and all around 50 years, lined up on the stage, all seated in their light blue shirts, after having just concluded a morning where increased diversity at management levels had been on the agenda. Self-awareness is the first essential step on the path to creating change, in this case increased diversity and gender equality.
Novo Nordisk and ISS are two companies who have chosen to make diversity and gender equality key priority issues high on the strategic agenda, who are both humbled by the complexity of the task, and who realise that they have not reached their goal yet. Even so, their efforts and signals are important. And fortunately, it seems in general that more and more Danish as well as international companies recognise the need to focus on gender equality and diversity. The question now is who will be first when it comes to turning the words into reality and creating gender equality, diversity, inclusion and, thereby, improved bottom lines in their companies.
*Hewlett, Marshall & Sherbin (2013) og McKinsey (2015)