Diversity in-depth: An interview with McKinsey’s Dame Vivian Hunt
AXA WF Framlington Women Empowerment fund manager Anne Tolmunen, interviews Vivian Hunt DBE, Managing Partner UK and Ireland, McKinsey & Company. Dame Vivian frequently speaks on McKinsey’s flagship research on Diversity and has co-authored publications, such as Women Matter, Diversity Matters, and The power of Parity: How advancing women’s equality can add $12 trillion to global growth.
Anne Tolmunen: Can you explain why the subject of diversity – both cultural and gender – is so important to you? What initially ignited your interest?
Vivian Hunt: Throughout my career, I noticed that diversity of perspective leads to better decision-making and improved outcomes. I wanted to understand the opportunity which diversity presents for companies, the economy, and society.
When I became head of McKinsey in the UK and Ireland, I realised that we did not have a fact base which quantified this opportunity. I wanted to understand why diversity matters to organisations, how different forms of diversity create value – from intrinsic characteristics (ethnicity, nationality) to those we acquire (culture, skills), and what concrete actions organisations can take to capture the benefits.
It was this interest that drove my leadership in our flagship reports The Power of Parity, Why Diversity Matters, and Delivering through Diversity.
AT: Why do you think it has taken businesses – and people – so long to recognise the link between diversity and financial performance? Do you get a sense that this link is now broadly recognized by business leaders ?
VH: We have come to a perfect moment in time: businesses are curious and want to know how to improve productivity and performance; the breadth of our research capabilities and analytical rigour has assessed the facts, and leaders both at McKinsey and inside our clients are passionate about this issue. With this potent combination, we have only now conclusively proven that inclusive, diverse companies outperform their peers on profitability.
We now understand both in quantitative and qualitative terms the value of diverse representation to companies, plus the beliefs and behaviours which make it difficult for people to challenge established mind-sets.
We are increasingly seeing companies investing in building their own business cases, and looking at more granular performance metrics across productivity, innovation or customer retention. The opportunity is resonating more widely too, with policy makers, public sector commissioners, and academic institutions, all of whom are increasingly taking action. This issue will only become more important as organisations compete to attract talent and maintain their license to operate.
AT: Progress has been painfully slow. In your view what is the best approach for governments to press for progress? Do you believe in quotas and if not, what else could work?
VH: We found by comparing our datasets in Why Diversity Matters (2014) and Delivering through Diversity (2018) that representation of women on executive teams primarily had increased by only 2% points to 14%. Governments have more scope to influence diversity on corporate boards than on executive teams and our data shows that countries where the government has imposed a target for representation of women on boards with a timeline, for example in France, have reached 40% women on boards more quickly.
Governments cannot impose quotas on executive teams, though this is where our data shows the strongest and consistently positive correlation with likelihood of financial outperformance. There is still scope for governments to act, firstly within their own departments and the civil service.
More broadly, governments can promote transparency, help expand the evidence base for the value of diversity to businesses, or help codify best practices across industry sectors. For example, the UK government support initiatives such as the Women in Finance Charter, which brings together companies who commit to meeting specific diversity actions and targets. Governments (central, regional or local level) can also drive change by requiring supplier diversity as commissioners.
AT: Many companies are struggling to improve diversity, despite putting a lot of effort into rebalancing their organization. Why in your view is this the case?
VH: We see quite variability in the pace and scale of companies’ progress with inclusion and diversity. There are industry-specific as well as geographic and cultural differences which mean different starting points. But we also find that across industries and in different parts of the world, companies which are making rapid progress share certain traits, the primary one being that they treat inclusion and diversity as a core business priority.
On a practical level, the approach shared by organisations implementing a successful inclusion and diversity strategy is as follows: understand the business case for the organisation; articulate a clear vision; set targets and monitor effectiveness against expected impact; ensure efforts are properly resourced; hold executives and managers to account for delivery. Where we see companies making less rapid or sustainable progress this can be the result of an approach which is less focused on the value to the business, with insufficient leadership accountability, and over-reliance on HR (as opposed to the core business) and/or on employee resource groups.
AT: Progress is slowly but visibly happening at the top of organizations to include more women on boards and in senior executives roles. However, do you see convincing actions happening at the pipeline level and throughout the mid-layers of the organizations to include and promote women?
VH: We are seeing some progress at the top where it’s easiest to measure externally, and we need to sustain focus on leadership and senior decision-making roles. We also see many companies making progress at more junior levels through increasingly successful diversity recruiting efforts. For example, more and more companies are de-biasing recruiting processes across job description writing, CV screening, or interview panel decision-making.
There is a growing emphasis on retention policies and programs, e.g. to structure careers and promote more agile, flexible working. However, there is still an engagement challenge at the middle-management level, where bias in advancement decisions have a critical impact on the shape of the pipeline. Middle managers need to be more actively engaged in the agenda by understanding how diversity and inclusion benefit their units, and be coached and rewarded for sponsoring high-potential talent and more broadly demonstrating inclusive leadership.
AT: The past 12 months seems to have witnessed a sea change around inclusion and diversity, and there have been the #metoo and #timesup movements. How meaningful has the change been, do you think the needle is really moving?
VH: These movements have been very effective at shining the spotlight on unacceptable behaviour within and outside companies, and are gradually beginning to shift norms around tolerance of such behaviours. Transparency is necessary but not sufficient to drive change.
The change will come from sustained commitment to building a truly inclusive culture. Culture is one of the critical building blocks we have identified to driving a successful inclusion and diversity agenda. The other vital components are visible leadership commitment, alignment with business strategy, and measuring the effectiveness of interventions.
We have seen variability across companies in the level of commitment to the wholescale cultural transformation required, and the external environment has helped to reinforce the necessity of this. Companies will need to be consistent in their commitment to change from the CEO through the entire organisation, with careful design of interventions which will drive change, nurturing champions across majority and minority groups, and closely monitoring progress.
AT: What were the findings of the report, Delivering through Diversity, that surprised you the most – be it in a positive or negative way?
VH: We were struck by the consistency of the findings between our 2017 global dataset (1000+ companies, 12 countries) and our 2014 dataset, which was a third in size and focused on the US and the UK. Our 2017 data shows that companies in the top quartile for women on executive teams are 21% more likely to outperform their bottom quartile peers on profitability, up from 15%. The same companies showed a 29% increased likelihood of outperforming on value creation. This underpinned for us that the business case for both gender and ethnic diversity is robust and applies across a global set of countries.
We were also interested to note that the likelihood of profitability outperformance continued to be greater for ethnic diversity (35% in 2014, and 33% in 2017) than for gender.
Finally, when we looked at women on executive teams in the US and the UK in 2017, we found they were twice as likely to be in staff roles than in the typically revenue-generating line roles from which 95% of CEOs get promoted. This is something that’s known intuitively, but it compelling to see it come through in the data, and it highlights the importance of supporting women to reach the executive team, and remain in line roles.
AT: Do you expect the next five years will see greater change than say the past 20? Where would you expect to see the most change in the coming years?
VH: There is certainly increasing focus on gender diversity, and the pace at which organisations are taking action is accelerating. That said, the picture remains very uneven, with differences between companies, industry sectors, and geographies. Some sectors have been slower to embrace the agenda, or have done so in a less concerted, co-ordinated way. However, there is much to celebrate and we are seeing some real leaders emerging in multiple sectors, from mining to tech.
I think companies will continue to work on understanding the benefits which diversity brings to them, and taking action on both ‘hard-wiring’ changes to talent management processes and the ‘soft-wiring’ attending to organisational culture and inclusive leadership. I expect we’ll also see more cross-sector collaboration between companies particularly in areas where there are talent shortages (e.g. STEM). This will also be true in sectors where technological disruption related to automation and AI are likely to be most acute.