DIVERSITY WINS HOW INCLUSION MATTERS - MAY 2020 - MCKINSEY
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Diversity wins How inclusion matters May 2020
Preface
In the COVID-19 crisis, diversity and inclusion matter more than ever
For business executives the world over, the employees need to feel and perceive equality
COVID-19 pandemic is proving to be one of the and fairness of opportunity in their workplace.
greatest leadership tests of their careers. Not only Companies that lead on diversity have taken bold
must they protect the health of their employees steps to strengthen inclusion.
and customers, they must also navigate far-
Early signs suggest that the COVID-19 crisis could
reaching disruption to their operations, plan for
deepen these trends. Companies that already
recovery, and prepare to reimagine their business
see I&D as a strength are likely to leverage it to
models for the ‘next normal’.
bounce back quicker—and they will use this time
In this challenging context, the task of fostering to seek new opportunities to boost representation
inclusion and diversity (I&D) could easily take a and inclusion to strengthen performance and
back seat—and the painstaking progress made organizational health. As the CEO of a European
by many firms in recent years could be reversed. consumer-goods company told us: “I know we have
As this report shows, however, I&D is a powerful to deal with COVID-19, but inclusion and diversity is
enabler of business performance. Companies a topic too important to put onto the back burner”.
whose leaders welcome diverse talents and include
On the other hand, some of the companies we have
multiple perspectives are likely to emerge from the
spoken to are viewing I&D as a “luxury we cannot
crisis stronger. In short: diversity wins, now more
afford” during the crisis. We believe that these
than ever.
companies risk tarnishing their license to operate
This report was originally due for release in in the long term and could lose out on very real
March 2020, but we put publication on hold as the opportunities to innovate their business model and
COVID-19 crisis ensued. Since then, in talking to strengthen their business recovery.
CEOs, CXOs and CHROs and assessing the radically
If companies deprioritize I&D during the crisis,
changed business landscape, we have come to the
the impact is felt not just on the bottom line but in
conclusion that its findings are even more relevant
people’s lives. Research and experience warn us
right now.
that diverse talent can be at risk during a downturn
The report demonstrates that the business case for for several reasons, including that downsizing can
gender and ethnic diversity in top teams is stronger have a disproportionate impact on the roles typically
than ever. Since we first published Why Diversity held by diverse talent. 1, 2 As companies send
Matters in 2015, the likelihood of diverse companies staff home to work, this could reinforce existing
outperforming industry peers on profitability has exclusive behaviors and unconscious biases and
increased significantly. The data also shows that undermine inclusion. In addition, unequal sharing
there is a clear divergence in how companies are of childcare and homeschooling responsibilities,
engaging with I&D. A third of the firms we have and unequal availability of home workspace and
tracked over the past five years have significantly access to broadband could be putting women and
improved both gender and ethnic diversity on their minorities at a disadvantage during this time of
executive teams, while the majority have stalled or working remotely.
gone backwards.
Companies and their leaders can seize this
We also find that the dynamics around inclusion are moment—both to protect the gains they have
a critical differentiator for companies. Our evidence already made, as well as to leverage I&D to position
is that an emphasis on representation is not enough; themselves to prosper in the future.
1
How “Neutral” Layoffs Disproportionately Affect Women and Minorities, HBR, June 2016
2
McKinsey & Company, Women in the Workplace 2019
Diversity wins: How inclusion matters
There is ample evidence that diverse and inclusive purpose and values even more closely, potentially
companies are likely to make better, bolder even more so in the current pandemic. Those that
decisions—a critical capability in the crisis. tap into the growing sense of solidarity that is a
For example, diverse teams have been shown to be characteristic of the crisis—by reaffirming their
more likely to radically innovate and anticipate shifts commitment to I&D, supporting vulnerable talent
in consumer needs and consumption patterns— who are at greater risk of infection, and reaching out
helping their companies to gain a competitive edge. 3 to local communities—could strengthen employee
motivation and win lasting approval.
In this context, the shift to technology-enabled
remote working presents an opportunity for The findings and case studies presented in this
companies to accelerate building inclusive and agile report will be of enduring relevance to companies
cultures—further challenging existing management in every industry, long after the world has emerged
routines. With its benefits of increased flexibility, from the COVID-19 crisis. But we are convinced
remote working can facilitate retention of women that, as companies and their leaders navigate the
and minorities, who are often shouldered with a crisis itself and plan their emergence from it, they
disproportionate share of family duties. It thus will find that I&D is an essential enabler of recovery,
widens access to an array of diverse talent that may resilience, and reimagination.
not have been available to companies previously. 4
Moreover, a visible commitment to I&D during the
crisis is likely to strengthen companies’ global
image and license to operate. In times of crisis,
stakeholders typically interrogate a company’s
3
Ibid.
4
https://www.nytimes.com/2020/03/31/us/equal-pay-coronavirus-economic-impact.html
Vivian Hunt, DBE Sara Prince
Senior Partner, McKinsey & Company Partner, McKinsey & Company
London Atlanta
Sundiatu Dixon-Fyle Kevin Dolan
Senior Expert, McKinsey & Company Senior Partner, McKinsey & Company
London Chicago
May 2020
Diversity wins: How inclusion matters
Contents Executive summary 3 Introduction 10 A stronger business case for diversity, but slow progress overall 13 Citigroup: strengthening equality of opportunity 22 The widening gap between winners and laggards 24 Pentair: building an inclusive culture 31 How inclusion matters 32 Target Corporation: staying open 39 Winning through inclusion and diversity: taking bold action 41 Lockheed Martin: breaking down barriers to inclusion 46 Conclusion 47 Methodology 48 About the authors 52 Acknowledgments 52 Diversity wins: How inclusion matters 1
2 Diversity wins: How inclusion matters
Executive summary
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.
Diversity Wins is the third in a McKinsey series A stronger business case for diversity,
investigating the business case for diversity, but slow progress overall
following Why Diversity Matters (2015) and
Our latest analysis reaffirms the strong business
Delivering through Diversity (2018).1 This report
case for both gender diversity and ethnic
shows not only that the business case remains
and cultural diversity in corporate leadership—
robust, but also that the relationship between
and shows that this business case continues
diversity on executive teams and the likelihood of
to strengthen. The most diverse companies are now
financial outperformance is now even stronger
more likely than ever to outperform
than before. These findings are underpinned by our
non-diverse companies on profitability.
largest data set to date, encompassing 15 countries
and more than 1,000 large companies. The report Our 2019 analysis finds that companies in the top
also provides new insights into how inclusion quartile of gender diversity on executive teams were
matters, through an analysis of employee sentiment 25 percent more likely to experience above-average
in online reviews; this shows that companies need profitability than peer companies in the fourth
to pay much greater attention to inclusion, even in quartile. This is up from 21 percent in 2017 and
relatively diverse industries. 15 percent in 2014.
By following the trajectories of hundreds of large Moreover, we found that the higher the
companies in our data set since 2014, we find that representation, the higher the likelihood of
overall slow growth in diverse representation in outperformance. Companies with more than
fact masks a growing polarization between these 30 percent women on their executive teams are
firms. While most are stalled or even slipping significantly more likely to outperform those with
backwards, some are making impressive progress in between 10 and 30 percent women, and these
improving diversity, particularly in executive teams. companies in turn are more likely to outperform
We show that these diversity winners are adopting those with fewer or no women executives.
systematic, business-led approaches to I&D, with As a result, there is a substantial performance
special focus on inclusion. And we highlight the differential—48 percent—between the most
areas where companies should take far bolder and least gender-diverse companies.
action to bring about lasting change in inclusive
culture and behavior.
1
The data set for Diversity Matters was assembled in 2014, while that for Delivering through Diversity was assembled in 2017. Likewise,
this report, published in 2020, is built on data gathered in 2019. We therefore refer to three data sets in this report—for 2014, 2017
and 2019.
Diversity wins: How inclusion matters 3In the case of ethnic and cultural diversity, the The widening gap between winners
findings are equally compelling. We found that and laggards
companies in the top quartile outperformed those
While overall progress on representation is slow,
in the fourth by 36 percent in terms of profitability
our research makes it clear that this in fact hides
in 2019, slightly up from 33 percent in 2017
a widening gap between leading I&D practitioners
and 35 percent in 2014. And, as we have previously
and companies that have yet to embrace diversity.
found, there continues to be a higher likelihood
A third of the firms we analyzed have achieved
of outperformance difference with ethnicity than
real gains in top-team diversity over the five-year
with gender.
period. But most firms have made little progress or
Despite this, progress overall has been slow. remained static and, in some, gender and cultural
In the companies in our original 2014 data set, representation has even gone backwards.
based in the United States and the United Kingdom,
This growing polarization between high and low
female representation on executive teams has
performers is reflected in an increased likelihood
risen from 15 percent in 2014 to 20 percent in
of a performance penalty. In 2019, fourth-quartile
2019. Across our global data set, for which our data
companies for executive-team gender diversity
starts in 2017, this number has moved up just one
were 19 percent more likely than companies in
percentage point from 14 to 15 percent in 2019—
the other three quartiles to underperform on
and more than a third of companies still have no
profitability. This is up from 15 percent in 2017
women at all on their executive teams. This lack of
and nine percent in 2015. And for companies in
material progress is evident across all industries and
the fourth quartile of both gender and ethnic
in most countries. Similarly, representation of ethnic
diversity the penalty is even steeper in 2019:
minorities on US and UK executive teams stood at
they are 27 percent more likely to underperform
only 13 percent in 2019, up from just 7 percent in
on profitability than all other companies in our
2014. For our global data set in 2019, this number
data set.
is 14 percent, up from 12 percent in 2017.
4 Diversity wins: How inclusion mattersBy tracking the progress of companies in our To further understand how inclusion matters—and
original 2014 data set, we identified five cohorts specifically what aspects of inclusion employees
based on their starting points and speed of consider to be significant—we conducted for
progress on executive-team gender representation the first time an analysis of indicators relating to
and, separately, ethnic-minority representation. inclusion, outside-in. This analysis focused on
The first two cohorts, Diversity Leaders and employee reviews about the firms they work for
Fast Movers, have shown strong improvement over made on online recruitment websites.
the past five years. For example, gender Fast
While this approach is indicative, it provides a more
Movers have almost quadrupled representation of
candid read on inclusion than internal employee-
women on executive teams to 27 percent in 2019;
satisfaction surveys do—and it allows data across
for ethnicity, companies in the equivalent cohort
dozens of companies to be analyzed rapidly and
have increased representation from just 1 percent
simultaneously. We focused on three industries
in 2014 to 18 percent in 2019.
with the highest levels of executive-team diversity
At the other end of the spectrum are the Laggards, in our data set: financial services, technology
which have seen their already poor diversity and healthcare. In these sectors, comments directly
performance decline further. In 2019, these firms pertaining to I&D made up around one-third of the
had an average of 8 percent female representation total comments made, showing that this topic is high
on their executive teams—and no ethnic-minority on employees’ minds.
representation at all. The two other cohorts
We analyzed comments relating to five indicators.
are Moderate Movers, which have on average
The first two—diverse representation and
experienced slower growth, and Resting on Laurels,
leadership accountability for I&D—are markers
which started with higher levels of representation
of a systematic approach to I&D. The other three
than did Laggards, but have similarly seen this
indicators—equality, openness, and belonging—
decline since 2014.
are core components of inclusion. Across several
We also found that the average likelihood of of these indicators, our findings suggest that there
financial outperformance in these cohorts are marked “pain points” in the experiences of
is consistent with our findings in the quartile employees, as follows:
analysis above. For example, in 2019 companies
— While overall sentiment on diversity was
in the Resting on Laurels cohort on average
52 percent positive and 31 percent negative,
have the highest likelihood of outperformance
sentiment on inclusion was markedly worse
on profitability, at almost 62 percent—possibly
at only 29 percent positive and 61 percent
reflecting their historically high levels of diversity on
negative—which encapsulates the challenge
executive teams. Laggards, on the other hand, are
that even the more diverse companies still face
more likely to underperform their national industry
in tackling inclusion. Hiring diverse talent isn’t
median profitability, at 40 percent.
enough—it’s the experience they have in the
workplace that shapes whether they remain
How inclusion matters and thrive.
We sought to explore how differing approaches
— Leadership and accountability as it pertains
to I&D could have shaped the trajectories of
to I&D accounted for the highest number of
the companies in our data set, through analysis
mentions, and was also strongly negative.
of surveys and company research. These pointed
On average across industries, 51 percent of
to two critical factors: a systematic approach to I&D,
the total mentions related to leadership, and
and bold action on inclusion.
56 percent of those mentions had negative
We have previously advocated a systematic, sentiment. This underscores the increasingly
business-led approach to I&D, based on a robust recognized need for companies to engage their
bespoke business case, evidenced-based targets core business managers better in the I&D effort.
and core-business leadership accountability.
Diversity wins: How inclusion matters 5— Considering the three indicators of inclusion— — Strengthen leadership accountability and
equality, openness, and belonging—we found capability for I&D. Companies should place
particularly high levels of negative sentiment their core business leaders and managers at
around equality and fairness of opportunity. the heart of the I&D effort—beyond their
Negative sentiment around equality ranged from HR functions or employee resource-group
63 to 80 percent across the industries analyzed. leaders. They also need to strengthen inclusive
Openness of the working environment, which leadership capabilities among their managers as
encompasses bias and discrimination, was also well as their executives, and more emphatically
of significant concern, with negative sentiment hold all leaders to account for progress on I&D.
across industries ranging from 38 to 56 percent.
— Enable equality of opportunity through
Belonging elicited overall positive sentiment,
fairness and transparency. It is critical that
but from a relatively small number of mentions.
companies ensure that there is a level playing
These findings highlight the importance not just field in advancement and opportunity, in pursuit
of inclusion overall, but specifically of the varying of true meritocracy. Companies should deploy
extents to which particular aspects of inclusion analytics tools to build visibility into
matter. Even where companies are more diverse, the extent to which promotions and pay
many appear as yet unable to cultivate work processes and criteria are transparent and fair.
environments which effectively promote inclusive They should de-bias these processes and work
leadership and accountability among managers, to meeting diversity targets across long-term
equality and fairness of opportunity, and openness workforce plans.
and freedom from bias and discrimination.
— Promote openness and tackle
microaggressions. Companies should uphold
Winning through inclusion a zero-tolerance policy for discriminatory
and diversity: taking bold action behavior such as bullying and harassment—
We took a close look at the companies in our data and actively build the ability of managers and
set that are achieving higher levels of diversity— staff to identify and address microaggressions.
and benefitting from an increased likelihood of They should also establish norms for what
financial outperformance. The common thread for constitutes open, welcoming behavior, and ask
these diversity winners is a systematic approach, leaders and employees to assess each other on
together with bold steps to strengthen inclusion. how they are living up to that behavior.
Drawing on best practices from these firms,
— Foster belonging through unequivocal
this report highlights five areas of action for
support for multivariate diversity. Companies
companies, as follows:
should build a culture in which all employees
— Ensure representation of diverse talent. This feel they can bring their whole selves to work.
is still an essential driver of inclusion. Companies Managers should communicate and visibly
should focus on advancing diverse talent into embrace their commitment to multivariate forms
executive, management, technical and board of diversity, building connection with diverse
roles. They should ensure that a robust, bespoke individuals and supporting employee resource
business-driven case for I&D exists and is well groups to foster a sense of community and
accepted, while being thoughtful about which belonging. Companies should also explicitly
forms of multivariate diversity to prioritize (for assess belonging in internal surveys.
example, going beyond gender and ethnicity).
They also need to set the right data-driven
targets for representation of diverse talent.
6 Diversity wins: How inclusion mattersDiversity wins: How inclusion matters 7
The business case for inclusion & diversity
is stronger than ever
Diverse companies are more likely to financially outperform their peers
Difference in likelihood of outperformance of 1st vs 4th quartile¹
Gender Ethnicity
15% 21% 25% 35% 33% 36%
2014 2017 2019 2014 2017 2019
The penalty for lagging on gender diversity is Progress on executive team diversity in our
growing, while top quartile companies are more 2014 dataset continues to be slow
likely to be at an advantage
Representation in US and UK
Difference in likelihood of financial outperformance² Gender Ethnicity
Penalty for bottom quartile 2014
14%
2014
-9% 7%
2017 -15% 2017
2019 -19% 18%
12%
Advantage for top quartile 2019
20%
2019 11%
13%
¹ Difference in likelihood of financial outperformance vs the national industry median of five years average EBIT margin, using the full dataset of companies in each year.
² Difference in likelihood of financial outperformance vs the national industry median of five years average EBIT margin for 4th quartile vs 1st-3rd quartile, and 1st quartile vs
2nd-4th quartile, using the full dataset of companies in each year.
8 Diversity wins: How inclusion mattersThere is a widening gap between leaders and laggards
One-third of the firms we tracked since 2014 have achieved real gains in executive team diversity. However
about 50% have made little or no progress and, within that, many have seen gender and ethnic minority
representation even go backwards.
Representation in US and UK, % 2014 2019
Diversity leaders Fast movers Resting on laurels Moderate movers Laggards
40
26 27 28
Gender 22 19
7 12 9 8
% of companies 5% 28% 29% 10% 28%
32
Ethnicity 17 18 18 3
1 12 10 1 0
% of companies 15% 24% 22% 12% 28%
Promoting diversity does not ensure a culture of inclusion
We used a social listening approach to analyze employer reviews posted online³
Overall sentiment on diversity is positive But sentiment on inclusion is the opposite
52% 31% 29% 61%
positive negative positive negative
Bold actions are needed to strengthen both inclusion and diversity
A systematic, business-led approach to I&D Bold steps to strengthen inclusion
Increase diverse representation, particularly Enable equality of opportunity through fairness
1 3
in leadership and critical roles and transparency
Strengthen leadership and accountability Promote openness, tackling bias and
2 4
for delivering on I&D goals discrimination
Foster belonging through support for
5
multivariate diversity
³ Social listening is the action of tracking social media platforms for mentions and conversations related to a brand or topic, then analyzing them for
insights to discover opportunities to act; US only.
Diversity wins: How inclusion matters 9Introduction
Over the past decade, many companies around the world have
incorporated I&D into their visions and strategies. Increasingly,
business leaders recognize that a diverse and inclusive employee
base—with a range of approaches and perspectives—is an asset
when competing in a fast-moving, globalized economy.
Along with growing acceptance of the business teams—the leadership groups that drive company
case for I&D, progress has been helped along strategy and organizational transformation, and act
by regulatory pressure, media scrutiny, and an as bellwethers for a company’s commitment
upswelling of social-justice demands. to I&D. Diversity Wins draws on an expanded data
set of more than 1,000 large companies in
Yet significant, sustainable progress remains
15 countries, comprising of company surveys, case
challenging. Companies are struggling not
studies, and interviews, as well as new analysis
because they haven’t put I&D on the agenda, but
of employee sentiment about I&D. (See Box 1:
because it’s hard to get right. Common pitfalls
Expanded data set, updated methodology.)
include fragmented I&D initiatives, overly relying
on individual commitments, and the lack of a clear The report sets out the findings of this research, and
link with the company’s core business strategy. the actions needed to strengthen I&D,
Many companies are battling additional headwinds in four sections as follows:
of uncertainty over the economy and the future of
— A stronger business case for diversity,
work more broadly, as well as the threat of diversity
but slow progress overall
fatigue and backlash.
— The widening gap between winners
This report, the third in the series after Why
and laggards
Diversity Matters (2015) and Delivering through
Diversity (2018), shows how some companies are — How inclusion matters
winning through diversity—and how others can — Winning through inclusion and diversity:
do the same. It continues to focus on diversity of taking bold action
gender and of ethnicity and culture in executive
Box 1
Expanded data set, updated methodology
Our purpose in the Diversity Matters series is to explore the link between increased gender and ethnic
diversity in companies’ top teams, and those companies’ business performance. We also seek to
provide a robust basis for tracking companies’ progress in advancing I&D among their leadership.
In so doing, we continue to substantiate the business case for diversity, and provide helpful insights
for companies seeking to strengthen diversity and translate it into business results.
Over the past five years, we have tracked the progress of hundreds of large companies (each with
annual revenues exceeding $1.5 billion) in countries around the world. For this report, we have
expanded that global data set to take in 1,039 companies in 15 countries: Australia, Brazil, France,
Germany, Norway, Denmark, India, Japan, Mexico, Nigeria, Singapore, South Africa, Sweden, the
United Kingdom, and the United States.
10 Diversity wins: How inclusion mattersOur data set spans over 1,000 companies in 15 countries
Exhibit 1
Our data
Our dataof
Distribution set
set spans
spans
sample over1,000
by over
country1,000 companies
companies
and industry inin1515countries
group1, % countries
Distribution of sample by country and industry group1, %
Countries
Countries
2017 2019
2014
2019
+ 2014 2017
+
Brazil United Kingdom + Australia Germany Japan Singapore + Denmark Sweden
Mexico United States France India Nigeria South Africa Norway
Brazil United Kingdom Australia Germany Japan Singapore Denmark Sweden
Mexico United States France India Nigeria South Africa Norway
Regions, %
Regions, % 21 Continental
Europe
21 Continental
Europe
31 12
31
United
12
UK
States
United
States UK
4
4
Sub-Saharan 26
Africa
Sub-Saharan 26
Asia
Pacific
7 Africa Asia
Pacific
7
Latin
America
Latin
America
Industries, %
Industries, % 7
9 7 24
9 24
Consumer goods and retail
11 Energy, basic materials and environment
Consumer goods and retail
11 Heavy
Energy,industry
basic materials and environment
Telecom,
Heavy media and technology
industry
Finance,
Telecom,insurance
media andand professional services
technology
13 Healthcare and pharmaceuticals
Finance, insurance and professional services
22
13 Transportation,
Healthcare and logistics and tourism
pharmaceuticals
22
Transportation, logistics and tourism
15
1. n = 1,039. 15
Source: McKinsey Diversity Matters data set
1. n = 1,039.
Source: McKinsey Diversity Matters data set
Diversity wins: How inclusion matters 11Drawing on this unique data set, we have That said, I&D in other areas of leadership and
been able to conduct longitudinal analysis management is, of course, important too. We
of 365 large US- and UK-based companies include a brief discussion of diversity at board
included in our sample since 2014. For dozens level in this report, and we consider I&D across
of these companies, we have conducted company levels in other McKinsey research.2
in-depth interviews with senior executives to
Finally, although our research focuses on
understand their I&D challenges, strategies
gender and ethnicity as intrinsic forms of
and progress. That, in turn, has supported
diversity which are measurable at scale,
a segmentation of the companies into five
we recognize the increasingly multivariate
distinct cohorts.
nature of diversity—including multiple forms
We also undertook additional quantitative of acquired diversity such as educational or
analysis of inclusion in this report—the first socio-economic background, or diversity of
time we have done so. We used outside- thought. Over the past decade, traditional
in analysis of employee sentiment on I&D identities of race and gender have fractured
in several major industries to understand as people start to embrace openly a more fluid
the relationship between inclusion and the sense of who they are, highlighting the need to
experiences of diverse talent in organizations, recognize multiple forms of intersectionality.
what drives their engagement, and how this Although this is more difficult to measure,
influences diverse representation. it is a significant additional driver of the need
to focus on inclusion.
We should note that this report’s focus on
executive teams is deliberate, as these For further detail on our methodology,
leaders are the primary drivers of company see page 48.
strategy and organizational transformation.
2
See, for example, Women in the Workplace 2019, October 2019, McKinsey.com.
12 Diversity wins: How inclusion mattersA stronger business case for
diversity, but slow progress overall
The business case for I&D as a source of competitive advantage
is growing stronger. Increasingly, we find that the most diverse
companies recognize I&D as more than a social-justice imperative;
they also see it as a core enabler of growth and value creation.
These diversity winners are pulling ahead of the rest.
For five years our research has shown a positive, For both executive teams and boards, gender
statistically significant correlation between company and ethnic diversity has progressed—but
financial outperformance and diversity, on the progress is still very slow. But this overall picture
dimensions of both gender and ethnicity. This masks the fact that some companies have made
is evident at different levels of the organization, impressive advances over the past five years.
particularly on executive teams. In our updated 2019 Across geographies and industries, these diversity
data set—covering 15 countries on five continents— winners are pulling ahead on both gender and ethnic
this correlation holds and is even stronger. And we are diversity on executive teams. In this section of the
also seeing that the positive correlation between board report we consider each dimension in turn.
diversity and financial outperformance observed in
our previous research has now become statistically
significant. (See Box 2: The increasingly clear link
between board diversity and business performance.)
Box 2
The increasingly clear link between board diversity
and business performance
Our expanded 2019 data set shows that companies whose boards are in the top quartile of gender
diversity are 28 percent more likely than their peers to outperform financially. In previous years, while
the correlations were positive between board gender diversity and outperformance on earnings
before interest and taxation (EBIT) margin, they were not statistically significant; now they are.
This difference in significance could be linked to an overall rise in female representation on boards.
In recent years, many countries have ramped up efforts to boost this, as evidenced by the significant
uptick in representation we have observed in several countries. For example, companies in France
and Norway have, on average, over 40 percent women on their boards. We hypothesize that this
higher representation may be linked to the increased likelihood of financial outperformance of their
companies becoming statistically significant.
The interplay between boards, executive teams and company profitability is not well understood.
Could these more diverse boards be operating differently? Or could a visible commitment to board
diversity be signaling a company’s openness towards increasingly diverse customers, employees,
businesses and communities, which in turn is positively influencing financial performance?
Board diversity could symbolize a company’s commitment to equality, innovation and inclusive growth.
Certainly, these questions warrant further research. 3
3
“Toward a value-creating board: McKinsey Global Survey results,” 2016, McKinsey.com.
Diversity wins: How inclusion matters 13A clear opportunity from pushing on gender diversity in boards has been similarly
towards gender parity slow, albeit with a marked uptick in the past two
years. Across our full 2019 data set of 15 countries,
When we assessed our original 2014 data set,
progress (tracked since 2017) has been even slower
we found that companies in the top quartile for
(Exhibit 3). Women make up just 15 percent of
gender diversity in their executive teams were 15
executive-team membership, and more than
percent more likely to experience above-peer-
a third of companies have no women at all on their
average profitability than companies in the fourth
executive teams.
quartile. 4 Three years later, in our Delivering through
Diversity report, this had increased to 21 percent. Taking a country lens, progress towards female
In our 2019 data set, it has increased again to 25 representation on executive teams is low in most
percent (Exhibit 2). As mentioned above, female countries (Exhibit 4). We observe extremes in
representation on executive teams has also representation, ranging from Norway, where all
increased slowly but steadily during this time frame, the companies in our data set have at least one
widening the gap between the top and bottom female executive, to several major economies—
quartiles. This has also been the case for gender including Brazil, India, Germany and Japan—
diversity on boards, which we discuss in Box 2. where up to 83 percent of companies have zero
women on their executive teams, and female
Female representation on the executive teams of
representation averages 8% or less. Developed
the mostly US and UK companies we have been
countries on average have higher rates of diversity
tracking since 2014 has risen from 15 percent in
representation than do emerging economies.
2014 to 20 percent in 2019. This represents an
(See Box 3: Comparing gender diversity in
annual average change over the past five years
developed and emerging economies.)
of just 1.1 percentage points per year. Progress
4
Our 2014 original data set consisted of 383 companies largely in the United States and the United Kingdom. In 2017, this data set had
grown to 991 companies from 12 countries and our 2019 data set consisted of 1,039 companies from 15 countries, including three
Scandinavian countries; Women Matter: Reinventing the workplace to unlock the potential of gender diversity, 2015, McKinsey.com.
Exhibit 2
The business
The business case
case for
forgender
genderdiversity
diversityononexecutive
executive teams
teams is is stronger
stronger than
than ever
ever
Likelihood of financial outperformance1, %
Quartile 4th 1st Median
Why diversity matters Delivering through diversity Div ersity win s
20142 20173 20194
+15% +21% +25%
54 55 55
47 45 44
50 50 50
1. Likelihood of financial outperformance vs the national industry median. p-valueGender and ethnic diversity in leadership teams has progressed slowly in our 2014 data set
and even slower in our global 2017 data set
Gender
Exhibit 3 and %
Representation, ethnic diversity in leadership teams has progressed slowly in our 2014 data set
Gender and ethnic diversity
and even slower indiversity
and ethnic in2017
in
our global leadership
leadership teamshas
teams
data set hasprogressed
progressedslowly
slowly
in in our
our 2014 data
original 2014set
and
data even
set slower in our global 2017 data set
Representation, %
Leadership teams
Representation, % from 2014 data set Board Executive team
Leadership
Gender teams
1 from 2014 data set Ethnic minorities1
Board Executive team
Leadership teams from 2014 data set Board Executive team
Average annual change,
Gender1 percentage points Ethnic minorities1
Gender1 Ethnic minorities1
Average annual change,
Average annual
percentage change,
points Average annual change,
percentage points
+1.3 percentage points
28
Average annual change,
24 +1.3 Average annual
percentage change,
points
21 28 20
+1.1
+1.3 percentage points
19 28 17
+0.8
24
15 24 +1.1 +1.1
21 20 +1.1 14 13
21 19 20 13 12 +0.8
19 17 +0.8
15 17
15 7 14 +1.1
13 14 12 13 +1.1
13 12 13
7
2014 2017 2019 2014 7 2017 2019
1. n = 365 for women and n = 241 for ethnic minorities; Subset of companies from Diversity Matters 2014 dataset with ethnicity data available for 2014,
2017 2014
and 2019. 2017 2019 2014 2017 2019
2014 2017
Source: McKinsey Diversity Matters data set
2019 2014 2017 2019
1. n = 365 for women and n = 241 for ethnic minorities; Subset of companies from Diversity Matters 2014 dataset with ethnicity data available for 2014,
2017
1. n andfor
= 365 2019.
women and n = 241 for ethnic minorities; Subset of companies from Diversity Matters 2014 dataset with ethnicity data available for 2014,
2017McKinsey
Source: and 2019.Diversity Matters data set
Source: McKinsey Diversity Matters data set
Leadership teams from global 2017 data set Board Executive team
Leadership teams from global 2017 data set Board Executive team
Genderteams
Leadership 1
from global 2017 data set Ethnic minorities2 Board Executive team
Average annual change,
Gender1percentage points Ethnic minorities2
Gender1 Ethnic minorities2
Average annual change, Average annual change,
Average annual
percentage change,
points percentage points
percentage points
+0.0 Average annual change,
24 24 Average annual
percentage change,
points
percentage points
24 24 +0.0 +1.0
+0.5
+0.0 16
24 14 24 15 14 14 +1.0
12
16 +1.0
15 +0.5 +1.0
14 +0.5 14 16 14 +1.0
14 15 14 12 14 +1.0
12
2017 2019 2017 2019
1. n = 957 (global dataset) in 2017 and 2019.
2. n = 528 (global dataset) in 2017 and 2019.
2017 2019 2017 2019
Source: McKinsey Diversity Matters data set
2017 2019 2017 2019
1. n = 957 (global dataset) in 2017 and 2019.
2. n
1. n== 957
528 (global
(global dataset)
dataset) in
in 2017
2017 and
and 2019.
2019.
2. n = 528
Source: (global Diversity
McKinsey dataset) in 2017 and
Matters data
Diversity 2019.
set How inclusion matters
wins: 15
Source: McKinsey Diversity Matters data setExhibit 4
In
In nearly
nearly all
nearly all 15
all 15countries,
15 countries,women
countries, womenare
women areunderrepresented
are underrepresentedonon
underrepresented onexecutive teams
executive
executive teams
teams
Female
Female representation,
representation, %
%
Average female
Average female Companies
Companies with
with at
at
Female
Female workforce
workforce
representation11
representation least one
least one woman
woman onon participation
participation
executive
executive team
team
Norway
Norway 28
28
100
100 48
48
Australia
Australia 27
27
98
98 46
46
Sweden
Sweden 24 94
94 47
47
24
United
United States
States 21 90
90 45
45
21
Singapore
Singapore 19 73
73 44
44
19
United
United Kingdom
Kingdom 18
18 76
76 46
46
South
South Africa
Africa 18 75
75
44
44
18
Nigeria
Nigeria 17
17 80
80 46
46
Denmark
Denmark 13
13 47
47 47
47
France
France 13
13 64
64 45
45
Brazil
Brazil 8
8 40
40 42
42
Germany
Germany 8
8 48
48 45
45
Mexico
Mexico 8 46
46
36
36
8
India
India 5 28
28
23
23
5
Japan
Japan 3 17
17
42
42
3
A
Avve
erraa g
gee 15 65
65
15
1.
1. nn=
= 1,039;
1,039; 2019.
2019. Respective
Respective weighted
weighted averages:
averages: 9%
9% and
and 45%
45%
Source:
Source: Diversity Matters data set; World Bank (labor force participation
Diversity Matters data set; World Bank (labor force participation rate,
rate, September
September 2019)
2019)
16 Diversity wins: How inclusion mattersAt the current rate of progress, it will take 29 years better all-round board performance, and ultimately
and 24 years respectively for the average US and increased corporate performance for both
UK company in our data set to reach gender parity companies and their shareholders.”7
on its executive team, and 18 years and 13 years
Our data set appears to substantiate this view and
on boards. 5 Again, that picture differs radically
shows that there are likely additional benefits to
by country: comparable figures for Brazil are 238
pushing for gender parity on executive teams.
years on executive teams and 27 years on boards. 6
In our US and UK data set, companies with female
The overall slow pace of progress across industries executive-team representation exceeding
and countries is a missed opportunity—and 30 percent are significantly more likely to
leaves most companies far off well-established outperform those whose executive teams are
targets, such as the minimum 30 percent female between 10 and 30 percent female. 8 Those
representation on boards and executive teams companies, in turn, are more likely to outperform
put forward by the United Kingdom’s 30% Club those with fewer than 10 percent female
a decade ago. This coalition of business leaders executive-team representation. As a result, there
believes the following: is a substantial likelihood of outperformance
differential—48 percent—between the most
“Gender balance on boards and in senior
and least gender-diverse companies (Exhibit 5).
management not only encourages better leadership
and governance, but diversity further contributes to
5
Calculated by extrapolating rates of increase in representation since 2014 in our original data set.
6
Our 2015 Women in the Workplace report stated that companies in the United States were 100 years away from gender parity in the
C-suite, based on progress in female representation between 2012 and 2015. While this progress has accelerated over the 2014–19 time
period, we should also note that our current report draws on a different data set of companies, so its findings are not strictly comparable
with those of Women in the Workplace.
7
https://30percentclub.org/about/who-we-are. In the United Kingdom, the target of 30 percent average female representation on
executive teams and boards of major listed companies has since been met.
8
On EBIT margin.
Exhibit 5
Executive
Executive teams
teams with
withmore
morethan
than30%
30%women
womenare
aremore
morelikely toto
likely outperform those
outperform with
those with
fewer or
fewer or no
nowomen
women
Likelihood of financial outperformance1, 2014, %
+18%
Median
+25%
63
54
50 43
+48%
Women on executive teams2, % 0-10 10+ 30+
Number of companies 114 210 41
1. Likelihood of financial outperformance vs the national industry median.
2. n = 365; US and UK; EBIT 2014-2018.
Source: Diversity Matters data set
Diversity wins: How inclusion matters 17This finding begins to substantiate the business We also took a close look at the roles women occupy
rationale for pushing further than historical 30 in executive teams—in particular, the extent to which
percent representation targets, and closer towards they occupy line decision-making roles, which have
gender parity on executive teams. Yet very few the most direct influence on business performance
companies today are close to this. In our latest data and provide a stronger path to the CEO position.
set, only around 4 percent of companies have more Only one-third of women executives in our 2019
than 40 percent women on their executive team. data set sample occupied line roles, with two-
On the other hand, 42 percent of companies have thirds occupying support or staff roles. Further, for
10 percent or less female executives. companies in the bottom two quartiles for gender
diversity, the proportion of women in staff roles is
Taking a view across industries, we find significant
even greater. These proportions have barely shifted
differences in the rates of progress since 2014
since we started tracking such roles in 2017, and are
(Exhibit 6). Female representation in executive
consistent across other areas of our research.9
teams has increased at the fastest rates in the
financial services and the technology and media Taking an intersectional lens to our US data
industries, at about 1.5 percentage points a year. set, we find that black women continue to be
In healthcare, by contrast, it has increased at just disproportionately underrepresented in line roles,
0.3 percentage points a year, despite this being with only 5 percent of female line roles held by black
an industry where female representation at entry women. Of the 33 percent of women who occupy
level is particularly high. Surprisingly, this starting line roles, the vast majority—83 percent—are white.
point does not appear to have led to a stronger push Asian women (9 percent) and Hispanic women (2
towards gender parity in healthcare leadership— percent) make up the rest. In the United Kingdom
as the slow growth rate shows. the picture is similar.
9
Women in the Workplace, October 2018 & 2019, McKinsey.com.
Exhibit 6
Acrossmajor
Across majorindustries,
industries, female
female executive
executive representation
representation remains
remains below
below 25%, and 25%,
has and
has increased
increased slowlyslowly since 2014
since 2014
Average female representation 1, % 2014-2019 annual growth, p.p.
Healthcare 24 0.3
Finance 24 1.5
Technology and media 21 1.4
Retail 20 0.8
Transport and tourism 19 1.1
Energy and materials 18 1.3
Heavy industry 18 1.1
Average 21 1.1
1. n = 365; US and UK; 2019.
Source: Diversity Matters data set
18 Diversity wins: How inclusion mattersPrevious McKinsey research has found that black In aggregate, the above findings make it clear that
women face the greatest barriers to progress in there is opportunity for most companies to take
the workplace, a consequence of accumulation of much bolder action to advance gender diversity
different forms of discrimination, including racism, on executive teams—and to push towards parity
sexism, and classism. In the United States, for and increased representation in line decision-
example, we have shown that for every 100 men making and technical roles.
who receive their first promotion from entry level
to manager, only 79 women receive that same
promotion. For black women that number is 60.10
10
Women in the Workplace 2019, op. cit.
Diversity wins: How inclusion matters 19Box 3
Comparing gender diversity in developed and emerging economies
We compared the likelihood of outperformance on profitability for firms in advanced economies
with that for their counterparts in emerging economies. We hypothesized that the business case for
gender diversity would be stronger in advanced economies where markets are typically more efficient
and the I&D agenda is often more advanced at national level.
What we found backs this up. The likelihood of financial outperformance by companies with gender-
diverse executive teams climbs to a high of 47 percent in advanced economies that have high gender
parity, such as the United States, the United Kingdom, Finland, and Sweden. By contrast, the
likelihood of financial outperformance by such gender-diverse companies stood at an average of
17 percent in lower-parity emerging economies such as Brazil, India, and Nigeria.
The fact that they are trailing offers firms in emerging and low gender-parity economies an
opportunity to learn from the progress and mistakes of their peers in more developed markets.
They have the opportunity to replicate what works and, more importantly, skip what doesn’t—
creating the possibility that they can leapfrog to a position of greater competitive advantage.
Ethnic and cultural diversity: 36 percent higher likelihood of outperformance
potentially an even bigger opportunity on EBIT margin for top quartile companies for
As with our Delivering through Diversity report, we ethnic and cultural diversity on executive teams—
analyzed data from countries where the definition up from 33 percent in 2017 and 35 percent in 2014
of ethnic and cultural diversity was consistent, (Exhibit 7). This is consistently higher than for
and our data were reliable.11 We found that the gender diversity, but with progress similarly slow.
business case for ethnic and cultural diversity was The business case for ethnic and cultural diversity
comparable to our previous findings, with a on boards remained significant in 2019. (See Box 2).
11
The countries included in the analysis were the United States, the United Kingdom, Brazil, Mexico, and Singapore.
Exhibit 7
The business
The business case
case for
forethnic
ethnicdiversity
diversityon
onexecutive
executiveteams
teams remains
remains strong
strong
Likelihood of financial outperformance1, %
Quartile 4th 1st Median
Why diversity matters Delivering through diversity Diversity wins
20142 20173 20194
+35% +33% +36%
58 59 59
43 50 44 50 43 50
1. Likelihood of financial outperformance vs the national industry median. p-valueThe findings highlighted in Exhibit 7 support representation in the general population.12
the argument that there is significant opportunity The United Kingdom, at 9 percent non-majority
from promoting ethnic and cultural diversity in representation on executive teams, is just under
companies’ top teams. Yet despite this, ethnic halfway to achieving fair-share representation
diversity appears to have been less of a focus of ethnic minorities (20 percent), while all others
than gender for many companies—hence the slow are further behind, including the United States
progress. In the United States and the United (14 percent on executive teams compared to
Kingdom, overall ethnic-minority representation 37 percent fair share).
in executive teams moved from 7 percent in 2014
Beyond average representation, the proportion of
to 13 percent in 2019 (see Exhibit 2, above). Not
companies in our data set with zero non-majority
surprisingly, as with gender diversity, we found that
representation in their executive teams is a telling
most countries and industries need to pick up the
measure of the lack of progress: in the United
pace in strengthening ethnic diversity in leadership.
States this is 31 percent, in the United Kingdom
As we saw for gender above, we found significant 58 percent, and in Brazil 73 percent. There is a
differences across the six countries for which significant opportunity for many companies that
we analyzed executive ethnic diversity. Only have fallen behind on this measure. By increasing
in Singapore was this in line with “fair share” ethnic and cultural diversity on their top teams,
representation, with the companies in our data set they could potentially reinvigorate performance
averaging 33 percent non-majority representation and growth.
on their top teams—well above the 24 percent
12
Fair share is calculated based on diverse representation in each country’s population.
Diversity wins: How inclusion matters 21Citigroup: strengthening
equality of opportunity
Global investment banking company Citigroup is powering
ahead with a no-nonsense I&D agenda and placing equality,
accountability and transparency at the center of everything
that it does.
It’s a common refrain in the I&D space: there’s majority talent by location to counter
not enough female or black talent in a particular the talent-shortage myth and uses a heatmap
industry and that is why targets can’t be achieved— showing how different areas are trending in order
but that’s a story Citigroup just isn’t buying into. both to increase transparency and to create a bit
of healthy competition.
A fast mover—Citigroup has gone from 8 percent
gender diversity on its executive team in 2014 to Having secured diverse talent, the retention and
over 30 percent in 2019—the firm places equality promotion of this is a key priority. “You can’t over-
of opportunity, accountability and transparency index on hiring and expect that that’s going to
at the center of everything that it does. Business solve the problem,” says Hogan. “You can’t just
leaders at all levels are directly involved in and held think about retention, you also have to think about
accountable for advancing I&D across the firm, promotion. In this it all comes down to culture.”
with scorecards presented at each board meeting
Which is why the firm is ratcheting up the focus
where “very granular” and “very transparent”
on building an inclusive workplace. Here too,
conversations are encouraged.
transparency is key. Believing that creating a diverse
“We are not debating any more whether I&D is and inclusive culture is the responsibility of all of its
the right thing to do,” says Teri Hogan, Global Head employees, not just those who identify with a certain
of Talent and Diversity. “We spent a long time on gender, ethnicity or affinity, Citigroup has invested
the business plan and our CEO is on record as heavily in Implicit Association Test (IAT) training
saying it’s simply ‘smart business’—now we just and Affinity Groups to enable people to talk openly
need to get down to delivering.” about barriers and the need to hold themselves and
others to account. They are not shying away from
The focus is on three key areas: targeted
difficult and uncomfortable conversations and,
recruitment, development and retention, and
when they do fall short, they strive not to sweep
promotion paths and processes. On the recruitment
their failings under the carpet.
front, accountability is foregrounded through
cascading targets for women and non-majority “You have to think big and bold,” says Hogan.
staff. And these targets are in the public domain. “When it comes to I&D you have to address every
The company also works with external providers to part of the system because this cuts across all
set targets and determine the availability of non- aspects of the organization.”
22 Diversity wins: How inclusion mattersDiversity wins: How inclusion matters 23
The widening gap between
winners and laggards
One-third of the firms we tracked—our diversity winners—have
achieved real gains in top-team diversity. But most of the firms we
analyzed have made little or no progress and, for some, gender
and cultural representation has even gone backwards.
We sought to establish whether the few penalty highlighted in our earlier reports remains.
companies progressing far more boldly on diverse Companies in the bottom quartile for gender diversity
representation in leadership were also starting to on executive teams are more likely to underperform
pull away from their peers in terms of a widening all other companies in the data set to an increasing
likelihood of financial outperformance. Our analysis extent: from 9 percent in 2014 to 19 percent in 2019.
shows clearly that this is the case: companies in the Considering both gender and ethnicity, bottom-
top quartile for both gender and ethnic diversity quartile companies on both dimensions were 27
are 12 percent more likely to outperform all other percent more likely to underperform than all other
companies in the data set (Exhibit 8). firms in the data set in 2019, similar to the 29 percent
we found in 2017 (Exhibit 8).
For the larger group of companies that are making
little or slow progress with diversity, the performance
Companies in the top quartile
for both gender and ethnic
diversity are 12 percent more
likely to outperform all other
companies in the data set.
24 Diversity wins: How inclusion mattersExhibit 8
The penalty for
for lagging
laggingon ondiversity
diversityisisgrowing,
growing,while
whiletop-quartile
top quartilecompanies are
companies more
are likely
more
likely
to to outperform
outperform all theirallpeers
their peers
Likelihood of financial outperformance1, %
Penalty for bottom quartile Advantage for top quartile
Quartile 4th 1–3rd Quartile 2nd–4th 1st
Why diversity Delivering through Diversity wins Diversity wins
matters 20142 diversity 20173 20194 2019
-9% -15% -19% +11%
47 52 45 53 44 54 50 55
Gender
-25% -29% -27% +12%
53 57 54 51 57
40 40 39
Gender
and Ethnicity
1. Likelihood of financial outperformance vs the national industry median. p-valueYou can also read
