The McKinsey Wakeup call

For years, ‘diversity’ was viewed as a good or charitable thing to do. And with that patriarchal mindset, HR teams rarely moved beyond token hiring of women, people of colour or those with disabilities.

 

It took McKinsey’s 2015 report ‘Why Diversity Matters,’ to shake up the corporate world. Finally, a reputed company had quantified how diversity improved the bottom line!

 

McKinsey followed this with two more reports, ‘Delivering through Diversity’ (2018) and the latest ‘Diversity Wins.’ Each report has only strengthened McKinsey’s initial claim that diverse executive teams are highly likely to outperform companies led by ‘monochromatic’ all-male teams. And these findings were gleaned from over 1000 companies across 15 countries.

The India Story

Among emerging markets, India was one of the countries that took a proactive policy approach to address the lack of female representation in senior management. The Companies Act 2013 mandates that any publicly listed company must have at least one female board member.

This was a good beginning - though gender quotas on corporate boards had become a talking point back in 2003 itself, with Norway making it compulsory for a 40 per cent quota for women on its country’s corporate boards. Most other EU countries followed suit, with the European Commission stating that it would aim for a 50% female board by 2024.

Considering that the traditional caregiving roles women still play within Indian families, which deter them from rising in the workplace, many assumed that Corporate India would respond to this mandate only with tokenism. But when the authors of an HBR article analyzed how NIFTY 500 firms from 2013 complied with The Companies Act 2013, it emerged that the 303 firms (60.6%) that had no women on their board in 2013, moved fast, and by 2017, 82.8% of them had appointed a single woman to their board. Better still, 13.6% of these firms had two or more women on the board.

With women directors to look up to at the top, younger women lower on the corporate ladder could at least visualize a future leadership role for themselves. By fuelling their dreams/ambitions, it is hoped that the ‘leaky bucket’ syndrome (droves of women leaving the workforce just as they enter middle management, which often coincides with child-rearing responsibilities) could be avoided.

In some ways, Indian firms scored better than their Nordic counterparts. While trailblazing Norway had set the ball rolling a decade before India got into the act, the authors found that a small group of women in this Nordic country became directors on multiple boards. In contrast, India’s 2013 Companies Act attracted a bigger pool of distinct and highly qualified women to the boardroom.

The Business Case for Ethnic & Cultural diversity

While McKinsey found that companies with more than 30 per cent of women executives outperformed companies with the least women executives by as much as 48%, things improve even more dramatically when ethnic and cultural diversity rates are also high.

Companies in the top-quartile for ethnic/cultural diversity hiring outperformed those in the fourth/bottom quartile by 36 per cent in profitability in 2019, up from 33 per cent in 2017 and 35 per cent in 2014. As was earlier reported, the likelihood of outperformance is higher for ethnic diversity than for gender diversity.

So imagine how well a business that reports higher gender AND ethnic diversity will do, compared to its competitors! The business case for true diversity & inclusion had finally been vividly showcased.

Ethnic and social diversity hiring in corporate India

The Business Standard featured a study done by IIM B faculty that paints a dismal picture regarding this parameter in India. Studying the Indian Institutes of Management (IIMs) alone, they found that these premier institutions, funded by the state and feeding talent to the best Indian firms, scored very low on ethnic diversity.

Out of 642 faculty members covered by this data, only two were from the Scheduled Castes (SC) group, and only one was from the Scheduled Tribes (ST) group (and 13 to the OBC group). With premier management institutions not turning out talent from traditionally marginalized groups, corporate India doesn’t hire people from these groups and the cycle of exclusion worsens.

Just as Nobel laureate economist Amartya Sen studied data over 4 decades before he announced the tragic number of “missing girls” due to sex-selective abortions. A four-decade record of mismanagement at IIMs’ doctoral programmes has resulted in the high number of missing students, scholars and hence managers from marginalised communities.

How lack of diversity impacts not just businesses, but lives

In her book, ‘Invisible Women: Exposing Data Bias in a World Designed for Men’ Caroline Criado Perez lists out some chilling outcomes when the Product Design function is staffed only by men.

• To begin with, the average car is designed for the average Caucasian man – so women (as well as many non-Caucasian men) need to lean forward to drive, and often struggle to reach the foot pedals. Hence, during accidents, when the airbag opens up, it often harms women rather than protect them. So lack of ethnic and gender diversity in the design stage sets up women to be 17% more likely to be seriously injured in a crash.
• Women police officers across countries complain that the protective gear given to them is designed for men’s figures and large frames. Often, wearing these ill-fitting and hence not-quite-protective gear leads to the wearers developing chronic back problems or injuring themselves
• The list goes on – lack of diversity in medical schools often means that vast reams of data is collected mainly for ‘men’s’ diseases. This research is typically better-funded and hence results in cures being discovered. Women’s diseases on the other hand languish due to a lack of funding and hence remain less researched.
• The average smartphone is about 5.5 inches, comfortable enough for the average man to use it with one hand but that size means the average woman needs both hands free for the phone. This is in spite of market data showing that women buy more iPhones than men do! Yet Apple, that beacon of ‘product design’ hasn’t designed a phone that’s the right size for its biggest demographic!
• With voice-activated commands in cars and in homes designed to respond to ‘the average man’ woman drivers sometimes find their car's voice-command system only responding to their husbands!

 

So yes, keeping your diversity quotient high means higher profits, newer markets and innovative, safe products for ALL your customers.