The Diversity Domino Effect

The emphasis on diversity during this year’s AGM season is noticeable and a welcome new trend.  Not only does it highlight that a critical issue is being addressed at the highest echelons of management and amongst institutional investor power brokers, it also points to the ability of boardroom activism to effect change.

Notably, Legal & General Investment Management broke ranks to say it would vote against chairs of FTSE 350 firms if less than a quarter of the board is female. It also launched the Girl Fund, short for the L&G Future World Gender in Leadership UK Index Fund, which will focus on investments in companies where there is a good gender balance on the board of directors as well as at executive level, in management and across the workforce. It will expect companies to reach a minimum of 30% representation of women across all four tiers.

This pressure from institutional investors is the beginning of what we’re calling the ‘Diversity Domino Effect’ (DDE), which will benefit organisations with a clear vision of why diversity and inclusion matters – but will be disastrous for those that fall behind. We’ve identified the DDE as a series of five stages that follow on from each other in a recognisable sequence, starting with lack of investment and ending with the erosion of trust in an employer.

Let’s start with the first domino, pressure from shareholders. It’s not just institutions like Legal & General Investment Management that are encouraging boards to change their ways, but activist retail investors too. Now that it’s generally accepted in the US (and increasingly in the UK) by way of McKinsey & Company that more diverse boards equal superior commercial success, retail investors are joining institutions to call for improvements and an end to group think.

The second domino is regulation and government guidance. The recent gender pay gap reporting exercise has helped expose organisations who don’t necessarily pay women different pay for the same role, but who seem to have a problem promoting women into senior roles, where salaries are higher.

Other notable initiatives include Race in the workplace: The McGregor-Smith review, which made 26 recommendations on areas such as raising transparency and celebrating success to help increase black and ethnic minorities’ participation and progression in the workplace.

While we would all agree that recommendations are one thing and action another, such reports serve to highlight companies and industry sectors where the problem is particularly acute. This brings us on to the third domino, namely reputational damage caused by non-compliance with regulation or government guidance. It’s interesting at the moment to see brands called out for poor diversity and to think – actually, I’m not really surprised, they have a reputation for not treating people well generally.

This naturally sets up the fourth domino to be knocked down, which is an organisation’s client or customer base. The rapidly escalating move to appoint a head of diversity to the board of directors could be seen as progress, as long as it is followed through with actual inclusion and an effort to ensure everybody reaches their full potential.

Sadly though sometimes these announcements can be mainly cosmetic, if not downright cynical, designed to assuage client or customer fears that an organisation is not progressive in its views on diversity. Trying to earn good publicity on the back of one protected characteristic while ignoring lack of progress on another is not sustainable.

We have all witnessed serious failures by companies who couldn’t see the wider picture and understand multiple viewpoints when making decisions about product marketing, presumably because they have people with homogenous backgrounds at the decision-making level.

The final domino to fall is an organisation’s attractiveness as an employer. If a company or public sector institution has not thought about the benefits of diversity and inclusion already, if it is sticking to the tried and tested merry-go-round of senior executives without considering a wider pool of candidates, and if it is failing to provide a level playing field for all employees to progress to a senior level once they are persuaded to join, then they will be in serious trouble in the very near future.

That’s because it takes time to build the fairest, most inclusive workforce without any trace of institutional bias. In research undertaken by Green Park last year, we found that 82% of ethnic minority leaders believed there is institutional prejudice against minorities in the UK, while 20% had personally experienced workplace discrimination.

If all organisations do is approach the usual high-profile suspects so they can tick the diversity box, that will not protect them from the DDE. They need to be trusted by investors, customers and employees alike, because of genuine, well-thought through action plans or face the very real risk of failure.

I’m proud to say that Green Park predicted this need for radical change 10 years ago and it’s satisfying to see diversity and inclusion rise up the board agenda at last. However, it should also be stated that there are only a handful of recruitment partners that can honestly say they have genuine networks drawn from the widest talent pools – and that can help organisations move forward with their diversity strategies.