The Power of Diversity: McKinsey’s Latest Report Reinforces the Business Case for Inclusive Leadership

Feb 5, 2024

Compass with needle pointing the word leadership with blur effect plus blue and black tones.
 

In an era where corporate social responsibility is no longer just a buzzword but a fundamental aspect of successful business strategies, McKinsey’s latest report, “Diversity Matters Even More: The Case for Holistic Impact,” underscores the undeniable link between leadership diversity and company performance. Spanning nearly a decade of research, this comprehensive analysis of 1,265 companies across 23 countries and six regions provides compelling insights into the evolving landscape of diversity in corporate boardrooms.

A strengthening business case
The report reveals a remarkable strengthening of the business case for diversity, with gender diversity on executive teams now showing a 39% increased likelihood of financial outperformance compared to a decade ago. Ethnic diversity, too, displays a consistent 39% increased likelihood of outperformance. McKinsey’s findings illuminate a positive correlation between diverse leadership and financial success, marking a paradigm shift in how companies approach their commitment to diversity.

Diversity in leadership teams goes beyond financial gains; it correlates with higher social and environmental impact scores. Companies with diverse boards and executive teams are more likely to have positive holistic impacts. As explained in the report, the notion of “holistic impacts” emphasizes the interests of a wider set of stakeholders, including employees, customers and investors. It also emphasizes social and environmental goals as well as sustainable, inclusive growth.

Equitable representation progress
While the progress in gender representation is evident, with some companies achieving gender parity, there remains a substantial gap in ethnic representation at the highest levels of corporations. The report highlights the importance of not only gender diversity but also equitable ethnic representation to unlock the full potential of diverse perspectives.

Five levers for change
To turn diversity commitments into tangible actions, the report suggests five strategies: 

  1. Commit to a systematic, purpose-led approach to benefit all stakeholders: Companies are advised to position and actively pursue their DEI goals as integral to their mission and embedded in their strategic objectives. 
  2. Embed your strategy in company-wide business initiatives while tailoring to local context: Although DEI strategy is usually formed at the top, empowering local teams to adapt to local contexts is crucial for fostering ownership and impact. Implementing test and learn cycles for DEI initiatives in specific localities before corporate-wide rollout supports broader DEI goals. Adopting a “global-local” approach requires leaders to establish open communication lines in order to gain a profound understanding of their workforce, community and customers and facilitate the transition of DEI from abstract ideals to tangible actions.
  3. Prioritize belonging and inclusive practices to unlock performance: Effective diverse representation thrives in a culture of inclusion and belonging, essential for retaining diverse talent, fostering innovation and emphasizing customer centricity. This supportive environment involves promoting inclusive leadership as the norm through management training and accountability. Additionally, providing robust support to affinity and Employee Resources Groups (ERGs) enhances employee satisfaction.
  4. Embolden and activate champions and allies by providing adequate resources and support: Individual leaders, especially women, often receive less recognition and official rewards for their DEI efforts, encompassing inclusive leadership, allyship and employee wellbeing. Companies can foster the success of these leaders by acknowledging and creating a supportive environment. Support measures may involve mentorship, sponsorship and the promotion and celebration of allyship. To encourage DEI contributions and prioritize employee wellness, companies can incorporate these aspects into leaders’ performance evaluations.
  5. Act on feedback, including dissenting voices: Establishing a culture of feedback on DEI strategy is essential. Workforce and stakeholder input through routine internal pulse surveys and external social listening can offer valuable insights, highlighting strengths and areas for improvement. Recognizing the importance of dissenting voices is crucial for identifying the root causes of challenges and optimizing the impact of the DEI strategy.

These levers aim to create a comprehensive and sustainable framework for achieving diversity goals, though the report emphasizes the need for tailored approaches based on specific contexts.

Case studies
The inclusion of case studies in McKinsey’s report provides practical examples of successful diversity initiatives. These case studies demonstrate the importance of a holistic approach, inclusive practices and a genuine commitment to diversity, equity and inclusion.

  • IHG Hotels & Resorts, despite challenges from the COVID-19 pandemic, maintains a strong commitment to DEI. Their global-local approach allows for flexibility and innovation at the regional level, with local leaders piloting and adapting DEI strategies based on regional nuances. Regular DEI councils facilitate open communication, allowing global executives to receive feedback from local leaders. IHG tracks diversity and inclusion globally, tailoring approaches to local contexts, and employs an inclusion index to identify and address specific areas that may require extra attention. This interconnected strategy empowers employees at all levels to drive positive DEI initiatives, emphasizing the importance of keeping inclusion at the core during economic shifts.
  • DHL Group prioritizes employee belonging in its approach to DEI, going beyond traditional metrics. The company embraces a broad definition of diversity, including aspects like gender identity, cultural heritage, abilities and religion. DHL Group aims for a culture where employees can bring their whole selves to work. The focus on belonging is aligned with the company’s values and mission, creating a sense of inclusion and fostering a virtuous cycle. Regional and cultural particularities are considered, ensuring alignment with the organization’s broader strategic approach to being an employer of choice worldwide.
  • Air New Zealand (Air NZ) emphasizes DEI with initiatives such as employee networks based on gender and ethnicity. To ensure meaningful impact, the company evaluates its actions and engagement with the community. Air NZ collaborates with schools, nonprofits and educational institutes to expand its talent pool and enhance DEI awareness. In addressing gender stereotypes in professions like piloting, the company conducts outreach programs in schools. Recognizing ethnic inclusion challenges, especially in upper management, Air NZ partners with community organizations for leadership programs that prioritize cultural confidence and identity discussions. Changes in the promotion process have led to increased diversity in leadership roles, contributing to a cultural shift within the company.
  • Edison International is dedicated to advancing DEI not only within the organization but also throughout its supply chain and the broader community. The company’s commitment to being a good citizen extends to all stakeholders, emphasizing positive impact at various levels. Internally, Edison International prioritizes transparency, tracking and sharing data on pay, role diversity and employee sentiments to foster accountability and pride. The company has made significant strides, approaching gender parity and ethnic fair share at the executive level. Investments in DEI extend to the supply chain, with a focus on supporting women-, minority-, disabled veteran- and LGBT-owned enterprises. Edison International collaborates with industry associations and community groups, participating in initiatives like the American Association of Blacks in Energy (AABE) Energy Equity campaign and allocating funding for a scholarship program to enhance diversity in the line-worker pipeline. The company’s inclusive culture and commitment to DEI are reflected in a high employee satisfaction rate, with 87 percent expressing pride in working at Edison.

Conclusion
McKinsey’s latest report is a wake-up call for companies to recognize the business imperatives of diversity. It goes beyond the surface-level metrics, emphasizing the need for a holistic, purpose-led approach to diversity, equity and inclusion. As businesses navigate the ever-evolving corporate landscape, embracing diversity isn’t just about doing the right thing—it’s about ensuring sustained success and positive societal impact.

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In light of McKinsey’s compelling report on the business case for diversity, companies can take meaningful action by partnering with SunShower Learning for comprehensive, skills-based DEI training. For example, our award-winning course, Inclusion in Action, teaches nine skills that can help your teams improve communication and collaboration across all dimensions of difference. As companies strive for genuine and sustainable impact, partnering with SunShower Learning can serve as a catalyst for driving DEI efforts beyond expectations, ensuring a future where inclusive leadership and broad stakeholder satisfaction are not just goals but a reality.