Since the wake of the COVID-19 pandemic, inclusion and diversity (I&D) within companies has become more important than ever. Companies that prioritise I&D as a moral and business imperative are best placed to outperform in the post-COVID-19 world. For companies with diverse representation in executive and senior leadership teams, the likelihood of outperforming their industry peers on profitability has increased over time. Contrastingly, the penalties are steepening for companies lacking diversity. Such findings are underpinned by McKinsey’s largest data set to date, which covers over 1,000 large corporates located in 15 countries. Through evaluating online reviews, and gaining insights into employee sentiment within corporates, this report reveals the urgent attention to I&D matters required by companies.

The relationship between board diversity and business performance is increasingly clear. McKinsey’s expanded 2019 dataset reveals companies whose boards are in the top quartile of gender diversity are 28% more likely than peers to outperform financially. While correlations between board diversity and financial outperformance on EBIT existed in previous years, they were not statistically significant; now they are. This difference in significance could be linked to the notable uptick in female representation on boards in recent years.

The proportion of companies in the data set with zero non-majority representation in their executive teams, is a telling measure of the lack of progress in increasing ethnic and cultural diversity. In the United States this is 31%, in the United Kingdom 58%, and in Brazil 73%. As such, a significant opportunity exists for numerous companies that have fallen behind on this measure. By increasing ethnic and cultural diversity in senior leadership teams, in addition to gender diversity, companies could potentially reinvigorate financial performance and growth.

Global investment bank Citigroup is an example of a corporation that is strengthening equality of opportunity, placing a no-nonsense I&D agenda, accountability, and transparency, at the forefront of its business strategy. Citigroup improved from 8% gender diversity on its executive team in 2014, to over 30% in 2019. In September 2020, Citigroup appointed Jane Fraser as the company’s first female Chief Executive Officer. The company attributes its progress in achieving gender diversity at the executive level to its focus on three key areas: targeted recruitment, development and retention, and promotion paths and processes.

Analysis of diversity winners in McKinsey’s data set, alongside insights from research on companies’ I&D efforts, has helped identify the winning actions and practices of I&D winners. Companies must deploy a systematic approach with a clear rationale for I&D linked to business strategy, set and cascade evidence-based targets, and engage and empower key business leaders in the effort.

Not only do diversity winners articulate a business-driven case for I&D and set general representation targets, but they also consider what forms of multivariate diversity to prioritise. For example, through advancing diverse talent specifically into line-management roles – not merely addressing leadership appointments, but also fixing the “broken rungs” of the corporate ladder – companies can ensure a representation of diverse talent at all levels of the business.

1. Diverse companies are more likely to financially outperform their peers. The penalty on financial performance for lagging on gender diversity is increasing, while top-quartile companies are more likely to be at an advantage.
2. The business case for ethnic diversity on executive teams remains strong. Despite this, ethnic diversity appears to have been less of a focus than gender for many companies – hence the slow progress.
3. There is a widening gap between I&D leaders and laggards. One-third of firms tracked since 2014 achieved real gains in executive team diversity. However, approximately 50% have made little or no progress and, within that, several firms have seen gender and ethnic minority representation decline.
4. Promoting diversity does not ensure a culture of inclusion. A social listening approach was undertaken to analyse employer reviews posted online. While overall sentiment on diversity was positive (52% positive versus 31% negative), sentiment on inclusion was the opposite (29% positive vs. 51% negative).
5. The business case for gender diversity is likely stronger in advanced economies where markets are typically more efficient, and the I&D agenda is often more advanced at a national level. Companies in lower-parity emerging economies can gain insights from progress and mistakes of their peers in more developed markets.
6. I&D winners not only address diversity at the executive and board levels but crucially focus on advancing multivariate diversity, including increased representation of women in line-management and technical roles. Achieving multivariate diversity entails making hiring, appointments, and succession planning fair, with appropriate targets, diverse slates, and talent process changes.
7. Placing key business leaders and managers at the heart of I&D efforts is critical in fostering an inclusive culture. I&D winners are going beyond typical unconscious bias training to make inclusive leadership a core competency outlined in job descriptions, assessed in performance reviews, supported by capability-building, and exemplified by business leaders.
8. I&D winners enable equality of opportunity through fairness and transparency and minimising bias in their decision making. This involves using analytics tools and internal qualitative research to build visibility into the extent to which promotions and pay are transparent and fair.
9. I&D winners possess a zero-tolerance policy for discriminatory behaviours such as bullying, sexual harassment, and microaggressions. Of the utmost importance is congruence between policies and actions to support victims and apply consequences to perpetrators. Lack of such crucial congruence is common and has a detrimental impact on inclusion.
10. The report details a sentiment analysis methodology adopted for this study, including publicly available data from 1039 companies across 15 countries globally. The data covers the period December 2018 to November 2019.