Posts tagged ‘Diversity’
New research: Companies with diverse leadership yield higher profits
Let’s start with the good news: The conclusion. The companies in Denmark with the most diverse leadership earn on average 12.6 percentage points more than the companies with the least diverse leadership. Not only that, the study also concludes that companies with the most diverse leadership average an operating margin that is 5.7 percentage points higher than their competitors’. On the other hand, the ten companies with the lowest degree of diversity in leadership earn an average of 5 percentage points less than their competitors. The conclusion is clear; diverse leadership yields significantly bigger profits.
How did we arrive at this conclusion? In the survey, we collected information about 6.012 leaders across 321 large and medium-sized Danish companies in Denmark. We then ranked them by how diverse their leadership is according to four diversity parameters: 1) gender, 2) seniority (meaning length of service within a company), 3) ethnicity and 4) age. We then collected operating profit (EBITDA) data on all the companies.
We got the data from three data sources:
- LinkedIn, which was used for collecting diversity data on managers within Danish companies. Almost 1.8 million Danish profiles are registered on LinkedIn, and large and medium-sized enterprises accounted for an exceedingly large share of those profiles. For each company, up to 30 profiles were obtained across management tiers categorized as ‘manager’, ‘director’, ‘VP’, ‘CXO’ and ‘Board’. Companies with fewer than nine profiles were excluded in order to guarantee a statistically valid basis.
- Bisnode, which collects a large volumes of business information from official sources such as the Danish register of companies, the Danish Business Authority and Danmarks Statistik.
- Annual reports. Finally, we collected financial data and other information from the companies’ own annual reports.
We have developed a model – Diversity Profit Chain (a modified version of the Service Profit Chain) – which is a robust explanatory model, which demonstrates how internal processes affect employees, customers
and the company bottom line. We have adapted the model so that the focus is on how
diversity in leadership influences these specific factors. The model is shown below. This is important because as you know, correlation is not the same as causality. We have linked other published studies to the model as a way to validate the conclusion of our investigation. Diversity Profit Chain can be used as the basis for any business case for diversity.
Source: proacteur, 2015
Basically, the measurable and value-creating impact is achieved in two ways:
1) diverse leadership results in a more diverse organisation, which in turn creates a number of positive outcomes for the organisation, customers and shareholders.
2) the management as a group works more innovatively, is more dynamic in its decision-making, more productive and stable if its composition is diverse. In short, leadership decisions and the effect of leadership are better.
As stated earlier, diversity impacts the entire organisation, but not only positively. In general, companies should expect more conflicts in diverse organisations and teams. Diversity is in no respect a one-way track to better financial performance, but the results are undeniable: diverse leadership influences the organisation’s financial performance in a positive direction.
We have always believed that diversity is good for business. Now we have measured and documented that the value added in terms of money actually even bigger than expected.
Download the full report: “A diverse leadership yields higher earnings” here:
Should HR introduce quota for men?
HR is primarily staffed by women. That is a fact. Whichever way you look at it, when you call HR you will most likely speak to a woman. HR is best described as a 47 year old white woman. Some have called it a “pink-collar ghetto”.
In my last blog, I asked why there are so many women in HR and I have received a number of suggestions. Some I can’t repeat here. Some have gone the “women care more about people than men”-route, others the “HR is the place to be if you are not career-orientated, which many women are not”-type of argument and others again have argued that “that’s the only areas we are allowed into”-argument.
A few (women) suggested to me that there might be discriminatory factors at play. Their line of argument goes the same way as when we are talking about the fact that there are more men in top management – women are biased towards women, men towards men. And – goes the argument- because top managers are men hire other top managers, they will hire men. And in HR the reverse is true.
I don’t know what the reason is and frankly I don’t have a strong opinion either way. What I do wonder however is; would HR be better if there was to be a more balanced gender profile in HR? Women have long argued – and provided likely evidence by way of correlations studies – that a more balanced gender profile at a leadership level (i.e. more women) – will lead to higher profits.
The trend in HR is that there will be more women in HR going forward. So if we want to reverse the trend perhaps we need to introduce more draconian steps such as introducing quota for men in HR? I am making this suggesting with a twinkle in my eye – a bit of summer fun. But play along. In Norway, a law has been introduced which states that 40% of the board members must be women for listed companies. Should we set an equal quota for men? At 40%? And what – if any – would the consequence be for HR delivery?
Why are there so many women in HR?
I know that I am probably heading into dangerous waters by asking this question; but why are there so many women in HR and what – if any – are the consequences?
In US as well as Europe, HR is totally dominated by women. In US the number is close to 70%; 71% of HR managers according to the Forbes List of the Top 10 Best-Paying Jobs for Women in 2011 and 69% of HR professionals based on a study by HRxAnalysts.
Women’s domination of HR has even extended to the CHRO ranks, despite the persistent belief that men still occupy the vast majority of the top jobs. 67% of all VP’s of HR posts are now held by women.
In Europe the picture is pretty much the same. In UK, 72% of the Chartered Institute of Personnel and Development’s (CIPD) members are women. Here in Denmark the picture is the same – just above 70% of people employed in HR are female.
What may surprise some is that the proportion of women in HR has been rising over the last 10-15 years. In UK in 1997 the proportion was 63.8% and then steadily rose to 79,3% in 2007 since when it has been flat. The same is true both in Denmark where the rise was notable between 2000-2008 as well as in US.
Numbers and statistics can sometimes be deceptive. But not in this case. Personally, when I speak to groups of HR people or meet with HR as a consultant, I will mostly meet with a woman. John Sumser said in 2011 following a large study, that “HR is a 47 year old white woman” in US. From my own experience I certainly see what the numbers are telling me.
And this picture is unlikely to change. Looking at universities across the Western World, most of the graduates in HR focused classes are primarily female. Here in Copenhagen, the HRM line at the Copenhagen Business School has 18 men and 132 women attending from what I am told. Also looking at the leadership pipeline, it is most likely that HR will continue to be dominated by women. In UK, 86% of entry level people in HR are female.
The only thing I can see that might change this picture is if HR become more data-orientated, more technology-based, more evidence-based, more financial orientated and yes, more of a science. I was at a Workforce Analytics conference in London earlier this year and most of the participants were men. I am making a lot of assumptions here, but perhaps something like WA will change things?
Why are there more women than men in HR? This is where it becomes dangerous (for me). A few suggestions are
- Some point towards genetics and biology which – goes the argument – lends itself to the female nature of caring and developing people. They argue that HR is simply more suited for women.
- Others point towards a long term trend in HR away from the hard core industrial relations (macho and male dominated) to the more developmental psychological HRM which is more feminine in its approach.
- Some say that some functions are male/female – HR being female, IT being male. The argument goes something like this; with more and more females entering the workforce, HR (together with Communications) attracted more female in the male dominated business world from which men had not intention of letting the power slip away.
- Others argue that HR simply is less discriminatory and therefore easier for women to enter.
Frankly, I don’t know what the reason is. All I can do is to conclude that there are many women in HR – a trend which has been rising for the last ten years. But why? I would like to hear your view on this one.
The final question must however be; does it matter? This is a classic question in any diversity program; will a company make more money if more of its senior leaders where women and similarly will HR be better and deliver better services if there were more men? Again, I don’t know. But I do believe in general, that the best results – in any function, department and at any level – is achieved with a balanced workforce. Is HR in balance?
The business case for diversity is strong
Companies who are implementing diversity management strategies are sometimes accused of doing it just because it is perceived to be the right thing to do or that such a soft and fluffy thing is costly . Now research show that the latter is certainly not true.
A vast amount of research show that companies which creates a diverse workplace through best practice diversity management processes significantly outperforms in financial and performance terms. In other words, it makes sense from a bottom line perspective.
A few examples:
- A US study found that the average annualised return for the 100 companies that rated highest in diversity management was 18,3% compared to 7,9% for the 100 lowest companies among Fortune 1000 companies
- A study among 700 of US’ Fortune 1000 companies showed a high correlation between number of female top management members and (financial) performance .
- A European meta-study documented that minority groups in general have lower absenteeism and lower employee turnover.
The benefits of diversity to an organisation can be divided into three categories;
- Improved performance due to a better talent pool and improved skill base.
- Cost reduction from lower recruitment costs, lower employee turnover and fewer absenteeism days.
- Various ‘soft’ outcomes such as increased learning and innovation, the avoidance of groupthink, higher job satisfaction and an overall better work environment.
Diversity management strategies are difficult to implement and it takes time and effort. But it makes sense from a business point of view.
