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Equal opportunities, missed opportunities

Equal opportunities, missed opportunities
Ashlea and Jess join the first meeting of the Women in Aviation and Aerospace council at the Royal Aeronautical Society headquarters in central London

Sharing in Growth has signed up to the Women in Aviation and Aerospace Charter, an industry initiative to redress gender imbalance, particularly at senior levels.

Although this year marks the 100th anniversary of UK women winning the right to vote, research from management consultants McKinsey underscores that there is still work to be done.

In 2007, when women held 11 percent of seats on the executive committees of Europe’s leading companies, McKinsey published its first Women Matter report. It not only argued for greater gender diversity in corporate management but also suggested how to achieve that goal. Since then, McKinsey has published more than 20 reports that have shaped the debate on gender equality in the workplace around the world.  However, progress is slow. In 2017, on average, women accounted for 17 percent of corporate-board members and 12 percent of executive-committee members in the G-20 top 50 listed companies.

Many companies strive for gender equality because it is inherently the right thing to do, but it would appear from McKinsey’s latest report that not everyone is convinced that having women on the boards drives better corporate performance.

Correlations with company performance

McKinsey put forward a business case in its early research. A global survey in 2010 found that those with the greatest proportion of women on their executive committees earned a return on equity 47 percent higher than did those with no female executive members.

Of course, a correlation does not prove causation but McKinsey’s 2018 report Delivering through diversity strengthens the link. Their study of more than 1,000 companies in 12 countries found a correlation between diversity at the executive level and not just profitability but also value creation. Those companies in the top quartile for gender diversity were 27 percent more likely to outperform their national industry average in terms of economic profit—a measure of a company’s ability to create value exceeding its capital cost—than were bottom-quartile companies. There was also a penalty for lack of diversity more broadly. Companies in the bottom quartile on both gender and ethnic diversity were least likely to record higher profits than the national industry average.

McKinsey: linking gender equality with higher performance
McKinsey: linking gender equality with higher performance

Missed Opportunity

Brand new research shows that new CEOs are missing an opportunity to create greater diversity when they reshuffle their top teams. McKinsey mapped their CEO transitions database against the strategic moves CEOs make, including management reshuffles.

The research shows that a CEO’s likelihood of outperforming his or her peers depends heavily on the mix of strategic and organizational decisions made during the first two years on the job. Management reshuffles—a critical piece of the performance puzzle for many new CEOs, according to the research—should create opportunities for new CEOs to boost gender diversity. Too few do so, however, suggesting that new CEOs, and the boards that hire them, should be asking tougher questions about diversity and asking those questions sooner than they normally do.

At the beginning of their tenures, new CEOs typically change the makeup of their management teams. McKinsey research shows that more than two-thirds of chief executives replace at least half of the members of their top teams within two years of taking office.

These management reshuffles hold the potential to serve as “unfreezing moments,” dramatically improving the representation of women at senior levels and sending a strong signal to the organization that this issue matters and that the CEO expects to increase gender diversity going forward.

However the research found that within three years, gender diversity in senior teams that new CEOs reshuffled increased by only two percentage points—raising the proportion of women in management to only 14 percent, from 12 percent. The picture of female representation didn’t improve when looking at management reshuffles over the entirety of the CEOs’ tenures.

This finding suggests that even if a dearth of women in the management pipeline limited progress during the transition period, those same CEOs didn’t change the pipeline and promotion picture during their tenures. The trend was consistent across time as well: CEOs who took charge in recent years were no more likely to promote women to senior roles than those who became corporate leaders 20 or 30 years ago. Digging deeper, the research also found that CEOs of companies that were historically male-dominated industries made the most significant improvements, while companies with above average numbers female executives were likely to see a reduction in the proportion of women in senior roles during reshuffles.

McKinsey took this finding to mean that more diverse companies tend to become complacent over time. This conclusion is consistent with a McKinsey survey that found that nearly 50 percent of men believe that women are well-represented in leadership roles in companies when they account for only one in ten executives.

Finally, the research reveals that CEOs promoted from within companies increase their gender diversity to a much greater extent, on average, than those hired externally. The difference is stark: internal CEOs raised female representation on management teams by nearly six percentage points more than external CEOs, who kept gender ratios stable, on average. Again, this is also the case when looking only at the female CEOs.

Looking at CEO transitions more broadly McKinsey found that CEOs hired from outside companies were typically bolder in the number of strategic moves they made early in the game. As a result, they outperformed other CEOs over their tenures, on average.

The report concludes: “The apparent divergence between bold strategic moves, on the one hand, and a lack of corresponding boldness in addressing gender issues, on the other, may result at least partly from the difficulties some leaders face in overcoming unconscious bias among other members of the top-management team. CEOs promoted from inside tend to know where the talent is, and that helps them mitigate the impact of biases among other senior executives. External appointees are less likely to have the same richness of information and may therefore find themselves defaulting to male-skewing conventional picks recommended by other leaders or the board. Of course, both inside and outside CEO hires are also susceptible to—and must guard against—their own unconscious biases. “

Tough questions

McKinsey recommends that CEOs who aspire to create an inclusive culture that drives significant progress on gender diversity must ask and answer several difficult questions:

  • How do I communicate the economic and strategic imperative of creating a diverse top team and make this a shared goal throughout the organization?
  • What specific measures to improve gender diversity are appropriate for my organization, and how will I ensure that they take effect lower down the ladder?
  • How do I make sure that women are moving into roles with profit-and-loss responsibility, as well as roles overseeing support functions, to prepare them for broader executive roles?
  • How can I accelerate the pipeline of female talent while ensuring that fast- tracked women are supported and helped to succeed?

To find out more about McKinsey’s research and insights to stimulate or accelerate change please click here.