How the world’s most admired companies drive D&I

Although many organizations have made great strides in becoming more diverse and inclusive, news headlines demonstrate how far we still have to go before all employees have full opportunities to contribute and succeed and workforces reflect the demographics of society.

The #MeToo movement has spread far beyond the entertainment industry and has shed new light on the challenges women face in the workplace and why it’s imperative that organizations establish strong policies to protect employees from negative behaviors.

In the wake of an incident at one location last year, Starbucks–which scores high on D&I–shut down all its stores for several hours on May 29 to conduct racial-bias training for its employees, an action that underscored the problem of unconscious bias in the workplace and throughout society.

Despite their best efforts to become more diverse and inclusive, organizations sometimes are their own worst enemy. Companies as disparate as Papa John’s Pizza and Fisher Investments have experienced substantial business losses following unacceptable remarks by their founders.

The negative headlines reflect a broader truth: workplace bias–both overt and unconscious–continues to impede the hiring, development and promotion of underrepresented groups.

All told, workers filed over 76,000 complaints with the U.S. Equal Employment Opportunity Commission in 2018, with charges of retaliation accounting for just over 50% of complaints, followed by discrimination based on gender or sexual orientation, disability and race.

A McKinsey report, Women in the Workplace, which included input from 279 companies, concludes that progress on gender diversity has stalled. For more than 30 years, the report states, women have been earning more bachelor’s degrees than men. They’ve been asking for promotions and negotiating salaries at the same rates as men. And, contrary to conventional wisdom, women are staying in the workforce at the same rate as men.

Yet, despite all this, women continue to be underrepresented in all levels of management.

The lack of progress is even more stunning in light of the overwhelming evidence that diverse companies are more productive, innovative and perform better financially. Studies show that diverse management teams:

  • are 33% more likely to generate better-than-average profits;
  • are 70% more likely to capture new markets; and
  • generate 19% more revenue from innovation than companies with below-average leadership diversity.

Diversity is no longer just a matter of regulatory compliance or even social justice. It’s a clear and present business-performance issue. Organizations that lag behind their competitors in diversity will find it more difficult to attract top talent, break into new markets, innovate and build a good reputation among employees, customer, and outside stakeholders.

World’s Most Admired Companies

Companies that are on the forefront in becoming more diverse and inclusive are more effective at leveraging their efforts to drive business strategy and performance.

For many years, Korn Ferry has produced a list of companies that are “Most Admired for HR” for Human Resource Executive. Each year, we focus on a specific best practice that distinguishes the best companies from the rest. This year, appropriately, the focus is on diversity and inclusion.

Our research showed that WMACs (scoring among the top three in their industries in the Fortune “World’s Most Admired Companies” rankings) differ from their peers (companies also participating in the rankings but scoring lower) in several key areas:

WMACs hold leaders accountable for driving diversity and inclusion:  All leaders and line managers are expected to articulate the importance of diversity and inclusion across the organization and to drive measurable results in their business units and departments. WMACs view D&I achievements as a differentiating competency that aspiring leaders must possess to rise in the organization.

Seventy-four percent of WMACs say senior-leadership scorecards reflect a “real commitment” to diversity and inclusion, compared with 66% at peer companies. Similarly, 87% of WMACs view inclusive leadership as a differentiating competency, versus 79% at peer companies.

WMACs are more effective at connecting diversity and inclusion to business performance: WMACs link diversity and inclusion to the organization’s mission, business strategy and performance goals. They view D&I as central to the company culture and a significant driver of financial value.

Ninety percent of WMACs report that diversity and inclusion are an important strategic focus–versus 83% in peers–and 73% of WMACs utilize metrics to measure and evaluate the impact of diversity and inclusion on business performance, compared with 67% in peers.

Pay equity is a focus of WMACs: Managing pay equity effectively builds trust in leadership, increased engagement and reduces turnover. Inequities in compensation, on the other hand, can lead to employee dissatisfaction and a higher risk of litigation, union issues and shareholder disapproval.

Eighty percent of WMACs monitor pay equity globally, versus 77% of peers. By a slightly larger margin–77% to 72%–WMACs analyze the root cause of pay-equity disparities.

WMACs do a better job of mentoring and sharing diversity success stories: Our research has shown that the primary driver of “headline” pay gaps is an imbalance in the distribution of women and underrepresented groups across levels, functions and sectors. Accordingly, the underlying challenge is building talent pipelines. At organizations lagging in diversity, developmental practices often perpetuate the existing make-up of the workforce rather than foster diversity. WMACs specifically target women and other underrepresented groups for development.

Eighty-one percent of WMACs have formal developmental programs for women and 77% for other underrepresented groups, compared with 73% and 71%, respectively, at peer companies. Eighty-four percent of WMACs share female success stories and 81% share success stories of other groups, versus 78% and 74%, respectively, at peers.

WMACs embed diversity and inclusion throughout the organization: To create a truly diverse and inclusive organization, everyone must be involved. While it’s the responsibility of top leaders and managers to set the tone and example, all employees must understand the business case for D&I and embrace inclusion in everything they do.

Seventy-eight percent of WMACs report they effectively communicate their D&I strategy to the workforce, versus 73% of peers, and 82% say their D&I initiatives are effective, against 74% of peers.

Building Sustainable Inclusion

Inclusion allows organizations to maximize potential of their talent and deeply engage with diverse customers. To build a truly inclusive organization, companies need to start by understanding the experiences of their diverse employees and customers. They need to have strong inclusive leadership capabilities at the top. Leaders need not only to role model inclusive behaviors, they must also act as inclusion architects and design and build organizations for inclusion.

In addition, organizations need to focus on both structural and behavioral inclusion. In the same way that effective traffic flow requires both good drivers and good infrastructure, effective inclusion requires both structural (processes, polices, practices and, increasingly so, algorithms) and behavioral elements. This duality must be enabled by a shared responsibility between individuals and the organization. Individuals drive their development and performance, while the organization removes systemic barriers, ensures bias-free decision-making and purposefully builds equity across the entire employee experience. Like any critical business area, D&I must be approached with scientific and analytical rigor. Leaders’ decisions and actions must be informed by data, analytics and verifiable research; only then can organizations achieve measurable progress in addressing complex D&I challenges and opportunities.

Sustainable Inclusion

Notably, WMACs’ top three D&I objectives are building teams and talent processes that reflect markets and customers, optimizing team performance and enhancing their competitive advantage in the marketplace.

To help organizations understand where they are in their D&I maturity, we have built a model that identifies five key dimensions of D&I efforts (Compliance, Awareness, Talent Integration, Operations Integration, Market Integration); the benchmarks that must be met within each dimension; and the behavioral and structural changes that are required to make their D&I achievements sustainable.

Each of these five dimensions contains behavioral and structural inclusion elements. Behavioral-inclusion initiatives are intended to create inclusive mindsets, skill sets and relationships. Structural-inclusion initiatives are intended to build equitable and transparent structures, processes and practices that work for all employees and customers.

Within each of these dimensions, progress is plotted for both structural and behavioral initiatives from basic to progressing to advanced to leading edge. At the basic level, the D&I initiative is contained within a single department or function. At the leading edge, the initiative is fully embraced by the CEO, leadership team, managers and employees.

D&I Maturity

Here is a brief description of what “leading-edge” success looks like for each dimension in our model:

Compliance: The HR group, top leaders and the board proactively monitor D&I risk and enforce consequences for anyone–regardless of their position–who violates organizational policies and values. Leaders and HR executives effectively deal with power dynamics and negative behaviors, and all employees feel comfortable reporting abuses.

Awareness: Diversity and inclusion is enshrined as a top leadership priority and a core value. Metrics are established to measure progress, and employees are recognized for D&I achievements. Leaders passionately advocate for D&I and consistently display inclusive behaviors. All employees take part in diversity and inclusion learning journeys.

Talent Integration: Diversity and inclusion is fully integrated with the talent-management strategy, including recruitment, employee development and promotions. Inclusive behaviors infuse the entire talent-management lifecycle and all key talent decisions. The organization builds relationships with diverse professional groups to identify and recruit talented individuals.

Operations Integration: Business leaders are responsible for integrating diversity and inclusion in the operations ecosystem to improve performance, innovation and problem solving.  Leaders and managers role model inclusive leadership skills and make sure that teams are diverse and operate in an inclusive manner.

Market Integration: Reaching out to diverse customers is considered part of the organization’s brand. Diversity and inclusion is embedded in sales, marketing and customer-service functions. Leaders and employees develop cross-cultural knowledge and competencies and display those skills both internally and when communicating with customers and partners.

Apple’s Story

The No. 1 company on our list of Most Admired Companies for HR, Apple Computer, provides a constructive example of how a committed leader can build a more diverse and inclusive organization while at the same time fostering a culture of innovation and improving financial performance.

When Tim Cook took over as CEO of Apple in 2011 from Steve Jobs, the major question on the minds of investors was how Cook could match the performance of Steve Jobs–arguably one of the greatest innovators in business history.

A passionate believer in diversity, Cook appointed three women to the executive team, recruited directors from underrepresented groups, transformed hiring practices and launched an annual inclusion and diversity report, which he shares with the public.

Since 2014, the percentage of new hires at Apple who are female increased from 31% to 36%, and the number of females among the under-30 age groups increased from 31% to 38%. While those numbers may seem modest, Apple is now considered at the top of the list for D&I within the tech sector. Other tech companies reportedly are following Apple’s lead.

Apple’s financial performance under Cook has been stellar. In 2018, Apple earned $265.6 billion, the highest annual revenue in the company’s history. The share price has gone from $53.39 when Cook took over to $249 in late 2019.

Apple’s D&I progress–in terms of numbers–has been slow and steady. But it’s clear that Cook has transformed the culture and elevated Apple’s social brand.

Apple has proven that a thoughtful, genuine and sustained commitment to D&I, as well as full integration of D&I into talent and business practices, ultimately will deliver results.

Nathan Blain, Mark Royal and Melvyn J. Stark
Nathan Blain is senior client partner and global leader for organizational strategy and digital transformation at Korn Ferry. Mark Royal is senior director at Korn Ferry. Melvyn J. Stark is senior client partner at Korn Ferry.