As seen in Citybiz
By Pay Wu, President, MWBE Unite
Ingredients for Leadership in Uncertain Times
In these uncertain times, within a combination of economic shapeshifting and digital transition, diversity in corporate leadership and boards has never been more crucial. While post pandemic statistics point to erosion of women and minorities in the workforce, improvements continue to be made at the c-suite and board levels.
While improvements have been made to increase the number of women and minorities serving in senior management roles, statistics reveal that the percentage is still disproportionate compared to the population size of each respective group.
Despite the number of women CEOs and CFOs being at its highest level ever, women are still underrepresented in the upper echelon of senior management across the US workforce. In 2021, despite representing 54.3% of the US workforce, the proportion of women employed in senior management positions was only 35%.
In 2021, only 21% of all S&P 500 directors were from underrepresented racial and ethnic groups.
Furthermore, members of the Latinx/Hispanic ethnic community are still underrepresented in leadership positions. Those who identify as Latinx/Hispanic are the largest ethnic minority group in America, representing 18.5% of the total population. Yet only 20 serve as Chief Executive Officers (CEOs).
While Asian-Americans are widely considered overrepresented in both low-paying and high-paying professions in the U.S., that representation decreases at higher levels of corporate America. According to a 2022 study by McKinsey, the earnings of Asian American women dropped 80% at the board of directors level, representing a lack of representation by Asian American women at the higher echelons of corporate America.
Despite statistical evidence that the number of Black CEOs and CFOs has increased since 2021, the numbers increased only slightly over the past eighteen years, from four to seven. This statistic indicates that those who identify as Black, 13.4% of the American population, are still underrepresented in senior management positions.
Leading the way out of the current environment will require diversity of thought, varying perspectives and backgrounds, cultural sensitivity and asking, as well as answering questions from diverse points of views. That’s why the best board and leadership bodies are the most diverse. Diversity in the boardroom offers several benefits to the board. These include:
- Improved decision-making
- Access to a wider pool of talent
- Better customer insight
- Enhancement of investor relations
- Stronger corporate reputation
- Improved corporate governance
Board Diversity is Good for Business, Consumer, Stakeholders, Community and Workforce
Many different variables come to mind when attempting to describe and define diversity, such as age; ethnicity; gender; skills; experience; competencies; philosophies; race and religion. According to a recent study from McKinsey & Company, for companies ranking in the top quartile of executive-board, “Returns on Equity” were 53 percent higher, on average, than they were for those in the bottom quartile. The study showed that diversity and the wide range of perspectives that accompany it are critical to good corporate governance and true diversity must reflect the real world.
Research also shows that diverse teams are more thorough and examine more fact-based questions. Bringing perspectives within a group fosters tackling ideas from many angles. Great ideas emerge when board discussions disrupt common thinking patterns. New perspectives drive companies to consider and be open to the needs of a wider array of people and consumers. Getting multiple opinions is good common sense and surfaces risks and consequences of decision making regarding complex issues.
We live and work in a world in which there are often no clear answers. Boards need members with a range of experiences to help them anticipate change, assess risks, and discover opportunities. There may be more than one right answer, and varying viewpoints result in more meaningful, strategic decisions. The outcome of having a diverse board will result in productivity, sustainability, an improved brand and reputation.
Globally, the trends toward stakeholder capitalism indicate that businesses have diverse clients, customers and constituents/communities and therefore it’s important to have diverse voices with a seat at the table helping to shape the future directions of the company. Board diversity improves the quality and objectivity of the decision-making process by bringing new voices to the table, to the debate and to the decisions. It fosters innovation, creativity and a better understanding of customer insights through a greater variety of problem-solving approaches, perspectives and ideas.
Adopt an Open attitude to Board Diversity
Inclusive and diverse boards are more likely to be effective boards. Board diversity is a source of competitive edge in this globalized economy and a key enabler of growth and value creation. While more than half of various Board Members view board diversity efforts as driven by political correctness, inclusive and diverse boards are more likely to be effective boards.
Challenges to board diversity come both from within and outside the boardroom. Board members should adopt an open attitude to board diversity and welcome a more diversified and heterogeneous board. A key ingredient of good corporate governance, board diversity can be a leadership challenge – but a true value.