Is now the time for our UK smaller companies to embrace diversity and blaze a further trail of innovation and creativity? As the battle to find and retain key staff intensifies, can tapping into more diverse talent pools help not only meet new and complex competitive challenges, but also improve future recruitment and retention?
With the FTSE 350 under the microscope and subject to greater scrutiny, should our UK smaller companies collectively and voluntarily subscribe to a new Gold Standard of diversity and inclusivity?
A recent report from the Department for Business, Energy and Industrial Strategy (BEIS) makes for shocking and uncomfortable reading. But this could be an opportunity for smaller companies to differentiate themselves from much larger businesses. Smaller companies are typically more agile and entrepreneurial, and by being nimble and open when dealing with diversity and inclusivity, they could set new standards for UK plcs, presenting themselves as a force for good and helping to drive corporate creativity, innovation, profitability and shareholder value.
With the above in mind, what should trail-blazing boards be considering?
Managing and mitigating reputational risk
With the growth of social media, boards increasingly understand the need to manage their public profile. They are also more aware of the need to reflect society as a whole, and the clients/markets they serve. Similarly, investors are now more in tune with the diversity agenda meaning shareholders can, and do, exert pressure on boards to become more inclusive.
Risk could be minimised by taking clear action evidencing a commitment to diversity and inclusion. Examples would include:
- Adopting and actioning clear policies around recruitment processes to promote diversity and minimise the risk of unconscious bias, e.g. gender-neutral job descriptions, anonymised shortlists;
- Understanding in detail any ‘diversity’ pay discrepancies and having corrective action(s) in place, e.g. clear pay bands and KPIs;
- Implementing targets and objectives around future board and senior leadership composition; and
- A longer-term focus on building a more diverse executive talent pipeline, feeding future board appointments, and creating diversity at leadership/sub-leadership levels.
How to enhance performance and foster innovation
As McKinsey said in their seminal work Diversity Matters: “We know intuitively that diversity matters … it’s also increasingly clear that it makes sense in purely business terms.” In essence, McKinsey found that companies in the top quartile for gender or racial and ethnic diversity were more likely to have financial returns above their national industry medians. Companies in the bottom quartile however, were less likely to achieve above-average returns.
They also found that diversity was a competitive differentiator that shifts market share toward more diverse companies over time.
A big ‘take away’ from McKinsey – which neatly segues into our discussion around more diverse boards and sustainable talent pipelines – was the impact of having a more diverse team at senior levels. In short, they found that when companies commit themselves to diverse leadership, they are more successful. They argued that more diverse companies “are better able to win top talent and improve their customer orientation, employee satisfaction, and decision making, and all that leads to a virtuous cycle of increasing returns.” This suggests that other kinds of diversity (age, sexual orientation and experience) can bring a level of competitive advantage in attracting and retaining such diverse talent.
For those companies going through some kind of significant change or transformation, a more diverse workforce may be essential. A major shift in business model may require fresh attitudes, or a culture shift, both of which can be facilitated by an influx of talent which sits outside the existing corporate and demographic norm.
In the main, shareholders and customers alike want to be stakeholders in, or engaged with, companies who believe in what they do, share their values, are genuine, progressive, and practice what they preach. Doing something voluntarily is very different to merely box-ticking or fulfilling a quota. In extreme cases it is the difference between commitment and tokenism.
Diversity is on the agendas of customers, investors, interested outside parties, the media and various stakeholder groups. It is here to stay, is a force for good, and should be embraced warmly for all the benefits it can bring.
This article was written by Michael J Brennan, Chief Executive Officer of Norman Broadbent Group plc.