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10 Ways Your Business Benefits From Having a More Inclusive Leadership Team

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Is your business missing out on the benefits of an inclusive leadership team?

Despite some progress in breaking the white male stranglehold on top management positions, many companies still have poor levels of representation of minorities and women in management.

diverse leadership team
Does your business have a diverse leadership team? If not, you may be missing out on the many benefits of an inclusive management team. (Image source: Envato Elements)

Why does that matter? Well, it’s about basic fairness, of course, but beyond that, there are plenty of strong business arguments for having more women and minorities in leadership roles. 

We’ll look at ten of those arguments in this article. You’ll discover ten ways in which your company could benefit from shattering the glass ceiling, and then you’ll find out how you can go about diversifying your leadership team.

The Facts on Under-Representation

The glass ceiling may be starting to show some cracks, but it’s still keeping people from accessing the top leadership positions in many companies.

That’s the only conclusion to draw from the latest statistics on the numbers of women and minorities on corporate boards and in top management positions, which show a woeful level of under-representation (albeit a slight improvement on previous years). 

For example, despite being 50% of the population, women hold just 5% of the CEO positions at S&P 500 companies (the 500 largest publicly traded companies in the U.S.), according to Catalyst

And the problem exists throughout the ranks of management. Whether you’re talking about female directors or women executives at other levels of management, the number of women tapers off as you get to the higher levels:

Pyramid chart of women in management
Source: Catalyst

It’s a similar picture for minorities: a 2016 report found that fewer than 15% of board seats in the Fortune 500 were held by minorities. Progress for both groups has been made, but it’s very, very slow.

So why are there still so few minorities and women in leadership roles? Some of it may be due to overt discrimination or unconscious bias. But an interesting fact highlighted by Deloitte is that 95% of board members and executives said they needed to seek more diverse board candidates for the top positions. So the good intent is often there, but it’s not leading to results.

Part of the problem, Deloitte’s analysis shows, is in the recruitment methods. Companies often choose board members in the following ways:

  • recruiting from other boards in their own industry
  • requiring substantial executive experience, e.g. retired CEOs
  • relying on their own networks and the recommendations of existing board members

It’s easy to see how these techniques tend to reproduce the status quo. Breaking the glass ceiling and diversifying the top levels of management means broadening out beyond existing networks and narrow requirements to recruit people from different backgrounds. 

We’ll look at how to do that later. But first, let’s look at why it’s important.

Benefits of a More Inclusive Leadership Team

Why does leadership diversity even matter? Here are some important benefits of shattering the glass ceiling:

1. Better Performance

Let’s start with the bottom line. Companies with more inclusive leadership teams tend to be more profitable.

McKinsey research shows that both gender and ethnic diversity on executive teams are clearly correlated with profitability:

  • Companies with the most gender diversity in their leadership teams were 21% more likely to achieve above-average profitability than those with the least diversity.
  • For ethnic diversity, that same figure jumped to 33%.
Female directors effect on financial performance
Source: McKinsey

An MSCI study also found that companies with lots of female leaders and directors generated a return on equity of 10.1% per year vs. 7.4% for other companies.

2. Send a Message

“We are strongly committed to diversity....”

How many companies produce reports and presentations with nice-sounding phrases like this? Employees are entitled to be a little skeptical, however, if they look into the boardroom and don’t see people like them sitting at the table.

Having a truly inclusive leadership team can help with your other diversity goals throughout the organization by showing a commitment to it from the top and demonstrating that there's no glass ceiling at your company. 

People often set their career aspirations by looking to other people for examples of the path they can follow. If you've got a good number of female leaders, minority leaders, disabled leaders and so on, it sends a powerful message to your employees about what’s possible.

3. Customer Understanding

Corporate boards and executive teams may still reflect a narrow portion of humanity, but guess what? Unless your products specifically target a particular demographic, your customers are likely to reflect the diversity of society as a whole.

If you've got a leadership team that reflects society, then you've got a better chance of understanding your customers and their needs. 

Given that women make up half the population, for example, it makes sense to have women executives on your team. Companies frequently slice their customer base up into different demographics and try to come up with products and messages that speak to those groups. If you've got members of those groups represented in senior positions, you've got a better chance of getting it right.

Women executives meeting
Sadly, many studies show that there are still not enough women or minorities in leadership positions at most companies. (Image source: Envato Elements)

4. Brand Benefits

Just as a diverse leadership team sends a message to employees, it also sends a message to the outside world, which can have benefits for your brand.

Newspapers and magazines frequently shine a light on companies that are doing a good job with diversity initiatives (as in this article by Fast Company). There are workplace diversity awards in many countries and industries. 

Having more minorities and women in leadership roles won’t guarantee you a spot in these articles and award lists, but it'll give you a much better chance. On top of that, it'll project a positive, forward-thinking image that reflects the reality of the diverse world we live in.

5. Better Decision-Making

There’s lots of research out there on decision-making among diverse teams. Here are some of the benefits, based on a summary of the results of various different studies compiled by Catalyst:

  • Diverse teams are better at avoiding groupthink and including a variety of perspectives.
  • Diverse teams use different thinking styles to solve problems faster.
  • Diversity among board directors contributed to a higher degree of creativity.
  • Without diverse leaders, women (20%), people of color (24%), and LGBT employees (21%) are less likely to have their ideas endorsed.

Catalyst’s conclusion:

“Diversity is a key ingredient for better decision-making among teams.”

6. Encourage Career Progression

As we saw earlier, having more minorities and women on boards can send a message to employees, but it also goes further than that. The managers and board members you recruit can actively encourage people at other levels in the company to break through into higher levels of management.

A key way for this to happen is through mentorship. This could be done through a formal mentoring program or conducted informally, through existing employee networks.

Think back to that pyramid we saw at the beginning. Part of the problem is that if there are fewer female directors or female leaders in general, there are fewer people to mentor and encourage women in management at the next level down. It’s clear to see how an infusion of new blood right at the top of the pyramid could have a dramatic impact at all the other levels too.

7. New Ideas

One of the main benefits of diversity is the generation of new ideas by people from different backgrounds. This is particularly important for a leadership team, whose main responsibility is to set a strategic direction for the company. Fresh perspectives and new ideas are vital.

women in management
Women make up half the population, for example, it makes sense to have women executives on your team. (Image source: Envato Elements)

A majority of corporate leaders have seen this in action and can attest to it. A PwC survey of nearly 900 directors found that 73% of them recognize that diversity is beneficial. And “of that segment, 94% said gender and racial diversity brings unique perspectives to the boardroom.”

8. Stronger Governance

What your leaders do is clearly important, but just as important is how they do it. Does the company follow its own rules? Does it have clear, well-defined processes that avoid giving too much power to individuals? Whether in a small business or a large corporation, good corporate governance can make the difference between success and failure.

Here, again, diversity at the top can help. A 2014 academic study found that more racially diverse boards of directors “are positively associated with effective corporate governance practices and product development.”

9. Better Risk Management

The benefits continue when it comes to risk management. Studies have found that diverse boards are better at recognizing risks and stopping fraud, corruption, etc.

For example, MSCI found that companies with more women on their boards experienced “fewer instances of governance-related controversies such as cases of bribery, corruption, fraud and shareholder battles.”

Catalyst also links to several pieces of research showing that companies with more female directors have fewer instances of fraud and other controversial business practices.

And according to a Harvard Business Review article:

"Experts believe that companies with women directors deal more effectively with risk. Not only do they better address the concerns of customers, employees, shareholders, and the local community, but also, they tend to focus on long-term priorities.”

10. A Sense of Purpose

Beyond making profit, businesses exist for a reason and have their own values. The best companies don’t just rely on a salary to motivate employees to do their work; they inspire people to do their very best to contribute to building something that matters.

Since two-thirds of people say that “a diverse workforce is an important factor when evaluating companies and job offers,” having more diversity in your leadership ranks is a great way to do the right thing and inspire a sense of purpose among employees.

How to Achieve a More Inclusive Leadership Team

If you’re convinced of the benefits, what do you do next? 

Fortunately, the answer is quite simple: seek to recruit more diverse candidates for top management positions. 

But shouldn’t you just focus on hiring the best people, no matter what their backgrounds are?

This is a common and understandable objection. But the good news is that there’s no shortage of highly qualified women and minority candidates out there. And if you want to work on other dimensions of diversity, such as age, religion, disability and so on, there are plenty of excellent candidates there too. 

So there’s no conflict between ramping up diversity and hiring the best people. In fact, widening the net of potential candidates actually increases your chances of hiring the best person for the job. 

If you want some ideas for changing your recruitment practices, read this tutorial:

As we saw earlier, an important reason for the lack of diversity in top management comes from the self-perpetuating cycle of existing leaders recruiting people who are like them. 

So it’s important to break that cycle by looking beyond traditional sources and personal networks. For leadership positions, the candidates you’re looking for will probably already have high profiles, so you can find them with a little research. Ask questions like:

  • Who’s writing influential articles in your field? 
  • Who’s being quoted as a media expert?
  • Can you find people on LinkedIn or other social networks who have impressive track records?

You could also reach out to industry organizations for ideas and connections. For example, the National Association of Health Services Executives(NAHSE) aims at “promoting the advancement and development of Black health care leaders.” If that’s your industry, that would be a good place to start. 

See the following article for some inspiration and ideas on how some tech firms are tackling the problem of a lack of diversity:

Remember that the process will take time, and you don’t need to create a huge upheaval by dismantling your existing leadership team tomorrow. As opportunities arise to add a new leader or replace an existing one, keep your diversity goals in mind in the recruitment process. Then simply track your progress over time and ensure that you’re heading in the right direction.

Conclusion

In this tutorial, you saw some pretty depressing statistics on the lack of diversity in business leadership teams. Then we looked at why this under-representation is actually an opportunity for your business. Shattering the glass ceiling has important benefits, so if you can break the barriers to female leadership while your competitors leave them erected, you can give your company a crucial advantage.

To learn more about inclusive leadership and similar topics, read our essential guide to improving diversity in your business

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