Diversity
wins
How inclusion matters
May 2020

Preface
In the COVID-19 crisis, diversity and inclusion matter more than everFor business executives the world over, the
COVID-19 pandemic is proving to be one of thegreatest leadership tests of their careers. Not only
must they protect the health of their employees
and customers, they must also navigate farreaching disruption to their operations, plan forrecovery, and prepare to reimagine their businessmodels for the ‘next normal’.
In this challenging context, the task of fostering
inclusion and diversity (I&D) could easily take aback seat—and the painstaking progress madeby many firms in recent years could be reversed.
As this report shows, however, I&D is a powerfulenabler of business performance. Companies
whose leaders welcome diverse talents and include
multiple perspectives are likely to emerge from thecrisis stronger. In short: diversity wins, now morethan ever.
This report was originally due for release in
March 2020, but we put publication on hold as the
COVID-19 crisis ensued. Since then, in talking toCEOs, CXOs and CHROs and assessing the radicallychanged business landscape, we have come to theconclusion that its findings are even more relevant
right now.
The report demonstrates that the business case forgender and ethnic diversity in top teams is stronger
than ever. Since we first published Why Diversity
Matters in 2015, the likelihood of diverse companies
outperforming industry peers on profitability has
increased significantly. The data also shows that
there is a clear divergence in how companies areengaging with I&D. A third of the firms we havetracked over the past five years have significantly
improved both gender and ethnic diversity on their
executive teams, while the majority have stalled orgone backwards.
We also find that the dynamics around inclusion area critical differentiator for companies. Our evidence
is that an emphasis on representation is not enough;12

employees need to feel and perceive equality
and fairness of opportunity in their workplace.
Companies that lead on diversity have taken boldsteps to strengthen inclusion.
Early signs suggest that the COVID-19 crisis could
deepen these trends. Companies that alreadysee I&D as a strength are likely to leverage it tobounce back quicker—and they will use this timeto seek new opportunities to boost representationand inclusion to strengthen performance andorganizational health. As the CEO of a European
consumer-goods company told us: “I know we haveto deal with COVID-19, but inclusion and diversity is
a topic too important to put onto the back burner”.
On the other hand, some of the companies we havespoken to are viewing I&D as a “luxury we cannot
afford” during the crisis. We believe that thesecompanies risk tarnishing their license to operate
in the long term and could lose out on very realopportunities to innovate their business model andstrengthen their business recovery.
If companies deprioritize I&D during the crisis,
the impact is felt not just on the bottom line but inpeople’s lives. Research and experience warn usthat diverse talent can be at risk during a downturnfor several reasons, including that downsizing canhave a disproportionate impact on the roles typicallyheld by diverse talent. 1, 2 As companies send
staff home to work, this could reinforce existingexclusive behaviors and unconscious biases andundermine inclusion. In addition, unequal sharingof childcare and homeschooling responsibilities,
and unequal availability of home workspace andaccess to broadband could be putting women andminorities at a disadvantage during this time ofworking remotely.
Companies and their leaders can seize thismoment—both to protect the gains they havealready made, as well as to leverage I&D to position
themselves to prosper in the future.

How “Neutral” Layoffs Disproportionately Affect Women and Minorities, HBR, June 2016
McKinsey & Company, Women in the Workplace 2019

Diversity wins: How inclusion matters

There is ample evidence that diverse and inclusivecompanies are likely to make better, bolder
decisions—a critical capability in the crisis.
For example, diverse teams have been shown to be
more likely to radically innovate and anticipate shifts
in consumer needs and consumption patterns—
helping their companies to gain a competitive edge. 3
In this context, the shift to technology-enabled
remote working presents an opportunity forcompanies to accelerate building inclusive and agile
cultures—further challenging existing management
routines. With its benefits of increased flexibility,
remote working can facilitate retention of womenand minorities, who are often shouldered with adisproportionate share of family duties. It thus
widens access to an array of diverse talent that may
not have been available to companies previously. 4

purpose and values even more closely, potentiallyeven more so in the current pandemic. Those thattap into the growing sense of solidarity that is acharacteristic of the crisis—by reaffirming theircommitment to I&D, supporting vulnerable talent
who are at greater risk of infection, and reaching out
to local communities—could strengthen employee
motivation and win lasting approval.
The findings and case studies presented in thisreport will be of enduring relevance to companies
in every industry, long after the world has emerged
from the COVID-19 crisis. But we are convinced
that, as companies and their leaders navigate thecrisis itself and plan their emergence from it, they
will find that I&D is an essential enabler of recovery,
resilience, and reimagination.

Moreover, a visible commitment to I&D during thecrisis is likely to strengthen companies’ global
image and license to operate. In times of crisis,
stakeholders typically interrogate a company’s

3
4

Ibid.
https://www.nytimes.com/2020/03/31/us/equal-pay-coronavirus-economic-impact.html

Vivian Hunt, DBE
Senior Partner, McKinsey & Company
LondonSara PrincePartner, McKinsey & Company
Atlanta

Sundiatu Dixon-Fyle
Senior Expert, McKinsey & Company
LondonKevin Dolan
Senior Partner, McKinsey & Company
ChicagoMay 2020

Diversity wins: How inclusion matters

Contents

Executive summary3

Introduction

10

A stronger business case for diversity, but slow progress overall

13

Citigroup: strengthening equality of opportunity

22

The widening gap between winners and laggards

24

Pentair: building an inclusive culture31

How inclusion matters 

32Target Corporation: staying open

39

Winning through inclusion and diversity: taking bold action 

41

Lockheed Martin: breaking down barriers to inclusion

46

Conclusion

47

Methodology

48

About the authors	

52

Acknowledgments

52

Diversity wins: How inclusion matters1

2

Diversity wins: How inclusion matters

Executive summary
The business case for inclusion and diversity (I&D) is stronger
than ever. For diverse companies, the likelihood of outperforming
industry peers on profitability has increased over time, while
the penalties are getting steeper for those lacking diversity.
Progress on representation has been slow, yet a few firms aremaking real strides. A close look at these diversity winners
shows that a systematic, business-led approach and bold,concerted action on inclusion are needed to make progress.
Diversity Wins is the third in a McKinsey series
investigating the business case for diversity,
following Why Diversity Matters (2015) and
Delivering through Diversity (2018).1 This reportshows not only that the business case remains
robust, but also that the relationship between
diversity on executive teams and the likelihood offinancial outperformance is now even stronger
than before. These findings are underpinned by ourlargest data set to date, encompassing 15 countries
and more than 1,000 large companies. The report
also provides new insights into how inclusion
matters, through an analysis of employee sentiment
in online reviews; this shows that companies needto pay much greater attention to inclusion, even in
relatively diverse industries.

A stronger business case for diversity,
but slow progress overall

By following the trajectories of hundreds of large
companies in our data set since 2014, we find that
overall slow growth in diverse representation infact masks a growing polarization between thesefirms. While most are stalled or even slipping
backwards, some are making impressive progress in
improving diversity, particularly in executive teams.
We show that these diversity winners are adopting
systematic, business-led approaches to I&D, withspecial focus on inclusion. And we highlight theareas where companies should take far bolder
action to bring about lasting change in inclusive
culture and behavior.

Moreover, we found that the higher the
representation, the higher the likelihood of
outperformance. Companies with more than
30 percent women on their executive teams are
significantly more likely to outperform those with
between 10 and 30 percent women, and thesecompanies in turn are more likely to outperform
those with fewer or no women executives.
As a result, there is a substantial performancedifferential—48 percent—between the mostand least gender-diverse companies.

1

Our latest analysis reaffirms the strong businesscase for both gender diversity and ethnic
and cultural diversity in corporate leadership—and shows that this business case continues
to strengthen. The most diverse companies are now
more likely than ever to outperform
non-diverse companies on profitability.
Our 2019 analysis finds that companies in the top
quartile of gender diversity on executive teams were
25 percent more likely to experience above-average
profitability than peer companies in the fourth
quartile. This is up from 21 percent in 2017 and15 percent in 2014.

The data set for Diversity Matters was assembled in 2014, while that for Delivering through Diversity was assembled in 2017. Likewise,
this report, published in 2020, is built on data gathered in 2019. We therefore refer to three data sets in this report—for 2014, 2017and 2019.

Diversity wins: How inclusion matters

3

In the case of ethnic and cultural diversity, thefindings are equally compelling. We found thatcompanies in the top quartile outperformed thosein the fourth by 36 percent in terms of profitability
in 2019, slightly up from 33 percent in 2017and 35 percent in 2014. And, as we have previously
found, there continues to be a higher likelihoodof outperformance difference with ethnicity thanwith gender.
Despite this, progress overall has been slow.
In the companies in our original 2014 data set,
based in the United States and the United Kingdom,
female representation on executive teams has
risen from 15 percent in 2014 to 20 percent in2019. Across our global data set, for which our data
starts in 2017, this number has moved up just one
percentage point from 14 to 15 percent in 2019—and more than a third of companies still have no
women at all on their executive teams. This lack ofmaterial progress is evident across all industries andin most countries. Similarly, representation of ethnic
minorities on US and UK executive teams stood atonly 13 percent in 2019, up from just 7 percent in2014. For our global data set in 2019, this number
is 14 percent, up from 12 percent in 2017.

4

Diversity wins: How inclusion matters

The widening gap between winners
and laggards
While overall progress on representation is slow,
our research makes it clear that this in fact hides
a widening gap between leading I&D practitioners
and companies that have yet to embrace diversity.
A third of the firms we analyzed have achieved
real gains in top-team diversity over the five-year
period. But most firms have made little progress orremained static and, in some, gender and culturalrepresentation has even gone backwards.
This growing polarization between high and low
performers is reflected in an increased likelihoodof a performance penalty. In 2019, fourth-quartile
companies for executive-team gender diversity
were 19 percent more likely than companies in
the other three quartiles to underperform on
profitability. This is up from 15 percent in 2017
and nine percent in 2015. And for companies in
the fourth quartile of both gender and ethnic
diversity the penalty is even steeper in 2019:
they are 27 percent more likely to underperform
on profitability than all other companies in ourdata set.

By tracking the progress of companies in our
original 2014 data set, we identified five cohorts
based on their starting points and speed ofprogress on executive-team gender representation
and, separately, ethnic-minority representation.
The first two cohorts, Diversity Leaders andFast Movers, have shown strong improvement overthe past five years. For example, gender Fast
Movers have almost quadrupled representation of
women on executive teams to 27 percent in 2019;
for ethnicity, companies in the equivalent cohort
have increased representation from just 1 percent
in 2014 to 18 percent in 2019.
At the other end of the spectrum are the Laggards,
which have seen their already poor diversity
performance decline further. In 2019, these firms
had an average of 8 percent female representationon their executive teams—and no ethnic-minority
representation at all. The two other cohorts
are Moderate Movers, which have on averageexperienced slower growth, and Resting on Laurels,
which started with higher levels of representation
than did Laggards, but have similarly seen thisdecline since 2014.
We also found that the average likelihood offinancial outperformance in these cohorts
is consistent with our findings in the quartile
analysis above. For example, in 2019 companies
in the Resting on Laurels cohort on average
have the highest likelihood of outperformanceon profitability, at almost 62 percent—possiblyreflecting their historically high levels of diversity on
executive teams. Laggards, on the other hand, aremore likely to underperform their national industry
median profitability, at 40 percent.

How inclusion matters
We sought to explore how differing approaches
to I&D could have shaped the trajectories of
the companies in our data set, through analysis
of surveys and company research. These pointed
to two critical factors: a systematic approach to I&D,
and bold action on inclusion.
We have previously advocated a systematic,
business-led approach to I&D, based on a robust
bespoke business case, evidenced-based targets
and core-business leadership accountability.

Diversity wins: How inclusion matters

To further understand how inclusion matters—andspecifically what aspects of inclusion employees
consider to be significant—we conducted forthe first time an analysis of indicators relating toinclusion, outside-in. This analysis focused on
employee reviews about the firms they work formade on online recruitment websites.
While this approach is indicative, it provides a morecandid read on inclusion than internal employeesatisfaction surveys do—and it allows data acrossdozens of companies to be analyzed rapidly andsimultaneously. We focused on three industries
with the highest levels of executive-team diversity
in our data set: financial services, technology
and healthcare. In these sectors, comments directly
pertaining to I&D made up around one-third of thetotal comments made, showing that this topic is highon employees’ minds.
We analyzed comments relating to five indicators.
The first two—diverse representation andleadership accountability for I&D—are markers
of a systematic approach to I&D. The other three
indicators—equality, openness, and belonging—are core components of inclusion. Across severalof these indicators, our findings suggest that there
are marked “pain points” in the experiences of
employees, as follows:— While overall sentiment on diversity was
52 percent positive and 31 percent negative,
sentiment on inclusion was markedly worse
at only 29 percent positive and 61 percent
negative—which encapsulates the challengethat even the more diverse companies still facein tackling inclusion. Hiring diverse talent isn’t
enough—it’s the experience they have in theworkplace that shapes whether they remain
and thrive.
— Leadership and accountability as it pertains
to I&D accounted for the highest number ofmentions, and was also strongly negative.
On average across industries, 51 percent of
the total mentions related to leadership, and56 percent of those mentions had negative
sentiment. This underscores the increasingly
recognized need for companies to engage theircore business managers better in the I&D effort.

5

— Considering the three indicators of inclusion—equality, openness, and belonging—we foundparticularly high levels of negative sentimentaround equality and fairness of opportunity.
Negative sentiment around equality ranged from63 to 80 percent across the industries analyzed.
Openness of the working environment, which
encompasses bias and discrimination, was alsoof significant concern, with negative sentimentacross industries ranging from 38 to 56 percent.
Belonging elicited overall positive sentiment,
but from a relatively small number of mentions.
These findings highlight the importance not justof inclusion overall, but specifically of the varying
extents to which particular aspects of inclusion
matter. Even where companies are more diverse,many appear as yet unable to cultivate work
environments which effectively promote inclusive
leadership and accountability among managers,
equality and fairness of opportunity, and openness
and freedom from bias and discrimination.

Winning through inclusionand diversity: taking bold action
We took a close look at the companies in our data
set that are achieving higher levels of diversity—and benefitting from an increased likelihood offinancial outperformance. The common thread forthese diversity winners is a systematic approach,
together with bold steps to strengthen inclusion.
Drawing on best practices from these firms,
this report highlights five areas of action forcompanies, as follows:— Ensure representation of diverse talent. Thisis still an essential driver of inclusion. Companies
should focus on advancing diverse talent into
executive, management, technical and board
roles. They should ensure that a robust, bespokebusiness-driven case for I&D exists and is well
accepted, while being thoughtful about whichforms of multivariate diversity to prioritize (forexample, going beyond gender and ethnicity).
They also need to set the right data-driven
targets for representation of diverse talent.

6

Diversity wins: How inclusion matters— Strengthen leadership accountability andcapability for I&D. Companies should place
their core business leaders and managers at
the heart of the I&D effort—beyond their
HR functions or employee resource-groupleaders. They also need to strengthen inclusive
leadership capabilities among their managers aswell as their executives, and more emphaticallyhold all leaders to account for progress on I&D.
— Enable equality of opportunity throughfairness and transparency. It is critical thatcompanies ensure that there is a level playing
field in advancement and opportunity, in pursuitof true meritocracy. Companies should deploy
analytics tools to build visibility into
the extent to which promotions and pay
processes and criteria are transparent and fair.
They should de-bias these processes and work
to meeting diversity targets across long-term
workforce plans.
— Promote openness and tackle
microaggressions. Companies should upholda zero-tolerance policy for discriminatory
behavior such as bullying and harassment—
and actively build the ability of managers andstaff to identify and address microaggressions.
They should also establish norms for what
constitutes open, welcoming behavior, and ask
leaders and employees to assess each other on
how they are living up to that behavior.
— Foster belonging through unequivocal
support for multivariate diversity. Companies
should build a culture in which all employees
feel they can bring their whole selves to work.
Managers should communicate and visibly
embrace their commitment to multivariate formsof diversity, building connection with diverse
individuals and supporting employee resourcegroups to foster a sense of community andbelonging. Companies should also explicitly
assess belonging in internal surveys.

Diversity wins: How inclusion matters

7

The business case for inclusion & diversity
is stronger than everDiverse companies are more likely to financially outperform their peers
Difference in likelihood of outperformance of 1st vs 4th quartile¹

GenderEthnicity

15%

21%

25%

35%

33%

36%

2014

2017

2019

2014

2017

2019

The penalty for lagging on gender diversity is

Progress on executive team diversity in our

growing, while top quartile companies are more2014 dataset continues to be slow

likely to be at an advantage
Representation in US and UK
Difference in likelihood of financial outperformance²

GenderEthnicity

2014

Penalty for bottom quartile

14%

-9%

2014

2017

2019

7%

-15%

2017

18%

-19%

12%
2019

Advantage for top quartile

2019

11%

20%
13%

¹ Difference in likelihood of financial outperformance vs the national industry median of five years average EBIT margin, using the full dataset of companies in each year.
² Difference in likelihood of financial outperformance vs the national industry median of five years average EBIT margin for 4th quartile vs 1st-3rd quartile, and 1st quartile vs2nd-4th quartile, using the full dataset of companies in each year.

8

Diversity wins: How inclusion matters

There is a widening gap between leaders and laggards
One-third of the firms we tracked since 2014 have achieved real gains in executive team diversity. However
about 50% have made little or no progress and, within that, many have seen gender and ethnic minority
representation even go backwards.
Representation in US and UK, %2014

Diversity leaders

Fast movers

Resting on laurels

Moderate movers

2019

Laggards

40

Gender% of companies

27

26

28

22

12

7

5%

28%

19

9

8

29%

10%

28%

18

3

1

32

Ethnicity% of companies

17

18

1

15%

24%

12

22%

10

12%

0

28%

Promoting diversity does not ensure a culture of inclusion
We used a social listening approach to analyze employer reviews posted online³
Overall sentiment on diversity is positive

But sentiment on inclusion is the opposite

52%

29%

positive

31%
negative

positive

61%
negative

Bold actions are needed to strengthen both inclusion and diversity
A systematic, business-led approach to I&D

Bold steps to strengthen inclusion

1

Increase diverse representation, particularly
in leadership and critical roles

3

Enable equality of opportunity through fairness
and transparency

2

Strengthen leadership and accountability
for delivering on I&D goals

4

Promote openness, tackling bias anddiscrimination

5

Foster belonging through support for
multivariate diversity³ Social listening is the action of tracking social media platforms for mentions and conversations related to a brand or topic, then analyzing them for
insights to discover opportunities to act; US only.

Diversity wins: How inclusion matters9

Introduction
Over the past decade, many companies around the world haveincorporated I&D into their visions and strategies. Increasingly,
business leaders recognize that a diverse and inclusive employee
base—with a range of approaches and perspectives—is an asset
when competing in a fast-moving, globalized economy.
Along with growing acceptance of the businesscase for I&D, progress has been helped alongby regulatory pressure, media scrutiny, and an
upswelling of social-justice demands.
Yet significant, sustainable progress remains
challenging. Companies are struggling not
because they haven’t put I&D on the agenda, but
because it’s hard to get right. Common pitfalls
include fragmented I&D initiatives, overly relying
on individual commitments, and the lack of a clear
link with the company’s core business strategy.
Many companies are battling additional headwindsof uncertainty over the economy and the future ofwork more broadly, as well as the threat of diversity
fatigue and backlash.
This report, the third in the series after Why
Diversity Matters (2015) and Delivering throughDiversity (2018), shows how some companies are
winning through diversity—and how others cando the same. It continues to focus on diversity ofgender and of ethnicity and culture in executive

teams—the leadership groups that drive company
strategy and organizational transformation, and act
as bellwethers for a company’s commitment
to I&D. Diversity Wins draws on an expanded data
set of more than 1,000 large companies in
15 countries, comprising of company surveys, casestudies, and interviews, as well as new analysis
of employee sentiment about I&D. (See Box 1:
Expanded data set, updated methodology.)
The report sets out the findings of this research, andthe actions needed to strengthen I&D,
in four sections as follows:— A stronger business case for diversity,
but slow progress overall— The widening gap between winners
and laggards— How inclusion matters— Winning through inclusion and diversity:
taking bold action

Box 1

Expanded data set, updated methodology
Our purpose in the Diversity Matters series is to explore the link between increased gender and ethnic
diversity in companies’ top teams, and those companies’ business performance. We also seek toprovide a robust basis for tracking companies’ progress in advancing I&D among their leadership.
In so doing, we continue to substantiate the business case for diversity, and provide helpful insights
for companies seeking to strengthen diversity and translate it into business results.
Over the past five years, we have tracked the progress of hundreds of large companies (each withannual revenues exceeding $1.5 billion) in countries around the world. For this report, we have
expanded that global data set to take in 1,039 companies in 15 countries: Australia, Brazil, France,
Germany, Norway, Denmark, India, Japan, Mexico, Nigeria, Singapore, South Africa, Sweden, theUnited Kingdom, and the United States.

10

Diversity wins: How inclusion matters

Our data set spans over 1,000 companies in 15 countries

Exhibit 1
Our data
dataofset
spans
over1,000
1,000
companies
countries
Distribution
sampleby overcountry
and industry
group1, %
Our
set
spans
companies
inin1515countries
Distribution of sample by country and industry group1, %Countries
Countries+
United Kingdom + Australia
United States
FranceUnited Kingdom
United States+
Singapore + Denmark
South Africa
Norway2017

2014

BrazilMexicoBrazilMexico

2019

2017

2014

Germany
India
Germany
India

Australia
FranceJapan
Nigeria
Japan
Nigeria

Singapore
South Africa

Denmark
Norway2019
SwedenSwedenRegions, %21 Continental
Europe21 Continental
EuropeRegions, %31
United
31

12
UK
12

StatesUnitedStatesUK

4
Sub-Saharan4
AfricaSub-SaharanAfrica

7
Latin
7

26
Asia
26

Pacific
Asia
Pacific

America
Latin
AmericaIndustries, %7Industries, %
9

7

9

24
24

Consumer goods and retail

11

Energy,basicmaterials
and environment
Consumergoods
and retail

11

Heavy
Energy,industry
basic materials and environment
Telecom,
media and technology
Heavy
industry
Finance,
professional services
Telecom,insurance
media andandtechnology

13

22

13

22
15

1. n = 1,039.
Source: McKinsey Diversity Matters data set
1. n = 1,039.
Source: McKinsey Diversity Matters data set

Healthcare
and pharmaceuticals
Finance, insurance
and professional services
Transportation,and tourism
Healthcare
and logistics
pharmaceuticals
Transportation, logistics and tourism

15

Diversity wins: How inclusion matters

11

Drawing on this unique data set, we havebeen able to conduct longitudinal analysis
of 365 large US- and UK-based companies
included in our sample since 2014. For dozensof these companies, we have conducted
in-depth interviews with senior executives tounderstand their I&D challenges, strategies
and progress. That, in turn, has supported
a segmentation of the companies into five
distinct cohorts.
We also undertook additional quantitative
analysis of inclusion in this report—the firsttime we have done so. We used outsidein analysis of employee sentiment on I&D
in several major industries to understandthe relationship between inclusion and theexperiences of diverse talent in organizations,what drives their engagement, and how thisinfluences diverse representation.
We should note that this report’s focus on
executive teams is deliberate, as theseleaders are the primary drivers of company
strategy and organizational transformation.

2

12

That said, I&D in other areas of leadership andmanagement is, of course, important too. We
include a brief discussion of diversity at board
level in this report, and we consider I&D acrosscompany levels in other McKinsey research.2
Finally, although our research focuses ongender and ethnicity as intrinsic forms ofdiversity which are measurable at scale,
we recognize the increasingly multivariate
nature of diversity—including multiple formsof acquired diversity such as educational or
socio-economic background, or diversity ofthought. Over the past decade, traditional
identities of race and gender have fractured
as people start to embrace openly a more fluid
sense of who they are, highlighting the need torecognize multiple forms of intersectionality.
Although this is more difficult to measure,
it is a significant additional driver of the need
to focus on inclusion.
For further detail on our methodology,
see page 48.

See, for example, Women in the Workplace 2019, October 2019, McKinsey.com.

Diversity wins: How inclusion matters

A stronger business case fordiversity, but slow progress overall
The business case for I&D as a source of competitive advantage
is growing stronger. Increasingly, we find that the most diverse
companies recognize I&D as more than a social-justice imperative;
they also see it as a core enabler of growth and value creation.
These diversity winners are pulling ahead of the rest.
For five years our research has shown a positive,
statistically significant correlation between company
financial outperformance and diversity, on thedimensions of both gender and ethnicity. Thisis evident at different levels of the organization,
particularly on executive teams. In our updated 2019
data set—covering 15 countries on five continents—
this correlation holds and is even stronger. And we arealso seeing that the positive correlation between board
diversity and financial outperformance observed in
our previous research has now become statisticallysignificant. (See Box 2: The increasingly clear link
between board diversity and business performance.)

For both executive teams and boards, genderand ethnic diversity has progressed—but
progress is still very slow. But this overall picturemasks the fact that some companies have madeimpressive advances over the past five years.
Across geographies and industries, these diversity
winners are pulling ahead on both gender and ethnic
diversity on executive teams. In this section of thereport we consider each dimension in turn.

Box 2

The increasingly clear link between board diversity
and business performance
Our expanded 2019 data set shows that companies whose boards are in the top quartile of gender
diversity are 28 percent more likely than their peers to outperform financially. In previous years, while
the correlations were positive between board gender diversity and outperformance on earnings
before interest and taxation (EBIT) margin, they were not statistically significant; now they are.
This difference in significance could be linked to an overall rise in female representation on boards.
In recent years, many countries have ramped up efforts to boost this, as evidenced by the significant
uptick in representation we have observed in several countries. For example, companies in Franceand Norway have, on average, over 40 percent women on their boards. We hypothesize that thishigher representation may be linked to the increased likelihood of financial outperformance of theircompanies becoming statistically significant.
The interplay between boards, executive teams and company profitability is not well understood.
Could these more diverse boards be operating differently? Or could a visible commitment to board
diversity be signaling a company’s openness towards increasingly diverse customers, employees,
businesses and communities, which in turn is positively influencing financial performance?
Board diversity could symbolize a company’s commitment to equality, innovation and inclusive growth.
Certainly, these questions warrant further research. 3

3“Toward a value-creating board: McKinsey Global Survey results,” 2016, McKinsey.com.

Diversity wins: How inclusion matters

13

A clear opportunity from pushingtowards gender parity

on gender diversity in boards has been similarly
slow, albeit with a marked uptick in the past two
years. Across our full 2019 data set of 15 countries,
progress (tracked since 2017) has been even slower(Exhibit 3). Women make up just 15 percent ofexecutive-team membership, and more thana third of companies have no women at all on their
executive teams.

When we assessed our original 2014 data set,
we found that companies in the top quartile forgender diversity in their executive teams were 15
percent more likely to experience above-peeraverage profitability than companies in the fourth
quartile. 4 Three years later, in our Delivering throughDiversity report, this had increased to 21 percent.
In our 2019 data set, it has increased again to 25
percent (Exhibit 2). As mentioned above, female
representation on executive teams has also
increased slowly but steadily during this time frame,
widening the gap between the top and bottom
quartiles. This has also been the case for gender
diversity on boards, which we discuss in Box 2.

Taking a country lens, progress towards female
representation on executive teams is low in mostcountries (Exhibit 4). We observe extremes in
representation, ranging from Norway, where all
the companies in our data set have at least one
female executive, to several major economies—
including Brazil, India, Germany and Japan—
where up to 83 percent of companies have zero
women on their executive teams, and female
representation averages 8% or less. Developed
countries on average have higher rates of diversity
representation than do emerging economies.
(See Box 3: Comparing gender diversity indeveloped and emerging economies.)

Female representation on the executive teams ofthe mostly US and UK companies we have been
tracking since 2014 has risen from 15 percent in2014 to 20 percent in 2019. This represents anannual average change over the past five yearsof just 1.1 percentage points per year. Progress4

Our 2014 original data set consisted of 383 companies largely in the United States and the United Kingdom. In 2017, this data set had
grown to 991 companies from 12 countries and our 2019 data set consisted of 1,039 companies from 15 countries, including three
Scandinavian countries; Women Matter: Reinventing the workplace to unlock the potential of gender diversity, 2015, McKinsey.com.

Exhibit 2

The businessbusiness case
case forforgender
genderdiversity
diversityononexecutive
executive
teams
stronger
than
ever
The
teams
is is
strongerthan
ever
Likelihood of financial outperformance1, %Quartile

Delivering through diversity

Div ersity win s

20142

20173

20194

47

+21%

54
50

45

Diversity wins: How inclusion matters

Median

+25%

55
50

44

Likelihood of financial outperformance vs the national industry median. p-value <0.05, except 2014 data where p-value <0.1.
n = 383; US, UK, and Latin America; EBIT margin 2010-2013.
n = 991; US, UK, Brazil, Mexico, Australia, Japan, India, Singapore, Germany, France, South Africa, and Nigeria; EBIT margin 2011-2015.
n = 1,039; 2017 companies for which gender data available in 2019 plus Denmark, Norway, and Sweden; EBIT margin 2014-2018.

Source: Diversity Matters data set

14

1st

Why diversity matters

+15%

1.
2.
3.
4.

4th

55
50

Gender and ethnic diversity in leadership teams has progressed slowly in our 2014 data set
and even slower in our global 2017 data set
Exhibit
3 and %
Genderethnic diversity in leadership teams has progressed slowly in our 2014 data set
Representation,
andethnicdiversity
in2017leadershipteamshas
hasprogressed
progressedslowly
slowlyour2014 data
Genderandethnicinleadership
teams
in in
our
original
2014setand even slower indiversity
our global
data setandeven
slowerinourglobal
2017
data
set
data
set
Representation, %Leadership
teams
Representation,% from 2014 data set

1
Leadership
teamsfrom 2014 data set
GenderLeadership teams from 2014 data set

Ethnic minorities1

Average annual change,
percentage points

Gender1
Gender1

28
21
21
21

24
24

15
15
15

28 20
28

19

2017

Executive team
Executive team

Average annual change,
percentage points

+1.3
+1.1
+1.3

Average annual change,
Averageannualchange,percentage
pointspercentage points

2019

+0.8

17
14

13
7

13
13

2014

Board
Board

+1.3

+1.1
+1.1

20
20

19
19

Executive team

Ethnic minorities1
Ethnic minorities1

Average annual change,
Averageannualchange,percentage
pointspercentage points

24

Board

14
14

7

2014 7

12

17
17

12
12

2017

13
13
13

+1.1
+0.8
+0.8
+1.1
+1.1

2019

1. n = 365 for women and n = 241 for ethnic minorities; Subset of companies from Diversity Matters 2014 dataset with ethnicity data available for 2014,
2017
2019
2014
2017
2019
2017 2014
and 2019.

2014

2017

2019

Source: McKinsey Diversity Matters data set

2014

2017

2019

1. n = 365 for women and n = 241 for ethnic minorities; Subset of companies from Diversity Matters 2014 dataset with ethnicity data available for 2014,2017
andfor
2019.
1. n
= 365
women and n = 241 for ethnic minorities; Subset of companies from Diversity Matters 2014 dataset with ethnicity data available for 2014,
2017McKinsey
and 2019.Diversity Matters data set
Source:Source: McKinsey Diversity Matters data set

Leadership teams from global 2017 data set
Leadership teams from global 2017 data set
1
Genderteams
Leadershipfrom global 2017 data set

Ethnic minorities2

Average annual change,

Gender1percentage points
Gender1

24

Average annual change,
Averageannualchange,percentage
pointspercentage points

24
24 14

24
24 15

+0.0
+0.5
+0.0

15
15

+0.5
+0.5

1. n = 957 (global dataset) in 2017 and 2019.
2. n = 528 (global dataset) in 2017 and 2019.

2017

Executive team
Executive team

Average annual change,
Averageannualchange,percentage
pointspercentage points

14
14
14

16
12
12
12

16
16

14

+1.0
+1.0

14
14

+1.0
+1.0
+1.0
+1.0

2019

2017

2019

2019

2017
2017

2019
2019

Source: McKinsey
Diversity Matters data set 20192017

1. n = 957 (global dataset) in 2017 and 2019.
2. n
n=
= 957
528 (global(global dataset)dataset) inin 20172017 and1.
and 2019.
2019.
2.
n = 528(global Diversity
dataset) in2017 and2019.
Source:McKinsey
Mattersdata
set How inclusion matters
Diversity
wins:
Source: McKinsey Diversity Matters data set

Board
Board

Average annual change,
percentage points

+0.0

2017

Executive team

Ethnic minorities2
Ethnic minorities2

24

14
14

Board

15

Exhibit 4

In
teams
nearlyall
15
countries,
women
are
underrepresented
executive
teams
In nearly
nearly all
all 1515countries,
countries,women
womenareareunderrepresented
underrepresentedonon
onexecutive
executive
teams
FemaleFemale representation,
representation, %%Average female
femaleAverage
representation11
representation

NorwayNorwayAustralia
Australia

94
94

24
24

90
90

21
21
19
19

Singapore
Singapore
UnitedUnited Kingdom
Kingdom

73
73
76
76

18
18
18
18

South
South Africa
AfricaNigeria
Nigeria

80
80
47
47
64
64

13
13

BrazilBrazilGermany
Germany

40
40

8
8
8
8

48
48
46
46

8
8

28
28

5
5
3
3

17
17
15
15

1.
1. n
n=
= 1,039;
1,039; 2019.
2019. Respective
Respective weighted
weighted averages:
averages: 9%9% andand 45%45%
Source:Diversity
Matters
data
set;
World
Bank
(laborforce
Source: Diversity Matters data set; World Bank (labor force participation
participation rate,
rate, September
September 2019)
2019)

16

Diversity wins: How inclusion matters

65
65

48
48
46
46
47
47
45
45
44
44
46
46
44
44

75
75

17
17
13
13

Denmark
Denmark
FranceFrance

Japan
Japan
A
Avve
erraa g
ge
e

100
100
98
98

28
28
27
27

SwedenSwedenUnitedUnited States
States

MexicoMexicoIndia
India

FemaleFemale workforce
workforce
participation
participation

Companies
Companies with
with at
atleast one
one woman
woman onleast
onexecutive
executive team
team

46
46
47
47
45
45
42
42
45
45
36
36
23
23
42
42

At the current rate of progress, it will take 29 years
and 24 years respectively for the average US and
UK company in our data set to reach gender parity
on its executive team, and 18 years and 13 years
on boards. 5 Again, that picture differs radicallyby country: comparable figures for Brazil are 238
years on executive teams and 27 years on boards. 6
The overall slow pace of progress across industries
and countries is a missed opportunity—andleaves most companies far off well-establishedtargets, such as the minimum 30 percent female
representation on boards and executive teams
put forward by the United Kingdom’s 30% Cluba decade ago. This coalition of business leadersbelieves the following:“Gender balance on boards and in senior
management not only encourages better leadershipand governance, but diversity further contributes to

5
6

7
8

better all-round board performance, and ultimately
increased corporate performance for bothcompanies and their shareholders.”7
Our data set appears to substantiate this view andshows that there are likely additional benefits topushing for gender parity on executive teams.
In our US and UK data set, companies with female
executive-team representation exceeding
30 percent are significantly more likely tooutperform those whose executive teams are
between 10 and 30 percent female. 8 Thosecompanies, in turn, are more likely to outperform
those with fewer than 10 percent female
executive-team representation. As a result, there
is a substantial likelihood of outperformancedifferential—48 percent—between the mostand least gender-diverse companies (Exhibit 5).

Calculated by extrapolating rates of increase in representation since 2014 in our original data set.
Our 2015 Women in the Workplace report stated that companies in the United States were 100 years away from gender parity in theC-suite, based on progress in female representation between 2012 and 2015. While this progress has accelerated over the 2014–19 time
period, we should also note that our current report draws on a different data set of companies, so its findings are not strictly comparablewith those of Women in the Workplace.
https://30percentclub.org/about/who-we-are. In the United Kingdom, the target of 30 percent average female representation on
executive teams and boards of major listed companies has since been met.
On EBIT margin.

Exhibit 5

Executive
toto
outperform
those
with
Executive teams
teams withwithmore
morethanthan30%30%women
womenarearemoremorelikely
likelyoutperform
those
with
fewer oror no
nowomenwomen
fewer
Likelihood of financial outperformance1, 2014, %

+18%

+25%

Median

63
54
50

+48%

43

Women on executive teams2, %

0-10

10+

30+

Number of companies

114

210

41

1.
2.

Likelihood of financial outperformance vs the national industry median.
n = 365; US and UK; EBIT 2014-2018.

Source: Diversity Matters data set

Diversity wins: How inclusion matters

17

This finding begins to substantiate the businessrationale for pushing further than historical 30
percent representation targets, and closer towards
gender parity on executive teams. Yet very few
companies today are close to this. In our latest dataset, only around 4 percent of companies have morethan 40 percent women on their executive team.
On the other hand, 42 percent of companies have
10 percent or less female executives.
Taking a view across industries, we find significant
differences in the rates of progress since 2014
(Exhibit 6). Female representation in executive
teams has increased at the fastest rates in thefinancial services and the technology and media
industries, at about 1.5 percentage points a year.
In healthcare, by contrast, it has increased at just
0.3 percentage points a year, despite this being
an industry where female representation at entry
level is particularly high. Surprisingly, this starting
point does not appear to have led to a stronger pushtowards gender parity in healthcare leadership—as the slow growth rate shows.

9

We also took a close look at the roles women occupy
in executive teams—in particular, the extent to which
they occupy line decision-making roles, which havethe most direct influence on business performanceand provide a stronger path to the CEO position.
Only one-third of women executives in our 2019
data set sample occupied line roles, with twothirds occupying support or staff roles. Further, forcompanies in the bottom two quartiles for gender
diversity, the proportion of women in staff roles iseven greater. These proportions have barely shiftedsince we started tracking such roles in 2017, and areconsistent across other areas of our research.9
Taking an intersectional lens to our US dataset, we find that black women continue to bedisproportionately underrepresented in line roles,
with only 5 percent of female line roles held by black
women. Of the 33 percent of women who occupyline roles, the vast majority—83 percent—are white.
Asian women (9 percent) and Hispanic women (2percent) make up the rest. In the United Kingdom
the picture is similar.

Women in the Workplace, October 2018 & 2019, McKinsey.com.

Exhibit 6

Acrossmajor
majorindustries,
industries,
femaleexecutive
representation
remains
below
Acrossfemaleexecutive
representation
remains
below 25%,
and 25%,has andhas increased
since 2014
increasedslowlyslowly
since 2014

Average female representation 1, %Healthcare

24

Finance24

Technology and media

21

Retail20

Transport and tourism

19

Energy and materials

18

Heavy industry

18

Average

Diversity wins: How inclusion matters

0.3
1.5
1.4
0.8
1.1
1.3
1.1

21

1. n = 365; US and UK; 2019.
Source: Diversity Matters data set

18

2014-2019 annual growth, p.p.

1.1

Previous McKinsey research has found that black
women face the greatest barriers to progress inthe workplace, a consequence of accumulation ofdifferent forms of discrimination, including racism,sexism, and classism. In the United States, forexample, we have shown that for every 100 men
who receive their first promotion from entry levelto manager, only 79 women receive that samepromotion. For black women that number is 60.10

10

In aggregate, the above findings make it clear that
there is opportunity for most companies to takemuch bolder action to advance gender diversity
on executive teams—and to push towards parity
and increased representation in line decisionmaking and technical roles.

Women in the Workplace 2019, op. cit.

Diversity wins: How inclusion matters

19Box 3Comparing gender diversity in developed and emerging economies
We compared the likelihood of outperformance on profitability for firms in advanced economies
with that for their counterparts in emerging economies. We hypothesized that the business case forgender diversity would be stronger in advanced economies where markets are typically more efficientand the I&D agenda is often more advanced at national level.
What we found backs this up. The likelihood of financial outperformance by companies with genderdiverse executive teams climbs to a high of 47 percent in advanced economies that have high gender
parity, such as the United States, the United Kingdom, Finland, and Sweden. By contrast, thelikelihood of financial outperformance by such gender-diverse companies stood at an average of
17 percent in lower-parity emerging economies such as Brazil, India, and Nigeria.
The fact that they are trailing offers firms in emerging and low gender-parity economies anopportunity to learn from the progress and mistakes of their peers in more developed markets.
They have the opportunity to replicate what works and, more importantly, skip what doesn’t—
creating the possibility that they can leapfrog to a position of greater competitive advantage.

Ethnic and cultural diversity:
potentially an even bigger opportunity
As with our Delivering through Diversity report, weanalyzed data from countries where the definitionof ethnic and cultural diversity was consistent,
and our data were reliable.11 We found that thebusiness case for ethnic and cultural diversity wascomparable to our previous findings, with a11

36 percent higher likelihood of outperformanceon EBIT margin for top quartile companies for
ethnic and cultural diversity on executive teams—
up from 33 percent in 2017 and 35 percent in 2014
(Exhibit 7). This is consistently higher than forgender diversity, but with progress similarly slow.
The business case for ethnic and cultural diversity
on boards remained significant in 2019. (See Box 2).

The countries included in the analysis were the United States, the United Kingdom, Brazil, Mexico, and Singapore.

Exhibit 7

The businessbusiness case
case forforethnic
ethnicdiversity
diversityon
onexecutive
executiveteams
teams
remainsstrongThe
remainsstrongLikelihood of financial outperformance1, %Quartile

4th

1st

Why diversity matters

Delivering through diversity

Diversity wins

20142

20173

20194

+35%
43

1.
2.
3.
4.

50

44

59

59
50

43

Likelihood of financial outperformance vs the national industry median. p-value <0.05, except 2014 data where p-value <0.1.
n = 364; US, UK, and Latin America; EBIT margin 2010-2013.
n = 589; US, UK, Brazil, Mexico, Singapore, and South Africa; EBIT margin 2011-2015.
n = 533; US, UK, Brazil, Mexico, Singapore, Nigeria, and South Africa where ethnicity data available in 2019; EBIT margin 2014-2018.

Source: Diversity Matters data set

20

+36%

+33%

58

Diversity wins: How inclusion matters

Median50

The findings highlighted in Exhibit 7 support
the argument that there is significant opportunityfrom promoting ethnic and cultural diversity incompanies’ top teams. Yet despite this, ethnic
diversity appears to have been less of a focus
than gender for many companies—hence the slow
progress. In the United States and the United
Kingdom, overall ethnic-minority representationin executive teams moved from 7 percent in 2014
to 13 percent in 2019 (see Exhibit 2, above). Not
surprisingly, as with gender diversity, we found thatmost countries and industries need to pick up thepace in strengthening ethnic diversity in leadership.
As we saw for gender above, we found significant
differences across the six countries for which
we analyzed executive ethnic diversity. Only
in Singapore was this in line with “fair share”
representation, with the companies in our data set
averaging 33 percent non-majority representationon their top teams—well above the 24 percent

12

representation in the general population.12
The United Kingdom, at 9 percent non-majority
representation on executive teams, is just under
halfway to achieving fair-share representationof ethnic minorities (20 percent), while all others
are further behind, including the United States(14 percent on executive teams compared to37 percent fair share).
Beyond average representation, the proportion ofcompanies in our data set with zero non-majority
representation in their executive teams is a tellingmeasure of the lack of progress: in the UnitedStates this is 31 percent, in the United Kingdom
58 percent, and in Brazil 73 percent. There is asignificant opportunity for many companies thathave fallen behind on this measure. By increasing
ethnic and cultural diversity on their top teams,
they could potentially reinvigorate performanceand growth.

Fair share is calculated based on diverse representation in each country’s population.

Diversity wins: How inclusion matters

21

Citigroup: strengthening
equality of opportunity
Global investment banking company Citigroup is powering
ahead with a no-nonsense I&D agenda and placing equality,
accountability and transparency at the center of everythingthat it does.
It’s a common refrain in the I&D space: there’s
not enough female or black talent in a particularindustry and that is why targets can’t be achieved—
but that’s a story Citigroup just isn’t buying into.
A fast mover—Citigroup has gone from 8 percent
gender diversity on its executive team in 2014 toover 30 percent in 2019—the firm places equalityof opportunity, accountability and transparency
at the center of everything that it does. Businessleaders at all levels are directly involved in and held
accountable for advancing I&D across the firm,with scorecards presented at each board meeting
where “very granular” and “very transparent”
conversations are encouraged.
“We are not debating any more whether I&D is
the right thing to do,” says Teri Hogan, Global Headof Talent and Diversity. “We spent a long time on
the business plan and our CEO is on record assaying it’s simply ‘smart business’—now we justneed to get down to delivering.”
The focus is on three key areas: targeted
recruitment, development and retention, andpromotion paths and processes. On the recruitment
front, accountability is foregrounded throughcascading targets for women and non-majority
staff. And these targets are in the public domain.
The company also works with external providers to
set targets and determine the availability of non-

22

Diversity wins: How inclusion mattersmajority talent by location to counterthe talent-shortage myth and uses a heatmap
showing how different areas are trending in orderboth to increase transparency and to create a bitof healthy competition.
Having secured diverse talent, the retention andpromotion of this is a key priority. “You can’t overindex on hiring and expect that that’s going tosolve the problem,” says Hogan. “You can’t justthink about retention, you also have to think about
promotion. In this it all comes down to culture.”
Which is why the firm is ratcheting up the focus
on building an inclusive workplace. Here too,transparency is key. Believing that creating a diverse
and inclusive culture is the responsibility of all of its
employees, not just those who identify with a certain
gender, ethnicity or affinity, Citigroup has invested
heavily in Implicit Association Test (IAT) training
and Affinity Groups to enable people to talk openly
about barriers and the need to hold themselves andothers to account. They are not shying away fromdifficult and uncomfortable conversations and,
when they do fall short, they strive not to sweep
their failings under the carpet.
“You have to think big and bold,” says Hogan.
“When it comes to I&D you have to address every
part of the system because this cuts across all
aspects of the organization.”

Diversity wins: How inclusion matters23

The widening gap between
winners and laggards
One-third of the firms we tracked—our diversity winners—have
achieved real gains in top-team diversity. But most of the firms weanalyzed have made little or no progress and, for some, genderand cultural representation has even gone backwards.
We sought to establish whether the few
companies progressing far more boldly on diverse
representation in leadership were also starting topull away from their peers in terms of a widening
likelihood of financial outperformance. Our analysis
shows clearly that this is the case: companies in the
top quartile for both gender and ethnic diversity
are 12 percent more likely to outperform all othercompanies in the data set (Exhibit 8).
For the larger group of companies that are making
little or slow progress with diversity, the performance

penalty highlighted in our earlier reports remains.
Companies in the bottom quartile for gender diversity
on executive teams are more likely to underperform
all other companies in the data set to an increasing
extent: from 9 percent in 2014 to 19 percent in 2019.
Considering both gender and ethnicity, bottomquartile companies on both dimensions were 27
percent more likely to underperform than all otherfirms in the data set in 2019, similar to the 29 percent
we found in 2017 (Exhibit 8).

Companies in the top quartilefor both gender and ethnic
diversity are 12 percent more
likely to outperform all othercompanies in the data set.

24

Diversity wins: How inclusion matters

Exhibit 8

The penalty foraremorelikelyfor lagging
laggingon
ondiversity
diversityisisgrowing,growing,while
whiletop-quartile
top quartilecompanies
companies
aremorelikelyto outperformtheir peers
tooutperform
all theirallpeers
Likelihood of financial outperformance1, %Penalty for bottom quartile

Advantage for top quartile

Quartile

Quartile

4th

1–3rd

Why diversity
matters 20142

Delivering throughdiversity 20173-9%47

Diversity wins
20194

-15%
52

53

45

2nd–4thDiversity wins
2019

-19%
44

54

1st

+11%
50

55

Gender-25%
Genderand Ethnicity

40

-29%
53

40

57

-27%
39

54

+12%
51

57

1. Likelihood of financial outperformance vs the national industry median. p-value <0.05, except 2014 data where p-value <0.1.
2. n = 383 for Gender; n = 364 for Gender and Ethnicity; US, UK, Brazil, and Mexico; EBIT 2010-13.
3. n = 991 for Gender; n = 589 for Gender and Ethnicity; US, UK, Brazil, Mexico, Australia, India, Japan, Singapore, France, Germany, Nigeria,
and South Africa; EBIT 2011-2015.
4. n = 1,039 for Gender; n = 533 for Gender and Ethnicity; US, UK, Brazil, Mexico, Australia, India, Japan, Singapore, France, Germany,
Nigeria, South Africa, Denmark, Norway, and Sweden; EBIT 2014-18.
Source: Diversity Matters data set

Diversity wins: How inclusion matters

25

Defining five cohorts of companies
with different rates of progresson diversity
The above findings highlight the fact that companies
across countries and industries are facing
significant challenges in actually capturing thepotential of diversity. To extend our understandingof why this is the case—and what firms need to
do differently—we tracked the progress of 365 of
the companies in our original 2014 data set, basedin the United States and the United Kingdom.
We segmented these firms into cohorts based on
their starting levels of executive-team diversity,and their rates of progress between 2014 and 2019.
We then complemented this analysis with researchand interviews with a variety of companies, fromthose that had made huge strides in top-team
representation to those that had struggled to do so.
For progress on executive-team gender diversity,
we identified the following five cohorts (Exhibits 9
and 10):— Diversity Leaders (5 percent of the dataset). These companies have shown sustained
improvement and are approaching gender
parity, with on average 40 percent women
executives in 2019, off an already solid base of
26 percent in 2014. Our interviews showed thatthese firms have typically taken a systematic,
business-led approach to I&D for at least five
years, have a strong culture of accountability,
and are deploying innovative and ambitious
interventions, supported by strong leadershipcommitment. Most are taking bold andcourageous steps to build fairer and more
inclusive workplace cultures at all levels of theorganization. We found Diversity Leaders acrossindustries, from consumer goods
and retail through to aerospace.

— Fast Movers (28 percent of the data set). These
companies have shown exceptional improvement
to an average of 27 percent female representationin 2019, off a very low base (an average of
7 percent in 2014). It is encouraging that thiscohort makes up a significant share of the data
set—and that almost 30 percent of companies
in this cohort are also Fast Movers on ethnic
diversity. These companies have typically placedstrong recent focus on I&D, with systematic
moves including developing a bespoke businesscase with ambitious I&D targets, promoting fulltransparency including talent processes and pay,and deploying effective retention initiatives. They
are increasingly emphasizing developing a fairand inclusive culture. Many are in traditionallymore male-dominated industries such as mining,finance, and professional services.
— Resting on Laurels (29 percent of the dataset). These companies started with significant
diversity, with an average of 28 percent female
representation on their executive teams in
2014—but they have made no progress overthe past five years, on average slipping to 22
percent female representation in 2019. This is
despite many being in traditionally more femaleoriented industries, such as healthcare andretail. These companies have tended to takea less systematic approach to I&D, supporting
initiatives such as employee resource groups
but with apparently less emphatic efforts totackle the barriers limiting representation of
women and minorities at the very top. In someinstances, the issue has been holding on toprogress in representation. This was particularly
striking in companies whose executive teams
were more than 40 percent female in 2014: allexperienced a drop in executive-team gender
diversity between 2014 and 2019.

Diversity Leaders are taking bold andcourageous steps to build fairer andmore inclusive workplace culturesat all levels of the organization.
26

Diversity wins: How inclusion matters

— Moderate Movers (10 percent of the data set).
Among these companies, female representation
on executive teams increased from 12 percent
to 19 percent over the five-year period.
Typically, these companies have found that
their generally unspecific and low-profile public
commitments to I&D are failing to translate into
tangible progress on representation, includingthat at senior levels, or into a fair and inclusive
workplace culture. This limited momentum
results from a host of factors which include
the lack of a robust articulation of a “reason
why” for diversity, unclear accountability at alllevels, talent policies and practices which are
not effective at removing bias, and insufficientattention to inclusive mindsets and behavior.

— Laggards (28 percent of the data set). These
companies’ already low gender diversity has
declined further over the five-year period, froman average of 9 percent female representation
on executive teams in 2014 to 8 percent in2019. A large proportion, 51 percent, are also
Laggards on ethnicity. Companies in this cohort
have typically not embarked on a purposeful
I&D journey, or have taken a fairly unambitious,
somewhat “box-ticking” view of I&D. They
generally lack data and insight into their I&D
performance and are fragmented in theirapproaches, which may be primarily bottomup and led by fledgling employee resourcegroups. We found limited accountability for I&D
at all levels of these companies, and significant
challenges with inclusion.

Exhibit 9

found five
fivecohorts
cohortsofofcompanies
companiesbased
basedononprogress
progress
executive
diversity
between2014
We foundonon
executive
diversity
between20142019
and 2019% of total number of companies

Ethnicity2

Gender1

2014 - 2019 improvement

StrongFast
movers28

Diversity
leaders>=10 p.p.

< 5 p.p.

24

Moderatemovers12

Diversity
leaders>=25 p.p.

ModeratemoversModerate

Fast
movers105< 0 p.p.

Laggards

Decline,flat or slow
<1028

Restingon laurels

29

10-20

20-30

30+

2014 representation,% women15

Laggards
28
<10

10-20

Restingon laurels

22

20-30

30+

2014 representation,% ethnic diversity relative to fair share

1. n = 365; US and UK.
2. n = 241; US and UK.
Source: Diversity Matters data set

Diversity wins: How inclusion matters

27

There are stark differences in how executive gender and ethnicity has evolved in eachcohortsince
2014
There arestark
differences in how executive gender and ethnicity has evolved in each

Exhibit 10
Representation,%
cohortare
since
2014
There
stark
differences in how executive gender and ethnic diversity has evolved in each
Representation,
cohortsince %
2014

2014

2019

Representation, %

2014

2019

Diversity
leaders
Diversity
leaders 40
26

Femalerepresentation1
Femalerepresentation1

40

26

Restingon laurels
Restingon laurels
27

28

27

28

7

22

12
12

19
19

Laggards
Laggards

9

8

9

8

1

0

1

0

32
32

17

18

18

18

18

1
1

1. n = 365; US and UK.
2. n = 241; US and UK. Absolute representation, not relative to fair share.
1.
n = 365;
US andUK. data set
Source:Diversity
Matters
2. n = 241; US and UK. Absolute representation, not relative to fair share.
Source: Diversity Matters datasetalso found that the 2019 likelihood of financial
We

outperformance differences between the cohorts
is consistent with our findings in the quartile
analysis above. Companies in the Resting on
Laurels cohort on average have the highest
likelihood of outperformance on profitability,
at almost 62 percent, reflecting their historicallyhigh levels of diversity on executive teams.
Diversity Leaders and Fast Movers are next
with an average of 55 percent and 52 percent
respectively. They are followed by Moderate
Movers, which have exactly average likelihoodof outperformance, as would be expected.
Finally, Laggards are more likely to underperformtheir national industry median profitability.
We found similar trends in companies’ progress
on ethnic-minority representation between
2014 and 2019, within our 2014 US and UK data
set. Interestingly, companies in the cohorts at
the extremes of progress on executive gender
diversity—that is, Fast Movers and Laggards—
also had the highest and lowest levels of ethnic
diversity respectively.
The Diversity Leaders in the case of ethnic
diversity (15 percent of companies in the data set)almost doubled the representation of non-majority

28

ModeratemoversModeratemovers22

7

17

Ethnic minority
representation2
Ethnic minority
representation2

FastmoversFastmoversDiversity wins: How inclusion matters

12
12

10
3
3

10

executives on their top teams—from 17 percent
in 2014 to 32 percent in 2019. The Fast Movers,
which constitute a quarter (24 percent) of allcompanies assessed, made even more dramatic
progress: they moved from an average of 1 percent
non-majority representation on executive teams
in 2014 to 18 percent in 2019. Yet, as for gender
diversity, a larger group of companies madeno progress on ethnic diversity or even moved
backwards. Laggards, at 28 percent of the dataset, make up the largest cohort when it comes toethnic diversity—and they had zero non-majority
representation on their executive teams in 2019
(Exhibits 9 and 10).
For both gender and ethnic diversity on executive
teams, our cohort analysis shows a contrasting
picture by industry. Taking gender for example,
healthcare companies in our data set are
overwhelmingly (51 percent) in the Resting on
Laurels cohort. The finance industry, on theother hand, is more polarized, with 42 percentof companies in the Fast Movers cohort and39 percent in Resting on Laurels (Exhibit 11).
Technology, Media and Telecoms companies areslightly more likely to be Fast Movers than theother cohorts.

The picture across different industries contrasts sharply
Exhibit 11Distributionof companies
across cohorts
by industry1contrasts, % of cohort sharply
The picture
across different
industries

The picture
picture acrossacross different
differentindustries
industriescontrasts
contrastssharply
sharplyThe
Distribution of companies across cohorts by industry11, % of cohort
Distribution of companies across cohorts by industry , % of cohort

10-20

20-30

30-40

40+

0-10
0-10

10-20
10-20

20-30
20-30

30-40
30-40

40+
40+

Healthcare andpharmaceuticals
Healthcare and
Healthcare andpharmaceuticals
pharmaceuticals Diversity

Finance, insurance, andprofessional services
Finance, insurance, andFinance, insurance, andprofessional services
professional services
Diversity

Fast movers
FastmoversModeratemoversModerate
Moderatemoversmovers
Laggards

Fast movers
FastmoversModeratemoversModerate
Moderatemoversmovers
Laggards

Fast movers

2014–2019improvement
2014–20192014–2019improvement
improvement

0-10

Laggards
Laggards

leaders
Diversity
Diversity
leaders
leaders

Restingon laurels
Resting
Restingon laurels
on laurels

Fast movers

Laggards
Laggards

leaders
Diversity
Diversity
leaders
leaders

Restingon laurels
Resting
Restingon laurels
on laurels

Telecom, media, andtechnology
Telecom, media, andTelecom, media, andtechnology
technology
Diversity
Fast movers

Fast movers
FastmoversModeratemoversModerate
Moderatemoversmovers
Laggards
Laggards
Laggards

leaders
Diversity
Diversity
leaders
leaders

Restingon laurels
Resting
Restingon laurels
on laurels

2014 executive team gender representation2014 executive team gender representation2014 executive team gender representation
1. n = 39 for Healthcare and pharmaceuticals, n = 36 for Finance, insurance and professional services, n = 55 for Telecom, media,
and technology; US and UK.
Source:Mattersand
datapharmaceuticals,set1.
n = 39Diversity
for Healthcaren = 36 for Finance, insurance and professional services, n = 55 for Telecom, media,
1. andn = 39for Healthcare
andpharmaceuticals, n = 36 for Finance, insurance and professional services, n = 55 for Telecom, media,
technology;
US andUK.
and technology; US and UK.
Source: Diversity Matters data set
Source: Diversity Matters data set

Diversity wins: How inclusion matters

29

Why commitment to building an
inclusive culture is not enoughAs we have mentioned, the gap in executive gender
representation has widened between leading I&D
practitioners in our data set and other companies,
with only a third achieving real gains and the
majority remaining static or declining—even where
their leaders have articulated noble aspirations forinclusion and diversity. Two critical barriers appear tostand in the way of the sustained change in company
culture, and the individual mindsets and behavior,that are needed to build a truly inclusive culture.
The first barrier is a lack of purposeful followthrough on diversity pledges. Many companies,
including those in our Laggards cohort, havepublicly committed to building a diverse andinclusive company culture, and in some caseswith their CEOs have even signed public pledges
to do so.13 But many companies have yet to adopt
the systematic, business-led approach to I&D
that is needed to translate these pledges into
actual change. Such companies have tended torely overly on employee resource groups to drive
their I&D agendas, rather than giving leaders andmanagers true accountability for strengthening
diversity. Aspirations and ad hoc interventions
are not enough. In the words of one HR director
we interviewed: “A disconnect between what

the company says and the progress it is making
on the ground can seriously erode credibility both
inside and outside of the organization, and further
contribute to a lack of experienced inclusion”.
A second barrier in many companies, particularly
those that are yet to embark on a purposeful
I&D journey, relates to inclusion. Unaddressed
misconceptions about fairness and meritocracy
are one critical issue. There is often a prevailing
belief that “everything should be the same foreveryone”, and this fails to factor in the reduced
extent to which women and ethnic minorities
benefit from support and sponsorship—andthe greater extent to which they face bias andmicroaggressions versus the dominant majority.
McKinsey’s Women in the Workplace research, forexample, has found that women, especially black
women, are more likely to face microaggressions—also known as everyday discrimination—thanmen.14 Cumulatively, these microaggressions havebeen shown to contribute to a rise in perceptionsof unfairness and an increase in the likelihoodof people thinking about leaving their jobs. By
contrast, when employees believe they have equal
opportunity and the workplace is fair then they arethree times more likely to say they are happy with
their career and will stay at their company longer.15

13

https://www.ceoaction.com/pledge/i-act-on-pledge/
Women in the Workplace, McKinsey & Company, October 2018.
15
Women in the Workplace 2019, op. cit.
16
ibid.
14

A disconnect between what the company
says and the progress it is making
on the ground can seriously erodecredibility both inside and outside of
the organization, and further contributeto a lack of experienced inclusion.

30

Diversity wins: How inclusion matters

Pentair: building an
inclusive culture
Pentair—a water-treatment company with a global footprint—
is sharpening its focus on I&D as a core business opportunity.
For Kelly Baker, Executive Vice President and Chief
Human Resources Officer at Pentair, focusing
on building an inclusive culture as a business
opportunity means taking a contemporary view of
I&D. This includes a broader definition of diversity
encompassing race, gender, ethnicity, countryof origin, age, personal style, sexual orientation,
physical ability, religion, and life experiences. It alsotranslates into a stronger focus on company culture,creating a space where employees are enabled toleverage their unique strengths and work in
the ways that suit them best.
“I&D is not just about setting targets and having
women on the slate; we are spending significant
time on education—building the business casefor I&D and pointing out why it’s not just about
being politically correct,” says Baker. They are also
working on developing a shared language on I&D.
This focus fits easily into the company’s existingcommitment to building what it calls a Win Right
culture and values.
Baker says the organization takes an integrated
approach to supporting and promoting workplace
I&D based on the following three pillars:

Diversity wins: How inclusion matters

1. Talent acquisition and deployment, with a focus
on fair hiring practices at every level.
2. Development and retention of diverse talent forleadership roles. Focus areas include expanding
participation in leadership-development
programs, prioritizing career-development
planning for all talent, including diverse talent,
and leveraging employee resource group
networks to attract, retain, and develop people
from diverse backgrounds. The company has
also revised its benefits to support families andwork–life balance.
3. Leadership of diverse teams. The focus ison cultivating an environment that values
differences, fairness, and inclusion.
This includes Global Effectiveness training,which fosters insights about global differences
and strengthens manager and employee
capabilities in working across countries,
cultures, and languages.
While it can be challenging to carve out the time
for people to engage on the question of I&D, Baker
says they know that it’s worth persevering on
this important journey. “We know that a diverse
and inclusive workforce contributes different
perspectives and creative ideas that enable us to
improve every day. So we continue to be bold in
advancing these ideas in the organization.”31How inclusion matters
The evidence presented in this report highlights the challenges
for companies in making sustained progress on increasing
gender and ethnic and cultural diversity on their top teams.
And among those companies that do make tangible gains,
holding onto these gains represents a further challenge.
Why this is the case was one of the themes we explored in ourinterviews with companies in our data set. What we discoveredemphasized the need for a systematic, business-led approachto I&D, as we have advocated in previous reports. But it also
shed new light on the relative importance of inclusion.
Indeed, we found that every company in our data
set that has made sustainable progress towards
increasing gender and ethnic and cultural diversity
on its top team over the past five years has also
made real strides in creating an inclusive work
culture. Lockheed Martin, for example, has sought
to “create an environment where our employees
feel welcomed and encouraged to bring their wholeselves to work” (see case study on page 46).
Several of the executives we interviewed made it
clear that their companies could not have improvedon diversity without investing in inclusion. For
example, leaders at Pentair talk about moving
beyond a focus on representation as a tick-box
exercise to one that embraces a “shared language
on I&D” across the organization (see case study
on page 31). And executives at Target say they arecommitted to building an “ecosystem” around I&D,
“rather than just having it as an isolated function.”
These companies’ efforts point to inclusion as animportant emerging differentiator of success amongleading diversity practitioners. This dovetails with thefindings of previous reports by ourselves and others,
including Women in the Workplace.16 These studies,
as well as the research presented in this report,show that employees’ experience of inclusion in theirworkplace matters enormously to them, and is notalways aligned with their companies’ or even their
managers’ official commitments to inclusion.

16

For example, our most recent Women in the
Workplace study found that commitment to gender
diversity at the leadership level had increased
significantly: 87 percent of companies stated thatthey were highly committed to gender diversity in
2019, compared to 74 percent in 2014. However,
employees at these companies were much lesslikely to perceive that their companies or their
managers had actually made diversity a priority.17
Just 61 percent of women employees in 2019agreed that commitment to gender diversity wasa priority, for example. (This is up from 44 percent
in 2014, suggesting that a shift may be underway.)
There is much work still to be done in bridging
this gap.
Outside-in: a new lens on how inclusion matters
The logic behind prioritizing inclusion alongside
diversity is coming more clearly into focus—but
the full dynamics of the different aspects ofinclusion, and their relative importance, are
not yet fully understood. There is evidence
that inclusion is closely linked to employee
engagement, itself in turn a critical componentof employee retention, productivity and financial
performance. For example, research has shownthat business units that score in the top quartile oftheir organization in employee engagement havenearly double the odds of success.18

Women in the Workplace 2019, op. cit.
ibid.
18State of the Global Workplace report, Gallup, 2017. Specifically, business units in the top quartile of are 17% more productive and 21%
more profitable than those in the bottom quartile. They also have 20% higher sales, 10% higher customer metrics.
17

32

Diversity wins: How inclusion matters

A significant challenge for senior leaders is that
inclusion and workplace culture are inherently difficult
to measure. There is no standardized, universal
metric, and employee survey data are typicallyrequired, limiting the scale of the analysis in terms ofthe number of companies from which data can easily
and rapidly be gathered. Further, it is unclear that
employee responses to internal satisfaction surveys,
even if anonymous, are fully representative of theirexperiences and are not influenced by employees’
perceptions about what their employers consider tobe acceptable responses.
These limitations can, in part, be overcome by anoutside-in approach, which is what studies suchas Culture 500 have taken. This collaboration
between MIT Sloan and Glassdoor developed andvalidated a methodology for measuring company
culture outside-in, using sentiment analysis of
employee reviews of their employers posted
on job-search websites. We sought to build onthese efforts to obtain a directional read on
how inclusion matters, and specifically on what
aspects of inclusion employees considered to besignificant, based on comments made outside-in.19
In partnership with McKinsey Digital Consumer
Insights, we carried out an analysis of employee
reviews about the companies they work for, madeon Glassdoor and Indeed, both public forums
based in the United States, during 2017–19.
Using a natural language processing algorithm,
we analyzed the sentiment—positive, negativeand neutral—in employee mentions about I&D,
focusing on 10–30 companies in each of threeindustries: financial services, technology, andhealthcare. (These industries have the highest
levels of executive-team diversity in our data set,
but not necessarily the highest levels of overall
diversity or indeed inclusion.)20
We searched for I&D-related reviews using
keywords relating to two indicators of a systematic
approach to I&D, diverse representation itself,
and leadership accountability for I&D.21 We thenspecifically researched three core indicators ofinclusion, as follows:— Equality—fairness and transparency inpromotion, pay and recruitment, and equal
access to sponsorship opportunities as wellas other resources and retention support.
Companies that embrace equality ensure
a level playing field across critical talent
processes, building representation targets
into workforce plans and deploying analytical
tools to build transparency.
— Openness—an organizational culture where
people treat each other with mutual respect,
and where bias, bullying, discrimination andmicro-aggressions are actively tackled. In
companies that embrace openness, the work
environment is welcoming and conducive to
discussion, feedback which includes the mostsenior leaders, and risk taking.

19“Culture matters. Now we can measure it,” MIT SMR / Glassdoor Culture 500, https://sloanreview.mit.edu/culture500?utm_
medium=pr&utm_source=release&utm_campaign=Culture500.
20This research builds on and corroborates other research that has been done on this topic, especially the MIT / Glassdoor report (ourresults are similar) and McKinsey’s Women in the Workplace.
21
See page 48 for a detailed understanding of our methodology.

Diversity wins: How inclusion matters

33

While overall sentiment on diversity
was 52 percent positive and 31 percent
negative, sentiment on inclusion wasmarkedly worse at only 29 percent
positive and 61 percent negative.
— Belonging—an outcome resulting from theorganization’s demonstrating commitment tosupport the well-being and contributions ofdiverse and other employees. Leaders andmanagers foster connection with their diverse
talent and between all employees, building
a sense of community and encouraging themto contribute their diverse talents fully.
In our sentiment analysis, comments directly
pertaining to I&D made up around one-third of
the total comments made, showing that this topic
is high on employees’ minds. Key findings acrossthe five indicators we tested suggests that there
are marked “pain points” in the experience of
employees, as follows (Exhibits 12, 13a and 13b):— While overall sentiment on diversity was
52 percent positive and 31 percent negative,
sentiment on inclusion was markedly worse
at only 29 percent positive and 61 percent
negative—which encapsulates the challengethat even the more diverse companies still facein tackling inclusion.
— Leadership and accountability as they pertain
to I&D accounted for the highest number ofmentions, and were also strongly negative.
On average across industries, 51 percent of thetotal mentions were related to leadership, and56 percent of those mentions had a negative
sentiment. This underscores the increasingly
recognized need for companies to engage theircore business managers better in the I&D effort.

34

Diversity wins: How inclusion matters— Considering the three indicators of inclusion—equality, openness, and belonging—we foundparticularly high levels of negative sentimentaround equality and fairness of opportunity.
Negative sentiment around equality ranged
from 63 to 80 percent across the industries.
Openness of the working environment, which
encompasses bias and discrimination, was alsoof significant concern, ranging from 38 to 56
percent of negative sentiment across industries.
Belonging elicited overall positive sentiment,
but from a relatively small number of mentions.
These findings, although indicative, highlightthe importance not just of inclusion overall,but specifically of the varying extents to which
particular aspects of inclusion matter. They canalso provide companies with “another version of
the truth” on inclusion by complementing internal
employee-satisfaction surveys—and highlighting
the gap between public pronouncementsof commitments to I&D, and the sentiments
employees are willing to express in the relatively
risk-free environment of a job-search website.
In aggregate, this research shows that even
where companies are more diverse, many
appear as yet unable to cultivate inclusive work
environments in an effective and consistent way.
Such environments promote inclusive leadershipand accountability among managers, equality
and fairness of opportunity, and openness
and freedom from bias and discrimination.

Exhibit 12

Employee reviews
reviewsprovide
providecompanies
companieswith
withadditional
additionalinsightinsightinto
intoworkplaceexperiences of
Employeeworkplaceexperiences
inclusionof inclusion
Positive comment examples

Negative comment examples

Diversity“Great place to work because of
all the walks of life coming
through the doors… fromdifferent cultures/ethnic
backgrounds.”“Full of white maleprivilege…No diversity, thecompany churns out all these
positive phrases but doesn't
abide by them.”

Leadership“Management makes a strong
effort to create an outstanding
work environment, the culture
is inclusive andencouraging.”“Management does not
foster an inclusive culture
for all levels of employees.”

Equality“Fair promotion process…
and if you perform well then[you will get] amazing pay.”“Heavy on favoritism. How
you are promoted depends onwhich supervisor you get.”Openness“Everybody treats you with
Humility, Respect, andTrust.”“This toxic environment is
not built to develop or care forminorities or people withdisabilities.”

Belonging“Best company to work for,they really make you feellike family!”“I don't feel valued or asense of belonging, I feellike a number who's opinion
is not valued.”

Source: Glassdoor and Indeed user-generated reviews

Diversity wins: How inclusion matters35

To further understand how inclusion
matters we conducted an analysis ofindicators relating to inclusion, outside-in
Exhibit 13a

Sentiments on inclusion are on average more negative than those on diversity% of negative sentiments1
Negative

NeutralDiversity

Leadership

Inclusion²

31%

56%

61%

Equality

Openness

Belonging

74%

44%

32%

1. Total number of mentions by theme: Diversity 1,153; Leadership 3,216; Inclusion 2,077; Equality 1,257; Openness 710; Belonging 110
2. Weighted average of Equality, Openness and Belonging
Source: Glassdoor and Indeed user-generated reviews

36

Diversity wins: How inclusion matters

Positive

Exhibit 13b

On most areas of inclusion and across industries, negative sentiment outweighs positive% of negative sentiments1
Negative

Diversity

NeutralPositive

FinanceTechnology

Healthcare

32%

29%

30%

58%

58%

42%

80%

67%

63%

38%

56%

44%

33%

30%

29%

Leadership

Equality

Openness

Belonging

1. Total number of mentions by theme and industry: Diversity – Finance 607, Tech 382, Healthcare 164; Leadership – Finance 2,190, Tech 629,
Healthcare 397; Equality – Finance 668, Tech 377, Healthcare 212; Openness – Finance 391, Tech 209, Healthcare 110; Belonging – Finance 70,
Tech 23, Healthcare 17
Source: Glassdoor and Indeed user-generated reviews

Diversity wins: How inclusion matters

37

How employees experience
inclusion—or the lack of it
A closer look at the sentiment analysis reveals somedifferences between industries—and vivid mentions
from employees, which further illustrate the valueof this “social listening” approach to companies
seeking to improve their inclusive culture.
Equality
Organizations across all three of the industries weanalyzed fare poorly on this metric, with equality
overwhelmingly the most negative of all dimensions
measured. In the finance sector, sentiment was themost strongly negative (80 percent) followed bytechnology (67 percent) and healthcare (63 percent).
Typical mentions included the following(see Exhibit 12):— “Promotions are based on WHO you know,
not WHAT you know! Good and hard work are
not recognized.”— “There is a lot of blatant favoritism and lack ofstrong managerial leadership which amounts
to swaths of displeased and un-engaged
employees. This can be seen by amount ofpeople we have had leave the organization.”
Openness
On this metric, sentiment of mentions was inaggregate negative, but more mixed across industry
sectors. In the technology sector, sentiment was themost negative (56 percent) followed by healthcare(44 percent) and finance (38 percent). No sector
was overall positive.

38

Diversity wins: How inclusion matters

Positive mentions focused on respect and trust
as important components in the workplace, while
negative mentions tended to cluster around bullying
and microaggressions. Typical examples included
the following:— “Lack of diversity in thought and in people.”— “Backstabbing, exclusive culture. No diversityof thought and opinions are not valued.”— “The constant rumor mill and lack ofcommunication makes it very stressful towork here.”
BelongingOn this dimension, the majority of mentions acrossindustry sectors were positive, although based ona notably smaller number of mentions. A typicalexample was the following:— “Amazing culture with an emphasis on inclusionand diversity. There are many employee
resource groups and clubs that make it easy
to feel comfortable and included at work. The
people I’ve worked with truly care about helping
you succeed and working as a team towards acommon goal.”
Negative sentiments expressed included thefollowing: “You cannot have your own opinion, own
style of work—only what is expected, to do exactly
things in the way corp says to you.”Target Corporation: staying open
Target Corporation is the eighth-largest retailer in the UnitedStates and believes that its sophisticated approach to I&D—
including using data to drive real-time transparency—is a key
enabler of its success.
“Diversity and inclusion are at the heart of what we doat Target,” Brian Cornell, Chairman and CEO, explains.
“Seventy-five percent of the US population lives
within 10 miles of a Target store—and in order to win inretail, we need to reflect that population in our team toensure we deliver the product, services, experiences
and messages our guests want and need.” 22
Fifteen years into its journey with an I&D office,Target is among the 5 percent of companies in ourdata set that is close to achieving gender parity on
its executive team (approaching 45 percent). Target
pursues a broad set of I&D best practices, but it
stands out in the following two key regards:— A sophisticated use of data to drive real-timetransparency. Progress on I&D is meticulously
tracked, with a dedicated I&D analytics team.
With multiple dashboards and through quarterly
and annual processes, the organization
reassesses its I&D goals every year and adjuststactics quarterly. Business leaders are expected
to make use of this disaggregated data to drive
their talent decisions. When setting pay oradvancement, for example, they can access andcheck their diversity statistics.
— A radical emphasis on courageousconversations and active listening that
extends beyond the organization. The company
culture is summed up in the call to action to “stayopen.” And through the company’s guardrails forco-existence, employees are encouraged to be
curious and accountable, to ask questions andhave the difficult conversations and to leverage
their unique skills to drive positive impact inbusiness and society.
22

Inclusivity is a key value in Target’s culture.
The company believes that embracing diversity
and striving to give everyone access to the same
opportunities helps them benefit from the richnessof different perspectives and fulfill the needs oftheir guests better.
“We’ve built an ecosystem around I&D rather thanjust having it as an isolated function,” says Tariq
Malik, Director of Employee Relations and Diversity
Analytics, who leads the company’s first ever I&D
analytics team. Every member of the organization isempowered to help champion an inclusive society.
For example, each business area has a Diversity
Action Committee—a volunteer group that works
with the I&D team to implement tactics specific for
their part of the organization. There are also affinity
groups for race/ethnicity, gender, ability, sexual
orientation, veterans, people with different abilities,
and faith.
Despite the company’s steady progress towards
parity, Malik says that the journey is not over. “We
are looking towards the future.” With a new setof goals for the business and team, the company
will continue to pursue outcomes in three key
areas: (i) representation (equitable retention
and advancement of diverse talent); (ii) inclusive
experience (inclusive leadership and individual
behavior); and (iii) business (ongoing investment
in diverse suppliers, and continued reach tomulticultural audiences and guests).

Comment taken from Target website: www.target.com/stayopen.

Diversity wins: How inclusion matters

39

40

Diversity wins: How inclusion matters

Winning through inclusionand diversity: taking bold action
As we have shown, the business case for diversity is growing
stronger and clearer—yet too many companies appear
unable to overcome significant obstacles in their efforts tomake tangible and sustained progress. The experience ofthe diversity winners we have studied suggests that it’s time
to be bold, in deploying a systematic approach to I&D, andin purposefully tackling inclusion. There is a significant
performance opportunity for those that are prepared to step up
and do what it takes to foster significant progress on I&D.
How it can be done is exemplified in the four

45 percent and 40 percent female respectively (seecase studies shared in this report. Citigroupcase studies on page 39 and page 46).

and Pentair are surging ahead in representation,
while continuing to push the boundaries andAction steps to make inclusion work

foster inclusive workplace cultures where people

Our analysis of diversity winners in our data set,

are empowered to be their authentic selves.

coupled with extensive insights from our research

Target Corporation and Lockheed Martin are also

and practice on I&D, has helped identify the winningprioritizing inclusion, while pushing towards genderactions and practices of diversity winners when it

parity on their executive teams—which is nearly

comes to inclusion (Exhibit 14).

Companies need a systematic, business-led approach to I&D, and bolder action on inclusion
Exhibit 14

Companies need a systematic, business-led approach to I&D, and bolder action on inclusion

1

2

Systematic,
business-led
approach to
I&D

Bold steps tostrengthen
inclusion

Increase diverse representation, particularly in leadershipand critical roles
Strengthen leadership and accountability for delivering
on I&D goals

Enable equality of opportunity through fairness andtransparency
Promote openness, tackling bias and discrimination
Foster belonging through support for multivariate diversity

Diversity wins: How inclusion matters41

We find firstly that getting the basics right is still
crucial. As we have made clear in previous reports,
including Delivering through Diversity, it remains
critical to deploy a systematic approach with a clear
rationale for I&D linked to business strategy; set
and cascade evidence-based targets; and engage
and empower core business leaders in the effort.23
The analysis presented in this report further
refines our insight into the bold and often
innovative actions that diversity winners aretaking to embed inclusive culture, mindsets andbehavior in their organizations. Companies shouldtake three essential actions: enable equality
and fairness of opportunity; promote openness
and tackle discrimination; and foster a sense of
belonging in the workplace.
Together, these imperatives translate into five
key action steps, as follows.

Ensure representation of diverse talent
Not only do diversity winners articulate a bespoke,
business-driven case for I&D change and set
themselves general representation targets,they also thoughtfully consider what forms of
multivariate diversity (for example going beyond
intrinsic forms such as gender and ethnicity)
to prioritize, and why. They focus on advancing
various forms of diverse talent specifically into
executive, line-management, technical andboard roles—not only addressing leadership
appointments but also fixing the “broken rungs”
of the corporate ladder along the way.24
This entails making hiring, appointments, andsuccession planning fair, with appropriate targets,diverse slates and talent process changes,
all grounded in advanced pipeline analytics
with interactive dashboards to visualize key
metrics. It also entails rethinking roles in termsof capabilities required. Organizations needto open the door to large-scale reskilling andreaching beyond traditional recruiting channels
and qualifications to access diverse talent whose
profiles likely differ from the status quo—or who
may be re-entering the labor market after a long
break. For example, many companies are setting
targets for diverse representation in specific roles,
such as for women in STEM-related positions,using strategic workforce-planning approaches

23

to project future talent trends and build diversity
targets into long-term workforce plans, and usingsophisticated digital heatmaps of local talentpools to target diverse potential recruits.

Strengthen leadership accountability andcapability for I&D
For diversity winners, placing their core businessleaders and managers at the heart of the I&D
effort is critical to building an inclusive culture.
Central to this are inclusive leadership capability
and accountability, both of which should go wellbeyond the executive team and extend to middle
management, where I&D is often relegated in theface of business priorities consideredmore pressing.
Diversity winners are going beyond standard
unconscious-bias training to make inclusive
leadership a core competency that is specified
in job descriptions, assessed in performance
reviews, supported by capability-building, androle-modeled by leaders and managers. Not only
should companies also hold their leaders andmanagers to account for delivering against diverse
representation targets, this should be extended
to inclusive leadership behavior. This includes
advocating I&D amongst their teams, promoting
flexible ways of working, tackling bias, and“conscious inclusion” of diverse team members,
with particular attention to “onlys”—people in teams
where no one else is of the same diversity status.
For example, one company includes in its
evaluation of its managers the share of theirmale and female team members who take theirfull parental leave, managers included. Thissends a strong signal to both female and maleteam members and levels the playing field on
parental leave and child care, which too often
still overwhelmingly penalizes women’s careers,
as well as on the growing numbers of male parents
seeking greater involvement with their families.
These raised expectations of managers and leaders
go hand-in-hand with capability building and theuse of approaches such as frequent and repeatednudges and reverse mentoring, to support themin practicing inclusive leadership in day-to-day
behavior, as well as at critical talent-management
decision points such as hiring or promotions.

Delivering through Diversity, 2017, McKinsey.com; Women Matter: Reinventing the workplace to unlock the potential of gender diversity,
op. cit.
24
Women in the Workplace, October 2018 and 2019, op. cit.

42

Diversity wins: How inclusion matters

Enable equality of opportunity through fairness
and transparency
Diversity winners recognize equality and a senseof fairness of opportunity as key areas of attention
in promoting inclusion, and hence retaining andadvancing diverse talent. They attend to this bothin terms of leadership mindsets, behavior andcapabilities, as described above, and throughde-biasing talent processes, primarily in relation
to advancement and equal pay.
These companies start by building transparency
into the extent to which their organizations aretrue meritocracies today, and where the impactof traditional notions of privilege are understood,and employees are promoted on skill andpotential, regardless of their ethnicity, genderor other identity attributes. This entails using
people-analytics tools and internal qualitative
research to build visibility into the extent towhich promotions and pay are transparent andfair. And, in acting on this, a growing number ofcompanies are training performance evaluators
to minimize bias in their decision making,supporting review committees with observers toflag decisions influenced by unconscious bias,
and deploying software tools to debias recruiting
and, increasingly, advancement processes.
Diversity winners also assess the extent to which
their staff have access to the support needed tosucceed, including sponsorship and mentorship,
access to resources and high-profile careeradvancing opportunities, access to training,

Diversity wins: How inclusion matters

support for dual-career couples and single
parents, or exposure to senior leaders. These canbe assessed through HR data and by redesigning
employee experience or satisfaction surveys, aswell as through dedicated sponsorship surveys.

Promote openness and tackle discrimination
It goes without saying that diversity winners
uphold—and enact—a zero-tolerance policy
for discriminatory behaviors such as bullying,harassment and microaggressions. The key here
is congruence between policies, which mostcompanies have aplenty, and actions to support
victims and apply consequences to perpetrators;
lack of such congruence is common and has asignificant impact on inclusion.
Across their organizations, diversity winners
actively build the ability of both managers
and junior staff to identify, surface and address
microaggressions. They achieve this in part bystrengthening awareness of the multiple forms
microaggressions take, through training thatsensitizes employees to be more conscious of
their communication styles. This is often supported
by organization-wide, day-to-day nudges.
One large multinational has deployed an inclusion
program specifically for its predominantly whitemale leaders. The program aims to help thesemanagers understand the impact of their behavior
on perceptions of openness among diverse
employees, and how they can contribute tofostering a positive company culture by shifting
attitudes and behaviors.

43

More broadly, diversity winners establish
norms and language for what constitutes open,
welcoming behavior—and then ask employees
and leaders to assess each other on how they are
doing in living up to that behavior. They focus onbuilding a company culture which encourages
open, productive discussion of difficult topics—for
example, through townhall sessions in which CEOs
encourage participation and actively listen to
employees’ ideas, issues, and questions. Indeed,
diversity winners strive to empower employees
and create safe spaces for them to share upward
feedback about their day-to-day experiences
as well as broader career-shaping situations.
A simple yet powerful tool that some companies
use is the daily check-in, in which employees share
any challenges they might be facing at home orat work, and how they are dealing with those.
The ultimate objective of such interventions is toallow people to bring their full selves to work.

Foster belonging through unequivocal support
for multivariate diversity
Diversity winners are increasingly extending
their scope for action beyond traditional diversity
and inclusion goals to include fostering a senseof belonging among all their employees, andparticularly among diverse employees. This aims
to create a culture which not only emphasizes
equality and openness, but in which employees
feel that they can contribute their unique talents,that these talents are valued by their managers,
teams and the wider organization, and that they
can bring their full selves to work. Diversity
winners are increasingly explicitly assessing
belonging in their employee-engagement surveys.
While this feeling is largely an outcome, it results from
specific actions on the part of the company, including
clear communication and behavior from managers
signaling their support to diversity in its varied
forms, through their support for diverse individuals
as well as employee resource groups. Belonging also
results from encouraging and building capabilities
among diverse talent to contribute their uniquestrengths, engage authentically and bring theirwhole selves to work, often through tailored
leadership-development programs.
For example, a major fashion retailer provides
immersive leadership-development training,supplemented by one-to-one coaching, designed
to help leaders learn early in their career how to be
more self-aware and supportive. Another company
has built a software tool that identifies “onlys” atrisk of feeling isolated and connects them withother “onlys” to help create a sense of belonging.

44

Diversity wins: How inclusion matters

Companies should recognize and support the role
employee resource groups, and allies supporting
them, play in building community around sharedcharacteristics and creating a space for diverse
individuals to reflect on their specific strengths
and contribute them better.

Starting points differ, but allcompanies can act now
As discussed earlier, our longitudinal lens has
allowed us to see the opportunities for, andbarriers to, I&D over time. Companies in each of
the five distinct cohorts—Diversity Leaders, Fast
Movers, Resting on Laurels, Moderate Movers,and Laggards—can and should deploy a strategy
reflecting their current baseline when considering
ways to enhance their I&D performance.
Companies across cohorts face many similarbarriers. Those can include external barriers,
such as an image of their industry that hampers
recruitment of women and minorities, or theprevailing culture in the wider societies in which
they operate. The internal barriers companies
face can have an even more direct impact on
I&D outcomes. These barriers include a failureof leadership support for I&D, insufficient drive
behind implementation, fragmentation of largely
bottom-up initiatives, an entrenched traditionalist
culture, and company-performance challenges.
All of them can lead to I&D not being considereda priority. Additionally, slower-moving companies
may be held back by complacency about current
representation levels, or even by diversity
backlash and fatigue.
What, then, are the specific steps that companies
in each cohort should prioritize? We suggest
the following:— Diversity Leaders have a unique opportunity tocreate truly diverse and inclusive organizations,and sustainably so. They should push for fairshare representation across diverse profiles inline with their business strategy, emphasizing
the business and organizational benefits ofdoing so, and moving to best practices acrossthe board. In particular, they may need to pushfor consistency in equality of opportunity andopenness across specific areas of the company.
Many are already seizing an industry, supplychain and wider societal leadership opportunity
to advance the I&D agenda, while strengthening
their sense of purpose and ability to attract
customers and talent.

Many Diversity Leaders are seizing
the opportunity to advance the
I&D agenda, while strengthening
their sense of purpose and ability
to attract customers and talent.

— Fast Movers have typically set themselves
robust targets for representation, developed
a bespoke understanding of the business casefor diversity, deployed measures to strengthen
leadership accountability, and built a solid levelof transparency and understanding around theirtalent pipeline metrics. They should continue
to develop inclusive leadership capabilities
among their managers, ensure that principlesof equality of opportunity are rigorously applied
to their talent processes, and maintain a sharp
focus on promoting openness and belonging to
mitigate any risk of diversity fatigue or backlash.
— For companies in the Resting on Laurels cohort,the emphasis should be on renewing or extending
their ambitions on diverse representation,
understanding the specific barriers to leadershipaccountability, equality, openness, and belonging
which have slowed progress, and tackling themthrough the targeted acceleration of initiatives
in these areas. For example, companies in
traditionally female-oriented industries suchas healthcare could benefit from more robustly
tackling the “glass ceiling” for women in topmanagement line and technical roles, updating
their hiring and promotion practices, and taking
steps to tackle bias.
— Moderate Movers should prioritize and scale
up the subset of interventions that are alreadyworking within their organizations acrossthe five domains identified above, while also

Diversity wins: How inclusion mattersidentifying and addressing key gaps, which areoften around target setting and transparency,
leadership accountability, particularly in middle
management, fairness of opportunity, andopenness. There is typically an opportunity forthese companies to raise their ambition leveland delivery focus significantly around existing
interventions, and implement targeted boldmoves inspired by their faster-moving peers.
— Laggards need to put in place the basics,
building a bespoke business case, setting
themselves targets to increase diverse
representation informed by relevantbenchmarks, and more forcefully championed
by senior leaders, review their HR policies
and practices to start removing bias, andencourage flexible working for all. They should
start to build among their managers a cultureof accountability for delivery and inclusive
leadership behavior, deploying initiatives suchas inclusion training and capability building.
Companies in STEM-focused industries suchas heavy industry or basic materials, where
the traditional educational pipeline may beless diverse, could benefit from emphasizing
capabilities over qualifications in their hiring, andexplore reskilling. They should also start building
an evidence base on inclusion through appropriate
employee surveys, as the basis for an ambitious
drive to tackle bias and build a culture of equality,
openness and belonging for all employees.

45

Lockheed Martin: breaking
down barriers to inclusion
Lockheed Martin, a global security and aerospace company, isengaging in courageous conversations to drive equality and build
an inclusive culture across its global operations.
Lockheed Martin is breaking down barriers indiversity and inclusion by educating its leaders
on how to engage effectively in the toughconversations necessary to make step-change
differences to the organization’s 110,000
employees. The global security and aerospacecompany, which is highly regarded for its innovationin technology,
is pioneering a novel experiential immersive
program that challenges its leaders to confront
privilege head on. Lockheed Martin has embraced
the immersive-leadership approach for more thana decade and it is consistently considered to bea game changer in driving for increased levels
of inclusion.
Leaders from top and middle management explore
the uncomfortable issues of bias and exclusion in
the workplace to build empathy and understanding,and foster a working environment that is equitable,
productive, and inclusive. Critically, this process
starts to chip away at the myth of meritocracy
by giving leaders insight into how they may havebenefitted from their class or race—rather thantheir innate ability—to get to where they are.
The teams of leaders that have participated in
the immersion report higher levels of inclusion,
engagement, and trust than teams of leaders thathaven’t gone through training. As part of broadening
the perspectives of others, the immersive program
has expanded to include cross-race and crossgender sessions where all dimensions of diversity
participate in sessions to have open conversations
and explore experiences in highly transparent ways.
The initiative is just one of the many robust
approaches at Lockheed Martin that havestrengthened its I&D efforts. Rainia L. Washington,
vice president of Global Diversity & Inclusion, says
the company prides itself on setting the pace in
the industry because it looks across the spectrum

46

Diversity wins: How inclusion mattersof I&D and is putting significant resources intocreating equality and building an inclusive culture.
“Our values to do what’s right, respect others,
and perform with excellence guide everything
we do. Respecting others means creating anenvironment where our employees feel welcomedand encouraged to bring their whole selves towork,” she says.
Recognizing that inclusivity helps drive its success,
Lockheed Martin is committed to cultivating aworld-class workforce and working culture.
And with gender representation approaching
40 percent on its executive team, it is getting
things right. The company has a four-pronged
strategy that includes the following:— Ambitious, enterprise-wide targets for gender
representation— Talent-evaluation processes via an external
partner to eliminate unconscious bias in talentacquisition, succession planning and promotions— Novel experiential learning, such as theimmersion program, to shift people’s behavior
and foster a sense of belonging— Data gathering via focus groups, anonymous
employee feedback, and exit surveys to inform
decision making and targets
What is critical, says Washington, is that efforts don’t
just come from the HR team, as executives havealso bought in, with the “CEO serving as the leadchampion for this and also setting expectations.”
Additionally, there is a zero-tolerance policy for any
form of discrimination or retaliation in the workplace.
“We’re not trying to change people’s beliefs—but weare trying to change behavior, so that when they walkthrough the doors our people know how we expect
them to behave.”

Conclusion
The business case for I&D remains strong;companies should act with urgency. In previous
reports, notably Delivering through Diversity(2018), we laid the foundations for progress,
presenting a framework for four imperatives
for building an effective I&D strategy. Thoseimperatives include committing and cascading
ambitious aspirations; linking I&D to company
growth strategy; crafting a prioritized portfolio of
initiatives addressing inclusion; and tailoring thestrategy to maximize impact.
In this report we have laid out a path foracceleration. We have shown that, to achieve
lasting progress, companies must go beyond
the systematic approach to I&D we have previously
advocated—namely, to ensure representation ofdiverse talent and to strengthen leadership andaccountability for I&D. They must also focus on
boosting inclusion by enabling equality, promoting
openness, and fostering belonging.

Diversity wins: How inclusion matters

To make progress in these areas, companies
will typically require a step change in the level ofcourage and boldness they have displayed so far.
They must also be ready to tackle sensitive topics
around cultural norms, and to shine a spotlight on
and apply consequences for individual behavior,including that in management and leadership.
Moreover, they need to sustain these efforts
over time.
It’s worth the push. As this report makes clear,
greater diversity, in terms of both gender andethnicity, is correlated with significantly greater
likelihood of outperformance. More than that,
fostering a diverse and inclusive culture is a critical
success factor: it enables individuals both to shine intheir own right and to pull together as a team.

47

Methodology
Company diversity and financial data
Our assessment of gender and ethnic/cultural
diversity is based on publicly available data from1,039 companies across 15 countries globally.
We reviewed corporate websites, annual reports,
and other industry websites to gather statistics
on the proportion of women and the split ofethnic/cultural groups for the whole company,
the executive team, and the board of directors.
We also gathered the representation of male andfemale executives (by ethnic/cultural group) inline and staff positions for most of the US- andUK-headquartered companies in our data set.
Our data comes from the period December 2018 toNovember 2019.
These demographic data were not available uniformly
for each company in our data set. For this reason,
the final tally of companies analyzed for a given
correlation is less than the full sample of companies
available. The exact sample size for each correlation
appears in the exhibits where our correlation findings
are shown.
Financial data came from the Corporate
Performance Analytics database by McKinsey
and S&P Global. We measured profitability using
average earnings before interest and taxes (EBIT)
margins for non-financial companies and average
return on equity (ROE) for financial companies overthe five-year period from 2014 to 2018.
We limited our data set to those companies forwhich we could obtain complete financial data—
EBIT (or ROE in the case of financial companies)—and at least one diversity data metric (gender or
ethnicity) for at least one level of the organization(executive or board of directors). Our observations
on other forms of diversity beyond gender andethnic/cultural diversity, such as LGBTQ+ or age/generational diversity, were limited by a lack ofaccess to publicly available representation data.

48

Diversity wins: How inclusion matters

Definition of company levels— Executive team is defined in line witheach company’s definition of its executive
management team or executive management
committee. Typically, this refers to C-2, the CEO,and up to two levels below: the executives on
C-suite level who report directly to the CEO (forexample, the CFO, COO, and presidents). In somecases, we also include C-3 (for example, vicepresidents) where these executives are listed on
a company’s website or annual report as being
part of the executive management team.
— Board of directors refers to the official
directors of the corporate board, including
both independent and executive directors,
responsible for governance and, in some cases,
management of the business. The compositionof boards varies considerably across the
sample, and the degree of diversity observedin particular geographies may be influenced bygovernment diversity quotas.
Methodology for determining diversity quartile
Companies in our global data set were grouped
into quartiles based on the diversity of theirorganizations at each level. For gender diversity,
quartiles were based on the percentage ofwomen at a given level, and set relative to the total(“global” sample) of 15 countries: Brazil, Mexico,
United Kingdom, United States, Australia, France,
Germany, India, Japan, Nigeria, Singapore, South
Africa, Denmark, Norway, and Sweden.
For ethnic diversity, we reprised a metric used in
our original Why Diversity Matters publication:
the normalized Herfindahl-Hirschman Index(NHHI) used by economists to measure market
concentration and competition within an industry.
We adapted the NHHI metric to differentiate
diversity in companies that had the same numberof non-majority executives, but where one

executive team included a greater range of ethnic
backgrounds. Since the publication of the original
research, we have inverted the ratio such that an
NHHI measure of 0 indicates a team where everyone
has the same race or gender. Increases in NHHI
indicate an increase in ethnic/cultural diversity.
HHI=∑N(si 2)
NHHI=(HHI-1∕N) ⁄ (1-1 ∕∕N)
NHHInew = 1—NHHIoldwhere N is the number of ethnic groups in thespecific geography
Ethnic diversity quartiles were also set globally.
However, given the limited availability of ethnic/
cultural demographic data, the sample was muchsmaller—only 6 countries out of 15: United States,
United Kingdom, Brazil, Mexico, Singapore, andSouth Africa.
While our correlations are based on the companies’
NHHI ratios, we also aggregated ethnic/cultural
minority representation among the companies, byindustry and by geography. We define ethnic group
identity as it is understood in each geography:— United States: white/European ancestry, black/
African ancestry, Latino/Hispanic of any race,
Asian/Asian ancestry (including South Asian),other (including mixed race)— United Kingdom: white/white British, black/Afro-Caribbean, Asian (including South Asian),other (including mixed race)— South Africa: black, white, colored, other— Singapore: Chinese, Malay, Indian, other(including white European)— Brazil: black, brown (including mixed race),
white, yellow (Asian), other— Mexico: white, mestizo, indigenous, black, other

Diversity wins: How inclusion matters

Methodology for financial performance
We grouped companies into peer groups based on
industry group and headquarters geography (nationallyor, if necessary, to ensure a sufficient sample size,
regionally). Within each industry-geography pair,
we then determined the relevant benchmark for“outperformance” for the financial metric:— EBIT margin benchmark set to be above themedian for the relevant industry-geography
peer group
We fit all the financial data to curves anddetermined that differentiating the bar for financial
performance was a necessary step to ensure that
we were truly capturing those companies withsuperior profitability.
Regression analyses
We ran multivariate regressions to confirm that therelationship between either type of diversity andfinancial performance exists. We generally publish
all results and note statistical significance. We
consider as statistically significant any correlations
with a p-value of <0.05. We also note wherep-values meet a slightly lower bar of <0.1.
Cohort analysis
For gender-cohort analysis, a subset of US and
UK companies with available gender data in 2014
and 2019 was used (365 companies). They weresegmented into cohorts based on diversity baseline in2014 and rate of change to 2019 diversity landscape.
For ethnic cohort analysis, a subset of US and UK
companies with available ethnicity data in 2014
and 2019 was used (241 companies). They weresegmented into cohorts based on diversity baseline
in 2014 and rate of change to 2019 diversity
landscape relative to the “fair share” of ethnic andcultural diversity of the respective country (nonmajority population percentage).
In both cases, we established the matrix cutoffs basedon the companies’ distribution in each of the axes.

49

Sentiment analysis methodology
We followed a three-step process for this analysis:
1. We analyzed comments from Glassdoor andIndeed. We considered US-based comments
made in 2017–19.
2. We selected keywords based on the following
factors:• We utilized results from the 2020 McKinsey
Quarterly inclusion survey to develop
keywords and phrases.
• We applied an inclusion framework withindicators of equality, openness, andbelonging, and enablers of diversity andsupportive leadership.
• We scrutinized the existing set ofcomments to align language used incomments with keywords.
• We assigned each comment a sentimentthrough an algorithm: positive, negative, or
neutral. We analyzed keywords in phrase
groups, applying unique word usage andcolloquial expressions (for example, boys’
club, pilot project versus airline pilot). Finally,
we iterated the algorithm to reduce the error
rate; the sample error rate for sentiment
analysis is between 3 and 10 percent.
3. We analyzed the results by industry and by
themes. We focused on our inclusion scoresand on comparing industry differences.
This methodology was corroborated by MIT
researchers in the Culture 500 research and in astudy undertaken over three years, which provides
some validation to our approach.25 MIT / Glassdoor
had a similar error rate, which they have indicatedis a typical rate for sentiment analyses. MIT /Glassdoor also had statistically significant findingson the determinants of culture from analyzing
publicly posted employee comments.

25

50

The benefits of this approach are as follows:— Scale: We have used an advanced natural
language processing algorithm which has
analyzed 30,000+ comments and is able topick up how people speak colloquially about
I&D topics and distinguish between different
meanings of the same words.
— Accuracy: The average US political poll surveys
1,000 voters, or approximately 0.001% of all
registered voters in the United States, whereas
the proportion of our scraped comments to the
US employee base is an average of 0.26%.
— Representativeness: Glassdoor’s give-toget requirement whereby users must leave
reviews in order to read reviews results in lower
polarization of comments.
— Consistency: We are able to compare
companies across an identical time period
and method of giving feedback.
Nevertheless, we recognize inherent limitations to
our sentiment-analysis methodology, as follows:— The volume of relevant comments may beinsufficient for certain industries.
— There is limited ability to assess sentiment
expressed specifically by diverse talent owing
to the lack of gender/racial minority markers.
— The methodology may be paradoxically biased
towards positive comments in low-representationindustries (for example, basic materials).
— Certain keywords are inherently skewed
negatively or positively (for example,
microaggressions, supportive manager).
— It may be difficult to distinguish comments madeby frontline workers where relevant.
— There is no employee-verification system toensure that employees do indeed work for thereferenced companies.

Donald Sull, Charles Sull, and Andrew Chamberlain, “Measuring Culture in Leading Companies,” MIT Sloan Management Review,
June 2019.

Diversity wins: How inclusion matters

Deep-dive company profiles
We conducted outside-in research on 18 companies
in our data set and developed case studies for
each, using publicly available information from theirrespective websites. We supplemented our findings
with senior executive interviews, including thecompanies profiled.
To know more about our case studies, or if yourcompany would like to participate in our research in
the future, please contact the authors.
Limitations of this work
This work adds to a growing body of research on
the business case for I&D, and sheds light on how
companies can use diversity as an enabler of business
impact. Several caveats are worth highlighting:— Correlation is not causation. There are real
limitations, and we are not asserting a causal link.
As with many levers of business performance,
particularly at such a high level, this would bechallenging to demonstrate, likely requiring
detailed longitudinal studies. Yet, while notcausal, the relationship is real. We have foundstatistically significant correlations between
higher levels of diversity and above-industryaverage financial performance in our original
2015 report, our 2018 update, and this report.
Moreover, other research gives us good insight
into what might underpin the relationship, andour interviews tell us how companies can makematerial differences in their I&D outcomes.

Diversity wins: How inclusion matters

Taking all these into account, we think companies
on the hunt for growth can get much moretactical on how they think about I&D as a lever
to pull on the path to growth.
— Just as we cannot assert causality, we cannot
say definitively what drives the correlations wefind. It is theoretically possible that the better
financial outperformance enables companies toachieve greater levels of diversity. Companies
that perform well financially may choose to
deploy more of their resources toward moreadvanced talent strategies, thus allowing themto attract more diverse talent, for example.
However, in practice this seems unlikely.
We have observed that most companies only
embark on a major transformation when they
have a burning platform to do so.
— As standardized measures of inclusion aredeveloped, it may become possible in the future
to conduct more large-scale analysis to explore
a potential correlation between inclusivenessand financial performance.
— Measuring diversity in critical value-creation
roles is a logical next step in this analysis, as an
outside-in assessment of top teams is limited
in its ability to focus on diversity in valuecritical business areas and roles throughout
the organization.

51

About the authors
Sundiatu Dixon-Fyle is a senior expert in McKinsey’s London office, where Vivian Hunt, DBE, is asenior partner; Kevin Dolan is a senior partner in the Chicago office; and Sara Prince is a partner inthe Atlanta office.

Acknowledgments
The authors thank the executives and I&D leaders at Citigroup, Lockheed Martin, Pentair, and Target
featured in the case studies in this report, as well as the many other executives who agreed to speak with us,
for contributing their time and sharing their companies’ experiences with I&D. The authors would also like tothank the following senior colleagues for their commitment to this topic: Kweilin Ellingrud, Diana Ellsworth,Alexis Krivkovich, Anu Madgavkar, Brian Rolfes, Sandra Sancier-Sultan, Kevin Sneader, and Jason Wright.
Further, we thank the contributors to the report, drawn from across McKinsey’s global offices. They include
Alberto Cordeiro (Sao Paolo), Treina Fabre (London), Drew Goldstein (Miami), Gabriela Gunawan (London),Martine Johannesen (alumnus), Kay Kiladze (London), Ankita Kodavoor (Bangalore), Lungile Makhanya(London), Martina Miskufova (alumnus), Claire Nesbitt (alumnus), Paula del Rey Puech (London), Bárbara
Régis (Sao Paolo), Chloe Reiss (London), Zinnia Siddiqi (London), Celine Toh Hsin Lin (London), Shreya Vora
(London), and Shani Wijetilaka (London). We also thank Colin Douglas and Jane Notten of the Editorial team,Nicola Montenegri, Denise Renner, and Linnea Jonsson of the External Relations team, Margaret Swink of
McKinsey’s Global All In, Diversity and Inclusion and Beth Devine and Rich Nunn of Visual Media Europe for
their collaboration and support. Finally, the authors appreciate the support of colleagues from McKinsey’s
Strategy Analytics Center (STAC) in compiling financial metrics for the companies in our sample, McKinsey
Digital Consumer Insights as well as Data2Impact, EvalueServe, Revuze, Glassdoor and Indeed.

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Diversity wins: How inclusion matters

May 2020
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