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We Know Diversity is Good for Business, So Why Do Corporate Leaders Remain Predominantly White and Male?

We Know Diversity is Good for Business,
So Why Do Corporate Leaders Remain Predominantly White and Male?

An examination of diversity in senior leadership roles at America’s top companies

by Jessica Baron, PhD, @baronatrix

THE CASE FOR DIVERSITY

Diversity is more than just a buzzword, it’s a recipe for corporate success.

Multiple studies have shown that a more diverse workforce in terms of age, gender, ethnicity, as well as veteran, disability, and LGBTQIA+ status can bolster innovation.i A more diverse corporate talent pool is a competitive advantage not only because it helps companies create better products but because it helps them attract and retain the best talent from all over the world.ii

In terms of revenue, in 2015 alone, companies in the top quartile for racial and ethnic diversity were 35% more likely to have financial returns above national industry medians and those with more women saw a 15% advantage.iii The same year, we also saw that diverse companies had 2.3 times more cash flow per employee over a three-year period.iv

If diversity is so beneficial to a company’s bottom line and its workforce…why do they remain predominantly white and male from the staff to the C-suite and board?

When it comes to work-life balance, diversity among corporate leaders is key. Even twenty years ago, a study found that when women and people of color held half or more of the top jobs, companies were far more likely to provide flextime and childcare – an issue now equally important for men and one that leads to better morale, higher retention rates, and a more productive workforce.v

If diversity is so beneficial to a company’s bottom line and its workforce, why have the largest companies made so little progress in this area?  And why do they remain predominantly white and male from the staff to the C-suite and board?

Even more perplexing are surveys of corporate directors showing that the vast majority (84%) agree that board diversity enhances board performance. But while 91% have taken steps to increase diversity, 52% still think these efforts are simply driven by political correctness and 48% said their shareholders are too preoccupied with the topic.vi

Granted, correlations do not prove causation. The only way to prove that diversity leads to better outcomes would be to perform a randomized control trial, which is impossible in the real world. But we do have mounting evidence of such correlations. The strategic decision would, therefore, be to capitalize on the emerging talent pool of diverse employees and create a culture where innovation thrives.

GENDER DISPARITY

Women are still underrepresented at every level in corporate America even though they have been earning more college degrees than men for roughly 30 years.vii

Despite the visibility of women leaders over the last decade, they are still woefully underrepresented in leadership positions. Women held only 21.2% of board seats at S&P 500 companies in 2016 and accounted for only 24% of directors in 2018.

To add to the absurdity, in 2018 there were more men named James in Fortune 500 chief executive positions than all women put together.
To make matters worse, our knowledge of gender parity is severely lacking in corporate America due to underreporting. Only 3% of Fortune 500 companies openly share diversity data since it’s not a requirement. But digging deeper into news stories and interviews with corporate leaders can reveal gender and ethnicity data. For example, it shows that as of January 2019, just 24 Fortune 500 CEOs were female. If you are keeping score, that’s 24 out of 500.

To add to the absurdity, in 2018 there were more men named James in Fortune 500 chief executive positions than all women put together – and women outnumbered men named John (who were also all white) by just 2.ix

On the other hand, S&P companies report more diversity data, but the news is mixed. Women account for just 5% of CEOs at S&P 500 companies in 2019. While 44.7% of employees at these companies are women, women make up only 36.9% of first or mid-level management. The numbers drop significantly the higher you go – only 26.5% of executive or senior-level executives are women.x

While today only 21.2% of S&P 500 board members are women, a 2017 report showed that women and minorities accounted for nearly half of the roughly 400 newly-created independent directorships at these companies, with women holding 32% of the positions and African-Americans, Hispanics, and Asians holding 15% (though this was down from 18% in 2015).xi

But as investigative journalist Susan Reed has explained, “a highly diverse board does not necessarily mean that the executives who run a company are — or ever become — truly diverse.” Furthermore, boards frequently serve as “smokescreens” that “conceal just how white a company’s leaders (the CEO and his team) are.” In fact, the more diverse a company’s board is, the more likely their management teams are to be white.xii

Reed also notes that while the average share of female and minority executives has increased, white women have achieved these positions at a much higher rate than people of color, which has created a racial glass ceiling.

ETHNIC DIVERSITY DATA

While most Americans still identify as white, statistical projections have made it clear that the nation will become minority white by 2045.xiii In 2017, African Americans comprised 13.4% of the U.S. population and Hispanic and Latino Americans 18.1%. The Hispanic and Latino population is expected to grow the fastest, reaching 24.6% by 2060.

…the researchers found that if company performance declined during the tenure of a minority CEO, they were likely to be replaced by white men who were subsequently seen as “saviors” of the organization if it eventually recovered.
Comparing board diversity in Fortune 500 companies between 2016 and 2018, the presence of African American/Black women increased by 26.2% (an increase of 32 seats). African American/Black men saw an increase of 8.5% (26 seats), Hispanic/Latino men on board increased 14.3% (gaining 21 seats), and Hispanic/Latina women saw a gain of 9.8% (but only 4 seats). The biggest gains in Fortune 500 board seats were achieved by Asian/Pacific Islander women, with an increase of 38.6% (17 seats). Men of Asian/Pacific Island ethnicity saw an increase of 20.3% (25 seats).xiv

Nevertheless, Caucasian/White men still hold 66% of all Fortune 500 board seats and 91.1% of chairmanships on those boards, nowhere near representative of the actual population and still holding the majority of power positions even in companies with diverse boards.

When it comes to Fortune 100 companies, the numbers are slightly better. In 2018, 19.5% of Fortune 100 company board seats were held by minorities, compared to 16% of Fortune 500 seats. African American/Black women saw a 44.8% increase in seats – the largest of any group (though that represented just 13 seats). Caucasian/White men saw a decrease of 3% (23 seats) and men of all ethnicities saw a 1.2% decrease (or 11 seats).

While there’s been significant progress in achieving parity on boards, C-suite executives are actually less diverse now than they were a few years ago. Currently, there are just three black CEOs running Fortune 500 companies (5 fewer than there were three years ago) and the number of women CEOs dropped 25% (to 24 since) between June 2017 and May 2018.xv

Another troubling obstacle for diverse leaders? The so-called “glass cliff.” A 2013 study of 15 years of leadership in Fortune 500 companies showed that women and minorities are often appointed to leadership roles during periods of crisis or failure within an organization, making them far more risky to take on. To make matters worse, the researchers found that if company performance declined during the tenure of a minority CEO (which seems likely if one inherits serious problems), they were likely to be replaced by white men, who were subsequently seen as “saviors” of the organization if it eventually recovered.xvi

ARE MILLENNIALS THE ANSWER?

It turns out that we may have millennials – typically defined as those born between 1981 and 1996 – to thank for making the workplace more diverse.

This generation will make up 75% of the workforce by 2025, and their ideas about diversity are far more nuanced than their predecessors’.xvii Not only that, but they make up 30% of the voting population, so they have the power to be changemakers on multiple fronts.xviii They’re also a more diverse generation and overwhelmingly believe that diversity and inclusion lead to innovation and they’re far more likely to stay in jobs where they feel valued and accepted. Better yet, their definition of diversity is not limited to gender and ethnicity but includes LGBTQIA+, veteran, and disability status as well.

They’ll also have Generation Z – the most racially diverse generation in American history to back them up.  By 2020, 50.2% of children under 18 will come from a minority ethnic group.xx

Generation Z…the most racially diverse generation in American history…are young, educated, socially active and they are ready to change the way we all work.

In order to retain top talent and ensure healthy futures, companies will need to recognize the importance of these workers. Young people already show decreasing company loyalty – 43% of Millennials envision leaving their jobs within two years and 61% of Gen Z says they would leave within two years if given the choice.xxi

Why? Well, they don’t feel valued in the workplace; they expect flexibility and a positive work culture that helps them build skills; and they care deeply about ethical behavior and making positive contributions to society. They are young, educated, socially active and they are ready to change the way we all work.xxii They’re also about to outnumber older generations of workers who dismiss them as flaky and idealistic.

Still, there’s a long way to go before women and minorities in these groups are represented at the top. They will demand change, but it won’t happen overnight and companies would be wise to expect some growing pains as they adapt to their new workforce and future executives, especially as older generations work into their 70s.

If projections are correct, the number of women in the labor force will grow faster than that of men, increasing to 47.2% in 2024.xxiii By that time, Hispanics are projected to be nearly 20% of the labor force (30% by 2060), with African-Americans making up 12.7%, and Asians 6.6% – all an increase over 2014 demographics.xxiv

But the workforce and corporate leadership are two very different things, and the growing diversity of the workforce does not mean that women and minorities will automatically move into positions of power. That will still require a concerted effort to provide leadership and mentoring opportunities as well as useful diversity training.

We’re making progress and a diverse workforce is waiting in the wings. But it’s still up to those in charge to harness its power and prepare their companies for the next generation.

Further Reading

Sources Cited

i Quick Take: Why Diversity and Inclusion Matter (Catalyst, Aug 01, 2018).

iii Vivian Hunt, Dennis Layton, and Sara Prince, Why Diversity Matters (McKinsey & Co., January, 2015).

iv The report requires login credentials, but you can see a rundown of the data in the PR Newswire press release “Bersin by Deloitte: Diversity and Inclusion Top the List of Talent Practices Linked to Stronger Financial Outcomes” (Bersin by Deloitte, November 12, 2015).

v Jennifer Tucker, Leslie R. Wolfe, Edna Amparo Viruell-Fuentes, and Wendy Smooth, No More “Business as Usual”: Women of Color in Corporate America (Center for Women Policy, March 1999).

Kenneth Matos and Ellen Galinski, 2012 National Study of Employers (Families and Work Institute, 2012).

vi PwC, 2018 Annual Corporate Directors Survey (Governance Insights Center, 2018). See the summary here.

vii

Alexis Krivkovich, Kelsey Robinson, Irina Starikova, Rachel Valentino, and Lareina Yee, Women in the Workplace (McKinsey & Co., 2017).

viii Catalyst, Quick Take: Women on Corporate Boards (December 21, 2018).

ix Claire Cain Miller, Kevin Quealy, Margot Sanger-Katz, “The Top Jobs Where Women Are

Outnumbered by Men Named John” (The New York Times, April 24, 2018).

x Catalyst, Pyramid: Women in S&P 500 Companies (Jun 11, 2019).

xi Spencer Stuart, United States Spencer Stuart Board Index (2018); Ning Chiu, Board Composition at the S&P 500 Companies (Davis Polk & Wardwell LLP, December 2, 2016).

xv Jeff Green, Jordyn Holman, Janet Paskin, “America’s C-Suites Keep Getting Whiter (and More Male, Too)” (Bloomberg Businessweek, September 17, 2018).

xvi Alison Cook, Christy Glass, “Above the glass ceiling: When are women and racial/ethnic minorities promoted to CEO?” (Strategic Management Journal, June, 10, 2013).

xviii William H. Frey, “The millennial generation: A demographic bridge to America’s diverse future” (The Brookings Institute, January, 2018).

xx Jonathan Vespa, David M. Armstrong, Lauren Medina, “Demographic Turning Points for the

United States: Population Projections for 2020 to 2060 Population Estimates and Projections” (U.S. Census, Current Population Reports, March 2018)

xxii Camille Patrick, Ella Washtington “3 Ways Millennials Can Advance Workplace Diversity and Inclusion” (Gallup Workplace, November 30, 2018).

xxiii Bureau of Labor Statistics, “Labor Force Projections to 2024: The Labor Force Is Growing, But Slowly” (Monthly Labor Review, December 2015).

xxiv Mitra Toossi, “A look at the future of the U.S. labor force to 2060” (U.S. Bureau of Labor Statistics, September 2016).

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