This is Not a Numbers Game: Diversity and the CEO

From late 2011 through early 2012, Merryck & Co. explored this subject with chief executives, chief diversity officers, and other key leaders. The exchanges took place across five primary formats:

1. Interviews within two-dozen large, brand-recognized multinationals from an array of sectors and across markets in the US, Europe, and Australia.

2. Preparations for and delivery of a Merryck-facilitated panel at the TalentManagement Alliance’s Conference for Consumer and Retail in Chicago, September 2011.

3. Co-authorship by Merryck Principal Meredith Hellicar on the 2011 Bain & CoAustralia study “What Stops Women from Reaching the Top? Confronting the Tough Issues”.

4. Discussions during our annual Business Leaders Forum, in Florida in January of2012, where a group of 70 CEOs, COOs and senior partners grappled with the challenges of innovating and executing.

5. conversations with talent and development leaders during The Conference Board’s Summit on next-generation leadership, co-sponsored by Merryck & Co in March of 2012 in New York City.

Our goal was not to conduct an exhaustive field survey and prepare an academic point of view. Rather, we sought out candid, actionable conversations about what the best of the best had learned over 40 years about what works, what doesn’t, and what to do about it.

It is not enough that the chief executive be philosophically committed to diversity – its definition and ownership must start in the corner office.

While defining diversity within a specific organization’s context might sound obvious, every company we spoke with said the definitions had taken years – and sometimes decades – to emerge. In every case, diversity only became a galvanizing business objective once a specific CEO took hold and drove clarity. And the definitions of success, like other metrics of an organization, changed, waxed or waned with new CEOs.

Like every other aspect of a business’s strategic imperatives, if diversity is to have any meaningful impact, the CEO has to personally help shape it, achieve alignment, dedicate resources and drive accountability to ensure execution. Delegation to HR as the “definer” of diversity as well as the sole owner of its implementation effectively takes the topic off-radar and dooms meaningful impact.

This is not a compliance game: the goal is revenue and profitability. The most striking theme was the revenue and margin contributions diversity initiatives have been able to generate. For some consumer goods companies, that took the shape of radically improving market share among non-majority demographic groups embedded within traditional markets. For multi-national markets, that meant a sometimes painful realization that simply translating product labels and marketing into the local language is no substitute for local market knowledge and adaptation. More than one company admitted translating core consumer products labels into Spanish and then distributing them, otherwise unmodified, across Latin America. Not surprisingly, those launches failed. Expensively.

Diversity efforts under such conditions have been able to yield readily quantifiable ROI. For example, one consumer business discovered that its dominance of white customers in a US market segment masked the fact that it was missing 80% of minority spend within its niche. The company invested in sales and marketing training to go after that incremental – and substantial – share. ROI ranged from 3:1 to 5:1 for every dollar invested in the initiative. Variations of this theme echoed across numerous sectors.

Equally intriguing were diversity initiatives linked to R&D and even supply chain innovations, where a wider array of perspectives at the table and an expectation of (as opposed to mere tolerance for) creative dissent, led to organizations becoming increasingly agile over time. Here again, the role of the CEO and other senior leaders lent a make-or-break value to such efforts. Leaders who preached diversity of perspectives but punished personal dissent had a greater likelihood to see breakthrough ideas taper off.

The path for achieving those tangible improvements in revenue, profits and innovation is cognitive diversity. Easy to say, hard to measure.

A recurring theme from respondents, including board members, identified cognitive diversity – the ability of the organization to entertain and learn from differing and potentially conflicting points of view – as the catalyst that makes business improvements possible. The challenge this presents is two-fold. At the most obvious level, cognitive diversity is hard to measure. Thus other substitutes – including demographics – must stand in as credible but partial mile markers. What is critical is that neither the CEO nor the leadership team mistakes those incremental progress measures as the finish line.

The second challenge cognitive diversity faces is that study after study has shown that the appreciation of diverse thinking within the C-suite is undervalued by leaders of an organization. Senior leaders in most organizations are more likely to promote others with similar approaches to the leader’s own style than to promote those with differences.

In a late 2011 Bain & Co study, co-authored by one of Merryck & Co’s Australian leaders, 90% of senior executive men and women surveyed agreed or strongly agreed that men in senior roles were more likely to appoint or promote someone with a style similar to their own as the top determining factor of the appointment. In such an environment, the substance can easily be suborned to style, to the detriment of the organization.

In this definition, the opposite of diversity is not a single gender or a single race in the Boardroom (though such a profile would be a warning signal). Rather, the opposite of diversity is a tolerance for monolithic thinking.

Standard diversity tools such as external benchmarking and affinity groups are questionable uses of time and capital.

CHROs and Chief Diversity Officers representing some of the most successful business outcomes in their diversity initiatives expressed skepticism about the basket of typical tools brought to bear on diversity.

It is worth noting that these opinions are far from universal.

Benchmarking, as well as programs such as affinity groups, remain active parts of many organizations. But if cognitive diversity is a cultural trait the CEO envisions, understanding what is happening inside the organization today may be more important than benchmarking against other, external organizations. To that end, cultural surveys held up well as a valuable tool, as did maintaining a thorough understanding of the recruitment rates of minority and women candidates, as well as clear feedback patterns as to why those employees leave or remain with the organization over time.

Today’s definition of diversity will change – and quickly – under globalization and generational pressures.

Not so long ago, diversity meant primarily including women in the workforce. Then its focus expanded to include people of color.

Increasingly the shift is to focus on creating a company as diverse as its customer or consumer base. That shift, while still linked at a surface level to demographic measures, at a deeper level means that as our understanding of the global marketplace evolves, the complexity of our organizations’ thinking must evolve in stride.

For many leaders, this means breaking our own stereotypical definitions for diversity. For all of us, it demands a constant willingness to challenge our own well-reasoned definitions of what diversity meant to us and to the business yesterday. Tomorrow is a new world.

Our thinking and our problem-solving will have to evolve for our organizations to be sustainable. That is one of the most persistent challenges and satisfaction of leadership.