The Changing Face of Talent

Diversity is no longer defined solely by a mix of race, gender, sexual orientation, or age. By Kristine Blenkhorn Rodriguez | Winter 2015

In a growing number of select boardrooms across America, you can hear an “amen” from sage C-suite execs. Not necessarily because they believe in diversity and inclusion (D&I) personally, or even because business magazines like Forbes trumpet diversity’s merits. Rather, it’s because D&I has become good business.

Companies on the cutting edge are now slicing and dicing diversity into two categories: Inherent and acquired—collectively called “2D diversity.” Inherent diversity involves inborn traits such as gender, ethnicity and sexual orientation. Acquired diversity involves traits gained from experience—working in another country can help a person appreciate cultural differences, for example.

Research from the Center for Talent Innovation, published in the Dec. 2013 issue of Harvard Business Review, found that organizations with at least three traits in each category out-innovate and outperform others. Employees at these companies are 45 percent more likely to report that their firm’s market share grew over the previous year, and are 70 percent more likely to report that the firm captured a new market.

And yet, 78 percent of study respondents said they worked at companies that lack 2D diversity in leadership. Without this diversity, women are 20 percent less likely than heterosexual white men to win endorsement for their ideas, people of color are 24 percent less likely, and LGBTs are 21 percent less likely.

The more Machiavellian among us may ask why this matters to the bottom line. Here’s your answer.

When ideas from minority members of a firm lack key sponsorship (meaning they’re not heard or considered on an equal playing field with ideas from “mainstream” peers), crucial market opportunities are squandered. Why? Because inherently diverse contributors better understand the unmet needs of underleveraged markets. The Center for Talent Innovation study found that when at least one member of a team shares traits with the end user, the entire team better understands that user. A team with a member who shares a client’s ethnicity is 152 percent more likely to understand that client—which translates into millions of dollars when applied to tailoring products and services.

Basic training

Deloitte’s report Global Human Capital Trends 2014 lists diversity/inclusion as one of the least important issues facing leaders in the area of human resources. And yet, 2015 analysis conducted by Grant Thornton shows that the few S&P500 companies that have male-only executive directors missed out on $567B of investment returns, compared to companies with more diverse boards and women executives.

This analysis reiterates our earlier point: D&I is no longer a human resources matter, but rather a business matter.

There are bright spots, however. Intel’s CEO Brian Krzanich used his time on the platform at the 2015 International Consumer Electronics Show to announce his company’s Diversity in Technology initiative. It includes new hiring and retention goals, as well as a $300M allotment for building a pipeline of female and other underrepresented engineers and computer scientists.

Also in 2015, California State Treasurer John Chiang called on the two largest pension funds in the United States to redouble their efforts to increase diversity in corporate boardrooms. In a further challenge to the status quo, Chiang called for a broadening of the definition of diversity to include sexual orientation and gender identity.

A diverse workforce is not in and of itself a panacea, however. “You can have a diverse workforce but an intimidating environment,” warns Dr. Sondra Thiederman, a workplace diversity consultant. “In that case your diversity does you no good because everyone is afraid to speak up and be heard. Diversity means getting your biases out of the way and really listening, taking in new ideas and approaches.”

Scott Steffens, chair of the ICPAS Diversity Advisory Council and partner at Grant Thornton, sees this happen all too often. “When we looked at the numbers through a diversity lens several years ago, they suggested underperformance in big accounting firms by professionals of color. Assuming we hire equally qualified professionals regardless of color, this suggests these individuals didn’t have the appropriate sponsorship to succeed. Either they’re not being heard and recognized for their contributions, or they’re not being properly indoctrinated into firm culture. Either way, we have an issue.”

Dr. Rohini Anand, Sodexo’s chief diversity officer, suggests that while buy-in is underplayed in some circles, it does in fact remain the lynchpin. “The CEO has to buy-in, as well as the executive team. And then we tend to forget about middle management. Your rank-and-file middle managers have to be brought in because they are the ones hiring individuals and making things happen.”

Anand’s lens broadens beyond race, gender and sexual orientation to generational diversity, too. In an era where talent shortages are fast fading as a concept and gaining ground as a reality, she has her eye on sustaining Sodexo’s attractiveness to Gen Y and beyond. “How do we create a culture where they want to come to us, work and stay? How do we keep them engaged?” she asks. “They’ll vote with their feet. They won’t hesitate to leave, unlike Baby Boomers who stuck it out.”

Goodbye attendance

In the salad days of diversity and inclusion, a check-the-box mentality prevailed. Many employees were required to attend diversity training, either in person or online, records were kept and the letter of the law was followed. As inclusion becomes an issue with dollar signs attached to it, however, this approach has changed, says Thiederman. “One-on-one mentoring is changing the face of business.”

Anand cites the example of a global CEO in Europe, assigned to mentor a female professional responsible for several high-security facilities within his organization. “He told me that if he would have been presented with two candidates, one male and one female, a couple of years prior, he would have chosen the man for this role without a second thought. But after spending time with his mentee, he realized that this soft-spoken woman was incredibly effective at her job. He admitted to having to see beyond style, appearance and stereotypes.”

A similar program at Chase Bank of Texas “instituted two-way mentoring between mainly female Filipino tellers and white male executives,” Thiederman explains. “The results were amazing, as the experiences began to give rise to awareness of commonalities, from worries about paying the bills to caring for aging family members. The scope and scale may have varied, but the two groups started to see each other less as group members and more as individuals. That’s where bias starts to break down and you yield real results.”

Sometimes mentoring isn’t the cure-all, though. Rather, you may need to mix things up with a new diversity ratio. Sodexo recently completed a gender-balance study for this purpose. In order to help quantify the impact of women in management, the company analyzed key performance indicators (KPIs) from 100 global entities and 52,000 managers. The intent was to isolate whether gender-balanced teams, defined as having 40-60 percent women in management, had higher KPI results than those without gender balance. For this initial work, the performance measures were focused on employee engagement, brand awareness, client retention and financial performance.

The preliminary results were powerful, indicating that entities with gender-balanced management teams performed better in the KPIs identified. Specifically, in FY14, 65 percent of subsidiaries with gender-balanced management saw an increase in gross profit over the last three consecutive years, compared to 42 percent among other management subsidiaries. Also in FY14, 71 percent of subsidiaries with gender-balanced management teams saw positive operating profit over the last three consecutive years, versus 60 percent for other management subsidiaries. And teams with gender-balanced management groups were 12 percent more likely to see an increase in client retention.

What’s more, 45 percent of entities saw positive organic growth over three consecutive years, versus 32 percent among other management teams. When it came to indicators such as employee engagement and brand image, gender-balanced teams again outperformed other management teams by 3 percent and 5 percent, respectively, over a two-year period.

“It’s clear that on both financial and non-financial indicators, gender- balanced teams outperformed those that weren’t,” says Anand. “At the end of the day, the conclusion for us is that genderbalanced teams consistently perform more sustainably and predictably.”

Diversity leaders

According to DiversityInc's annual ranking, the 10 most diverse companies across the globe range from pharmaceutical and credit card companies to insurance agencies and consumer product giants—and of course, accounting firms. You’ll see Anand’s work recognized, as Sodexo ranks number five on the list, just behind Novartis, Kaiser Permanente, PwC and Ernst & Young in the top four spots. MasterCard, AT&T, Prudential, Johnson & Johnson and Procter & Gamble round out the list.

Challenges remain, however. “Achieving real diversity is complicated,” says Julie Goodridge, CEO of NorthStar Asset Management, a socially responsible investing firm. “But I’ve been doing this for decades, since the early ‘80s, and we’re getting there. Just yesterday I was on a telephone call with a staffer who had been on a call discussing how financial companies vote on various proxy resolutions. There were some very heavy hitters on this call. According to my colleague, most of the people participating understood the importance of diversity and were inclined to vote in favor of any resolutions talking about diversity. It's taken decades to get to that point. But we’re seeing it—finally. We’ve reached a point where there is a lot of shareholder attention focused on diversity as a key driver of corporate success.”

Scrutiny of board diversity won’t go away any time soon, largely because investors want to know a company has all its bases covered. “When I see too many common work histories or common expertise among board members, most of whom have decadeslong service, then I'm not seeing the kind of diversity I want to see as an investor,” says Goodridge. “It starts at the top and can’t just be lip service.”

In that vein, “The Illinois CPA Society has made diversity one of its priorities,” Steffens explains. “It definitely will be part of our conversation over the next several years. We have this really unique opportunity to capitalize on the success of programs like the Mary T. Washington Wylie Internship Preparation Program, which was established in collaboration with the CPA Endowment Fund of Illinois.”

This award-winning program is a three-day, all expenses paid initiative held annually in Chicago. It’s available to up to 25 African American and other underrepresented minority college sophomores, juniors or seniors interested in accounting as a career. The program’s goal is to prepare students at community and junior colleges and other non-core schools for the CPA profession through practical training, resources and mentorship. At the end of the program, participating firms interview the students for a variety of paid internships specifically held for program participants.

Launched in January 2013, 75 students, representing 32 schools, have participated to date, with more than 40 students receiving an internship or other offer. In addition, all students walk away with a $500 scholarship to help with educational expenses. And just this past summer, the program was awarded an American Society of Association Executives (ASAE) 2015 Power of A Gold Award, which recognizes the extraordinary contributions associations make to society by enriching lives, creating a competitive workforce, preparing for the future, driving innovation and making a better world.

Magic bullets

Diversity has evolved from a one-dimensional corporate training program into a force potentially capable of changing long-held biases and the face of the executive office. While no single action or item will provide the magic bullet necessary to change human nature and corporate culture, balanced teams, one-on-one relationship building, diverse boards and innovative feeder programs together can prove formidable.

“When confronted with the numbers,” says Steffens, “I don’t know leaders from any firm who don’t understand the country’s demographics are changing and our firms’ composition needs to change also. It’s an ongoing competition for talent—and the face of that talent will continue to change over the next several decades.”