There is a strong and growing business case for gender, ethnic and cultural diversity in corporate leadership. In terms of profitability, the most diverse companies are now more likely than ever to outperform less diverse peers.
In 2019, top-quartile companies in ethnic and cultural diversity in executive teams outperformed peers in the bottom quartile by 36% in profitability, up from 33% in 2017 and 35% in 2014, as shown in a recent McKinsey analysis.
This is good news, both for society at large and for investors who make understanding corporate diversity practices an integral part of the security selection process. Given there is currently very little disclosure in much of the world by most companies on racial diversity, to scope out innovative practices our analysts have been reaching out to companies in our coverage that we consider best-in-class in sustainability and asking them how they are thinking of diversity as a key component of a strong human capital pipeline.
Our approach has focused on gathering information in the service of three main goals:
- Spurring management to think about racial diversity.
- Motivating companies to track diversity by candidly assessing their company’s workforce profile and to be transparent about it externally.
- Sharing insights, such as the value of informal networks within a company, in which mentorships or other internal structures increase visibility, experience and opportunity for minority groups.
Recruitment and pay equity practices are key parts of human capital management and a frequent topic of discussion with our portfolio companies. We have, for example, discussed with Intel its establishment of the “Rooney Rule”: in the program, hiring managers are required to interview at least one person of color for a job as a way to get talented people in front of managers that may otherwise have been overlooked for systemic or discriminatory reasons. This can be a way of bypassing more subjective (and thus potentially discriminatory) promotions and forcing accountability on managers that systematically overlook qualified minority employees.
Intel has also created a hotline that allows underrepresented minorities to call with questions or concerns about their immediate managers or just to get help with career choices or decisions. People that used the hotline had lower churn than those that didn’t, as it provided a way for employees to discuss more passive forms of discrimination from their immediate management. The hotline also offers something of a centralized form of mentorship; one difficulty with career advancement is that underrepresented minorities tend to have fewer informal mentorship opportunities and networks than others.
Intel also tracks cohort data to ensure that underrepresented minorities progress through the organization. Some companies explain lack of diversity in management by pointing to efforts in their infancy and noting the time it takes for them to become effective, but that ignores the fact that while entry level hiring decisions may increase diversity/inclusion, career progression tends to be more limited. Tracking and providing cohort data highlights progress in real time, rather than just pointing to an indefinite point in the future for progress to be more evident to shareholders.
CVS Health, another ClearBridge portfolio company, approaches racial equality both internally, as it pertains to employees, and externally in the targeted work CVS does for communities that are underrepresented in terms of health access. CVS has, for example, developed Colleague Resource Groups, groups of employees with shared interests or affinities with goals that help the organization. Groups include the Black Colleague Resource Group, which promotes inclusion, networking, community outreach and mentorship, Juntos, a multicultural organization of members of ethnic groups of Latin America , Pride+, focused on inclusion for LGBTQ+ employees, as well as groups focused on recognizing Indigenous peoples of the Americas environmental awareness, women’s leadership development, fitness, faith and more.
CVS highlights an opportunity for diversity and inclusion for a company that is not only one of the few companies to disclose detailed employee diversity data but is also committed to addressing the diverse health needs of the communities in which it operates. CVS has undertaken large-scale efforts to improve the health of underserved communities. Its hallmark program, “Project Health,” offers in-store health screening to large numbers of people, largely ethnic minorities, in underserved communities, then helps connect those people with primary care providers and clinics. CVS works with local health clinics and government-sponsored community health centers to enhance local access to quality care. It also supports local food banks to address nutritional insecurity, which can have significant health implications. During the COVID-19 pandemic, the company is also making a concerted effort to set up testing sites in underserved communities.
In addition, in what is both good business and social policy, CVS adapts stores to minority community needs, tailoring its store assortment and staff to the ethnic makeup of local communities. The company emphasizes hiring store managers, pharmacists and pharmacist technicians to align with local demographics and languages spoken, particularly Spanish.
The many forms diversity programs can take speaks to the many avenues that exist for bolstering diversity in the workplace, even while overall disclosure of racial data remains a challenge, especially in the U.S. By learning and sharing insights like these from corporate diversity leaders, we hope to publicize practices and thereby help and encourage other companies to find their way toward a more diverse future.
 Diversity wins: How inclusion matters, McKinsey 2019.