Executive Team Diversity

Should your team be more diverse?

Executive teams aren’t normal, at least when it comes to reflecting the rest of society with regard to diversity. Should we care? At the moment, at least in the United States with the pendulum swinging against wokeness and major corporations abandoning their DEI programs, it would be easy not to care. Increasing the percentage of women and minorities at the highest levels of companies has been painstakingly slow over the past few decades and given the current mood, it would be easy to quickly undo that progress. But should we? Not if we care about results.

The latest report by McKinsey in 2020 that examined data from U.S. and UK firms confirmed what years of research have consistently demonstrated; that firms with greater diversity at the top outperform their peers in profitability, innovation and shareholder returns. There can’t be any argument about this; the results are too consistent. And yet, actions often don’t follow what logic would dictate. If told that they would be guaranteed a 30% chance to outperform their rivals by adopting a simple change that would cost nothing, most red-blooded business leaders would jump at the opportunity. That is, apparently, until they hear what the change would be. If it is any consolation, US firms are more inclusive than teams from Mexico, Brazil, India and Japan. Apparently, the results of research haven’t reached those countries yet. What’s going on? And if true, why aren’t boards insisting that leaders do more?

The decision regarding membership of the executive team belongs to the CEO. Boards and investors accept the fact that they can’t dictate who should sit on the team and at the same time hold the CEO responsible for the performance of the business. It’s one or the other and the default position has been in favor of CEO autonomy largely because of the sheer number of decisions CEOs make that have an influence on outcomes. It’s not possible to take away autonomy on some decisions and still say that the overall performance of the business is due to the sum total of decisions that the CEO makes. It has to be all or nothing. Boards can remove CEOs if they are unhappy with results but they shouldn’t meddle in the CEO’s decisions.

So, the question becomes, why would a CEO choose an executive team that is not diverse and therefore knowingly sub-optimal? Let’s consider the challenges involved in choosing a diverse team and then come to the actual reason.

The challenges in fielding a more diverse team are threefold. First, there is the talent challenge. There are plenty of qualified female and minority candidates available for selection. There have been more women than men pursuing MBAs and the percentage of people of color doing so has risen steadily. Yet, due to cultural differences, family commitments and the effects of unconscious bias at each step of the way, many women, minority and international executives face a tougher challenge in finding a straight line to the top than their white male counterparts. While diverse candidates may start the race with equal or greater potential, by the final lap, the majority of them are far behind from an experience standpoint. When great candidates make it through the gauntlet, they are often in demand and subsequently targeted by search firms for poaching. Keeping them might require paying outsized salaries that would create inequity with other members of the executive team.

After availability as a challenge comes personal choice on the part of the candidate. Life at the top is demanding enough in terms of the commitment to work long hours and be available 24/7. Add to that reports of the struggle to gain legitimacy by their diverse predecessors and the question becomes, is it really worth it? There’s more to life for some people than titles and wealth, so a role on the top team isn’t for everyone.

The third challenge comes from other members of the executive team who are vigorously promoting individuals they have developed. There’s nothing better as a member of the top team than having “one of your own” take a seat at the table, rather than a stranger who might lock horns on important decisions. With the strong endorsement of an executive team member, the CEO is faced with a doubly difficult decision. First, in choosing a diverse candidate, they would be selecting someone who is less familiar and less a guaranteed success than someone who is well known and proven. Second, they would be disappointing a member of their team, which while not a deal breaker, does come at a cost. Furthermore, selecting a diverse candidate could be taken as a signal that there is no longer a path to the top for traditional candidates, causing some good people to leave.

Thus, there are real challenges that get in the way of balancing out the diversity of the executive team. These challenges are all capable of being overcome, however, and fail to explain the persistence of the diversity disparity.

Rethinking the diversity of the executive team is a difficult topic to discuss. When I raise it with CEOs, I often sense that the topic is out of bounds. A few quick sentences, usually referring to the challenges and including a statement of intent to do better as openings permit is about the most I get. I suspect that to the extent that members of the board raise the question, the response would be along the same lines.

I don’t think that CEOs are anti-diversity in principle. I also think that most of them are aware that more diverse teams perform better, just as they know that companies with a larger commitment to sustainability tend to outperform those who invest less in environmental and social goals.

I have said elsewhere that I believe the most important thing to CEOs is success and the security it brings. Being praised by their boards, employees and the public for their leadership matters more than earning a few more dollars or having a big corner office. This desire to succeed overshadows everything else and subsequently, CEOs use the power at their disposal to stack the odds in their favor. As a part of this, they want to have confidence in their executive team and choose members who they believe will bring the greatest strength to the table. Their comfort with and belief in their male counterparts is a stronger factor in selection than the hope that a more diverse team will produce superior results. By the way, this possible explanation seems to extend to female CEOs, who don’t overload their teams with diverse candidates either.

Adding diversity to a team doesn’t automatically guarantee better performance, even though the data would suggest that on average, it does. Teams need to go through storming before they can leverage the advantages of diversity and the outcomes of the storming phase of group development can be positive or permanently disabling, depending on how they are handled.

For CEOs who want to build the strongest team possible, it’s best to involve others in the selection of members and facilitation of the team as it goes through its development pains. There’s a reason that the best orchestras insist on blind auditions so that the appearance of a musician doesn’t bias the judgment of their talent. In the end, the goal should be success, not comfort. We have often heard it said that the best leaders are those who surround themselves with people who are smarter and more capable than they are themselves. To that, we should add that they surround themselves with a diverse group of the best people available and then put in the necessary effort to make a good team great.