The Diversity Imperative

Fostering institutions that put a premium on inclusion

Keynote Remarks by Paul A. Laudicina to the INSEAD Women’s Leadership Conference
October 7, 2010
INSEAD Campus, Fountainebleau, France

I’m very pleased to be at this first INSEAD Women’s Leadership Conference, discussing with you what I believe is a central challenge facing business and society at large in the post-crisis world—the challenge of fostering institutions that put a premium on diversity and inclusion. Of course, with any discussion that takes place in a beautiful chateau in the French countryside, and is preceded by a wine tasting, it becomes very easy to take the edge off the compelling nature of the challenge. But France, after all, is an excellent place to reflect on diversity. To borrow from Charles de Gaulle, a country with 246 different types of cheese must know something about diversity. In all seriousness, I applaud the organizers of this conference, and each of you here in attendance, for driving the discussion on the diversity imperative.

Some may wonder why, in the face of the myriad difficulties, from financial crisis to slow growth to global rebalancing, we are devoting precious time and energy to a topic that we could perhaps address later. Why not just put off diversity and inclusion issues until after the dust from the recession has settled? This attitude, however, misses the point. Diversity is not a fringe issue. It’s not something that leadership can put off for a sunnier day, nor is it an indulgence for the developed world. For any smartly man­aged company, diversity and inclusion are as central to vibrancy as profitability and growth.

What is remarkable is that the forces cited by some as an excuse to defer diversity and inclusion issues—the financial crisis, the global recession, the emerging slow-growth environment—in fact reinforce the imperative of addressing them. By most accounts, the outlook for the global economy will feature slower growth in developed markets, and increasing competition from developing countries. In an environment of simultaneous slow growth and intense competition, only those companies with the best ideas, the greatest innovation and, correspondingly, the most talent, will survive.

These three things—ideas, innovation and talent—are maximized by encouraging the participation of the broadest and most diverse group of individuals under the corporate tent. More and better ideas are the result of a corporate culture that is both more diverse and more inclusive. So, for me, the equation is clear—if you want to grow, prosper and ultimately survive in the challenging global economy we are facing, you need to be diverse. Diversity programs shouldn’t be pursued in spite of the recession, they should be pursued because of it.

In fact, I would take this assertion one step further. One of the causes of the financial crisis was an inability within financial institutions, governments and regulators to step back from complex financial instruments and global imbalances and develop a clear perspective on what was actually going on. While there are many causes for this inability, a critical one in my view is the common background, common prejudices and common ways of thinking participants both in the markets and in government shared with one another. Had these companies had the benefit of truly alternative perspectives, and the means to promote these perspectives within their organization by means of a strong and structured diversity and inclusion program, they may have been able to see the bubble they were creating for what it was. But in the absence of such broad perspective and peripheral vision enhanced by a diverse population, what we had instead was groupthink that ended in catastrophe. The experience of the past two years should serve as clear evidence of the value of a diverse set of opinions and backgrounds—and of the risk of discounting this value.

Defining Diversity
Diversity, of course, means many things to many people. There is a general sense that diversity must at a mini­mum encompass different genders, ethnicities and races, but beyond that there is less consensus. A 2008 study by the U.S.-based Society for Human Resource Management found that while most organizations believe diversity is important, only 30 percent have a definition of what that means. I don’t need to tell a group of business school students the difficulty of measuring success against a goal that has not been defined.

Let me offer you the definition that we have developed at A.T. Kearney. To guide the objectives of our global diversity and inclusion programs, we have defined diversity and inclusion in the following way:

Diversity. Diversity is a broad concept referring to similarities and differences among people, including back­ground, culture, ethnicity, gender, language, age, national origin, physical ability, race, sexual orientation, religious and spiritual beliefs, thinking style, work function, practice group, industry specialty and educational background.

Inclusion. Inclusion means recognizing, respecting, managing and leveraging similarities and differences to achieve superior business results worldwide.

While this statement captures the traditional notions of diversity built around race and gender, we need to broaden the definition to include other critical and valuable attributes of diversity—different thinking styles, cultures, sexual orientations, educational backgrounds. We call it “diversity with a big D.”

Some have been concerned that by broadening the definition of diversity beyond traditional minority groups, diversity and inclusion advocates run the risk of diluting the concerns of traditionally disadvantaged groups. Reminiscent of John F. Kennedy’s assertion that a rising tide lifts all boats, the broader definition more accurately captures the ambition of creating an environment in which every person is able and empowered to make a valuable contribution.

We at A.T. Kearney are obviously not alone in embedding diversity and inclusion into the core of our strategic planning. A recent global survey indicated that 55 percent of corporate executives say that their organization “strongly promotes” diversity and inclusion. While a better number would be 100 percent, awareness of the importance of diversity is clearly on the rise. With awareness has come tangible progress in many areas, and there’s no question that progress has been made on diversity and inclusion issues globally—particularly regarding the role of women.

In many countries across the world, for example, women have become the majority of college graduates. In the United States, 58 percent of college graduates are women; the rate is 60 percent in Brazil, 65 percent in the United Arab Emirates and 47 percent in China. Women now earn the majority of graduate degrees in several disciplines as well, and have made strides in fields that were once thought of as “traditionally male,” such as business and law. As you all know, INSEAD is a shining example of this—on average 30 percent of your graduating cohorts are women. Women also hold the majority of management positions in a number of industries. The U.S. Government Accountability Office reports that women hold 57 percent of management positions in American educational services and 70 percent in healthcare.

But for all that, a remarkable amount of progress remains to be made. Women may be earning degrees in record numbers all across the world, and they may be taking management positions at an increasing rate. Yet inequities remain stubbornly persistent. Page through literature on diversity in business education and you will find numerous references to a 30 to 35 percent “glass ceiling” for female enrollment. It’s also no secret that women, while making progress in middle management positions, remain substantially underrepresented at the top of major companies. After accounting for experience, industry, geography and a number of other factors, a recent study found that compared to men, women still labor under a significant pay disadvantage in their initial positions after business school. The pay gap continues to widen as the initial disparity is compounded later in their careers, where women find themselves, unsurprisingly, less satisfied with their overall career advancement than men.

Part of the cause is structural. That is, the systems and programs that companies have in place to promote diversity are insufficient or ineffective. For example, companies routinely provide mentoring for their high-potential young associates to supply career advice, support and advocacy to these promising individuals. While women and men participate in mentoring programs in similar numbers, studies find that these programs produce dramatically different results for the two genders. Far more frequently than men, women are paired with lower-ranking, less influential mentors. And these mentors—even when they are from the senior level—tend to be less active on women’s behalf than on men’s. As a result, mentoring programs, as currently constructed, tend to maintain the outcomes gap between women and men, rather than closing it.

Geography also plays a role, with different attitudes from around the world toward both the importance of diversity and inclusion, and the best way to promote it. For example, European CEOs tend to be more active than their North American or Asian counterparts in promoting diversity—a very positive sign, given the importance of a senior-level diversity champion. Thirty percent of managers with responsibility for diversity and inclusion initiatives in Western Europe report directly to CEOs, as opposed to 21 percent in North America and 25 percent in Asia. However, European approaches to diversity tend to be more focused on women’s issues than on broader diversity initiatives.

Additionally, across Asia, Europe and North America, ingrained prejudices continue to present obstacles to successful diversity and inclusion programs. Thirty-two percent of North American respondents in a recent survey from the Society for Human Resource Management report that “a general attitude of indifference” creates barriers to the effective implementation of diversity and inclusion programs. The numbers are higher in Europe (at 49 per­cent) and Asia (at 50 percent). So, clearly, while progress has been made, there is still significant work to be done—and it is the responsibility of right-minded corporate leaders, and for future leaders like the people in this room, to present a compelling case for diversity to those who are as yet unconvinced.

Only the Most Innovative Will Survive
As I said before, diversity and inclusion are not just the right things to do, they’re also the smart and necessary things to do. Only the most innovative will survive in the increasingly competitive global economy ahead of us. Only the broadest set of backgrounds will be able to serve clients and customers in our ever more globalized world. These are not blind assertions made on the basis of my own personal observations. This is a conclusion that can easily be supported by a clear and impartial view of global market conditions. There are ongoing and indisputable global trends, both macro and micro, that make the compelling case that diversity and inclusion are central to creativity and innovation, which is essential for growth, which is the sine qua non for sustained success.

Let’s parse out a few of those macro trends. First, globalization—the increasing interconnectedness of people, products and ideas across national borders. Globalization is not a new trend and it should not come as a shock to anyone—particularly from INSEAD—that business has become more global. As the growth of established markets slows, and as emerging market firms become more aggressive and expansive, this trend will only increase. In Europe, companies have a long tradition of global integration. As a measure of this, European companies’ foreign sales—even when considering all of Europe as a single home market—are 39 percent of total sales. The number is even greater if one strictly considers national markets rather than the greater European market. For some of the small and mid-sized companies that play such a large role in several European economies—for example, the fabled German “Mittelstand” companies—exports are even more important. It is estimated that for such firms, exports could make up as much as 80 percent of sales. With European GDP growth forecast at less than 2 percent for the foreseeable future, the importance of global earnings will only increase.

In the developing world, companies that were once content to serve as suppliers or contract manufacturers for developed-world patrons are now making aggressive forays and promoting their own brands in established markets. In the United States, there are renewed calls for export-led growth. Without the broadest understanding of the greatest number of cultures, backgrounds and markets, how can a company compete? Without the brightest minds from all backgrounds, experiences and talents, how can a company survive?

This next stage of globalization will require managers to have more multi-cultural backgrounds and more multi-faceted perspectives and inputs than ever before. Only the most diverse group will be able to provide the necessary perspective.

Then there’s demographics. There is a saying that “demographics is destiny;” although I’ve always preferred to say that, for those who properly understand it, “demo­graphics is opportunity.” Well, the demographic refrain of our time, like the globalization theme, is well-known. The population—and the workforce—of the developed world is shrinking. Meanwhile, a number of developing countries are experiencing so-called demographic dividends, where their working-age populations are expanding very rapidly relative to dependent children and elderly.

So, for companies, particularly those based in established markets, the issue is a simple math problem. Home populations are shrinking, while those from outside the home markets are growing. Out of numerical necessity, workforces are going to have to become more diverse. The only real issue is which companies will win and which will lose as a result of this shift. Which companies will be able to take advantage of more diverse talent by actively fostering inclusive cultures and environments, and which will lose out by placing these issues on the back burner?

On the micro side, our own survey data—along with the data of numerous other organizations—has found that the best, most high-performing teams are not just diverse, but are both diverse and have team members who feel that there is clear support for diversity and inclusion from leadership. When companies create an environment that is both diverse and inclusive, and when that imperative is clearly communicated and supported by senior management, employees are more engaged, more productive and higher performing. This is a straight-forward result of employees feeling that their individual differences and individual needs are understood and respected by their employers.

And while diversity and inclusion programs inevitably come with some financial cost, how much do they save in reduced turnover? Each year, two million people voluntarily leave organizations due to perceived unfairness, costing U.S. corporations alone $64 billion. How much do inclusive companies gain in increased productivity, greater innovations, and the ability to provide better client service? Forward-thinking companies know the answer to this.

A critical aspect of diversity that is frequently over­looked in corporate programs is diversity in thinking style. In the business world—and consulting firms can be prime examples—recruits are all too often evaluated against narrow criteria. Firms are looking for a certain type of structured thought process and certain kinds of preferences and skills. Words that may be associated with this paradigm are logical, analytical, quantitative, sequential, organized, detailed and planned. There’s a reason that these traits are in demand, and it’s because they are powerful and valuable cognitive skills in a business environment. But teams that also include people whose style of thinking is more holistic, integrating, intuitive, synthesizing, inter­personal, and—yes—emotionally sensitive, are able to achieve much greater creative output.

The Society for Human Resource Management summarizes its business case for diversity with seven compelling propositions. Diversity and inclusion helps companies’ bottom lines by:

1. Providing greater adaptability and flexibility in a rapidly changing environment.
2. Attracting and retaining the best talent. A recent survey found that finding talent was a greater challenge for executives than increased competition or even growth. Over the long term, employee retention helps build leadership capability by encouraging employees to stay.
3. Reducing costs associated with turnover, absenteeism and low productivity. When an employee perceives that a company and its leadership are committed to a diverse and fair workplace, they are more likely to stay with the company, more engaged in their work, and less likely to miss days at work.
4. Providing return on investment from various initiatives, policies and practices.
5. Gaining and keeping greater and new market share. This can happen globally and locally with an expanded, more diverse customer base.
6. Increasing sales and profits. Over a 10-year period, the index of publicly traded companies in DiversityInc’s Top 50 Companies for Diversity list outperformed the NASDAQ by 28 percent, the S&P 500 by 25 percent, and the Dow by 22 percent.
7. Mitigating and minimizing legal risks. Over the past 10 years, race and gender discrimination lawsuits in the United States alone have cost corporations $2.3 billion in settlements—to say nothing of the cost of lost reputation.

Diversity with a Capital D
The business case for diversity and inclusion is easy to follow, but the implementation of an effective program is more difficult. At A.T. Kearney we have recognized that to succeed we need to have the most diverse, creative and talented teams available to offer our clients. And in order to attract, retain and advance the type of talent necessary to build those teams, we need to create a culture of diversity and inclusion across the firm.

As I mentioned earlier, our definition of diversity includes not just visible diversity, but also diversity in how we think, how we relate to others, how we work, how we connect and relate to society and what we believe and feel. It is broadly inclusive and requires significant change in the way we are structured and how we operate. To promote this “Diversity with a big D” across the firm, I personally chair a group of senior firm leaders that continually examines the actions that we have taken against our commitment to diversity, and recommends structural and behavioral improvements where possible. Most importantly, from the outset we have focused on “winning hearts and minds” within our firm to embed the values of diversity and inclusion permanently into our firm’s culture.

Enabled, Empowered and Imperiled
The challenge of your professional careers—of your lifetimes—will be how to grow while living in an increasingly constrained world, a world that is increasingly “enabled,” “empowered” and “imperiled.” In our enabled environment, what happens in one part of the world ricochets around to impact another part at unbelievable and ever-increasing speed. In our imperiled world, we struggle with the opposing dynamics of increasing demand and diminishing resources. Our empowered world is driven and turbocharged by new technology that allows for instant global connectivity at all hours of the day. These shifts—and the deep implications of each—affect all aspects of a client’s business, whether they operate within a single country or even a single city.

However, our obligations as business leaders do not simply stop at the edge of our companies’ balance sheets. Rather, they extend to the societies in which we live, and include the obligation to deliver on the needs of the billions globally who have only been outside the bakery window looking in, seeing the benefits that global business and an interconnected world can bring, but being unable to partake of it.

I recently read a book called Rediscovering Values by Jim Wallis, in which he examines the fallout from the Great Recession. He asserts that out of the recession’s crucible, there are three lessons to be learned. First, relationships matter. He writes, “The relationship between employer and employee has collapsed from one of mutual benefit to whatever you can get away with.” Second, “social sins” also matter—meaning that when great wealth goes to those who fail to add value, it’s a clear tip-off of imminent collapse. Finally, our own good is indeed tied up in the common good. “When the only business concern is the bottom line, the business quickly becomes a race to the bottom,” Wallis writes.

If we are to avoid a race to the bottom, if we are to meet the needs of all stakeholders—our own needs, those of our families, our communities, our society and share­holders—if we are to deliver results that are truly sustain­able, then we are going to need the best and brightest people leading all of our institutions, public and private. We are going to need the best, brightest, most enlightened, most morally grounded, and most emotionally balanced perspectives to get it right.

Diversity and inclusion is central to getting it right—and looking at the fallout around the world from how wrong we have gotten it in the recent past, we cannot afford to get it wrong again.
As I look around this splendid banquet, at all of the intelligence, talent and passion in this room, I am encouraged at how committed so many of us are to these principles, these imperatives, as right, smart and essential to our collective success and to the success of all those who are counting on us as leaders. And I congratulate INSEAD and all of you who have organized this inaugural event.

But we must enlarge this circle—and that will not be an easy job. Changing culture, changing how people behave, and changing how people think is the hardest type of change to effect. So let’s remain committed to that goal and determined not to be discouraged by the hurdles we will have to overcome—because this cause is right, this cause is just, this cause is smart, this cause is critical, this cause is one at which we cannot afford to fail.

About Paul A. Laudicina
Paul A. Laudicina is Managing Officer and Chairman of the Board of A.T. Kearney. He was first elected to this position by A.T. Kearney partners in 2006, and re-elected in 2009. Previously, he was Managing Director of A.T. Kearney’s Global Business Policy Council, a forum of CEOs and thought leaders focused on assessing global strategic opportunities and risk management. He is the author of a number of articles and books on global strategic issues, including World Out of Balance: Navigating Global Risks to Seize Competitive Advantage (McGraw-Hill, 2005), also published in six other language editions. He was named to Consulting Magazine’s annual ranking of the Top 25 Most Influential Consultants in 2005 and again in 2007.