The correlation between the diversity level of the leadership group and the performance is powerful and repeatable. The same study analyzes that a profitable firm with 30% of its leaders being female could expect to add a 15% boost to profitability compared with an otherwise similar firm with no female leaders. There is a rationale to the 30% target, which has been adopted by prominent pro-diversity organizations such as 30% Club. It is the level at which minority group members feel comfortable speaking their mind. Let’s take the typical number of corporate board seats in a Japanese company, 10. One woman is a lonely voice, silently pressured to represent half the population. Two women board members risk being pitched against each other. Therefore, 30% – more than three out of 10, – enables a woman’s voice to be heard as an individual, the gender factor gently and indirectly influencing her views.
Multiple layers of causality link diversity in leadership to better financial outcomes. First, women’s eyes may keep the company from committing an obvious mistake as a result of a gender data gap. In one example, voice recognition software in cars did not respond to women’s voices and had to be reconfigured. Why? Because an all-male engineering team designed it and demo-ed it with all-male executives. Corporate life is rife with such examples, which not only adds cost to operations but also incurs missed revenue.
Even more importantly, study after study shows that diversity helps innovation. Columbia University research statistically proves that the more a firm’s strategy is focused on innovation, the more that female representation in management improves the performance. Clearly, diversity repels group-think, which stifles innovation.
Today, we cannot overemphasize the link between diversity and innovation. Digitized automation transforms our labor market; the source of competitiveness is no longer uniform and diligent workers performing formulaic work. Instead, human creativity, assisted by AI analytics, drives competitiveness. In this post-industrial world, diversity holds the key to differentiation.
To get over the diversity complacency, the path is clear. We need to blast past the tokenism. Achieving a 30% rate of women in leadership requires careful planning on all layers. Yet, EY’s Women Fast Forward Cross-Sector Survey in 2015 found that only 18% of surveyed companies reported having structured, formal programs to identify and develop women for leadership.
