While female representation is rising, diversity fatigue is in the air. How can we blast past tokenism to maximize diversity’s power?
- Diversity fatigue is setting in as some governments roll back targets; for example, Japan removed its target of 30% female managers by 2020.
- A 30% target is the threshold to move beyond tokenism and achieve the benefit of diverse viewpoints, leading to greater innovation and better outcomes.
- Achieving a 30% target requires planning across all levels, yet only 18% of companies have structured programs; we must remove male bias and keep investing.
Diversity fatigue is in the air. World Economic Forum predicts that it will take 99.5 years to achieve gender parity. After 17 years of slow improvement, the Japanese government quietly removed the so-called “20-30” numerical target – 30% women ratio in managerial positions by 2020.
On the other hand, there is also good news. Globally in 2021, prominent companies increasingly have women CEOs, including a major semiconductor manufacturer and a social media platform. In Japan, the corporate governance reform pushed up the rate of women directors on the board at TOPIX 100 companies, having nearly doubled over the last 5 years to 12.9%. The moaning is audible – are we there yet? Have we not achieved enough already?
The answer, sadly, is no. And now is exactly the time to double down – the power of diversity shines best in a knowledge-based, post-industrial capitalism. But to overcome the road bump of diversity fatigue, we must move quickly from tokenism to pragmatism.
Optics can be misleading. While female CEOs are cause for celebration as symbols of women’s advancement in the corporate world, they alone cannot be a major force in converting the power of diversity into performance. In fact, a research study from The Peterson Institute for International Economics and EY shows that a CEO’s gender does not have a significant impact on firm profitability, when controlling for gender balance elsewhere in the firm. The largest gains are associated with group KPIs, first the proportion of female executives, followed by the proportion of female board members.
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.
Diversity fatigue is also caused by the organizational effort of not being met by results. In this light, it is important to recognize that male bias clouds the prioritization of diversity initiatives. For example, the same EY Women Fast Forward survey found that men and women see the barriers to diversity aspirations quite differently. Nearly half of men cited conflicts of raising a family and a shortage of female talent as major obstacles to diversity. Women did not agree – citing unsupportive culture and organizational bias at the top. In fact, only 7% of women raised the shortage of female talent as an obstacle in contrast with 43% of men.
Lack of female talent is unlikely to be a major challenge. Rather, it is about aligning the initiatives with the desired outcome. Investment in an on-site office nursery is one mother-friendly idea, but women may benefit more from having mentorship from a senior leader – tops of the enabler list in our survey according to women, although bottom according to men.
The power of diversity is proven. We must tap into it more than ever in the age of post-industrialization. But to do so, we must ask ourselves – are we not fooling ourselves with optics, and are we investing in the right initiatives?
So much accomplished, but a long way to go – it is easy to fall into complacency when it comes to gender diversity in the corporate world. But now is the time to double-down; success in post-industrial capitalism calls for innovation best achieved via confluence of diverse ideas. Having 30% women in leadership adds 15% boost in profitability compared to having no women leaders. Moving beyond tokenism, we must actively address the gender gap brought about by lack of diversity in leadership. More can be done to advance women’s career when we remove male bias from gender balance initiatives.