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McKinsey's December 2023 report, "Diversity Matters Even More," is an interesting piece of work that sheds exciting light on the profound connection between leadership diversity and holistic company growth (e.g. your business's growth in top, bottom, and all the adjacent lines).


I highly recommend reading the full report (link to download it for free at the end of this article), but since it's hard to find a) the time and b) the attention span for that kind of activity these days, here's my thoughts.


I work predominantly with Pre-Seed to Series A businesses where any single decision can be make or break, where there's always an internal fight between analysis and action, and where being a Mission-led business is an absolute baseline for any company wanting to attract and retain great talent from younger generations.


Thankfully, a lot of us no longer use a definition of 'success' in business that's exclusively related to an organisation's financial performance. Whilst we're not yet living in my post-Capitalist utopian dream, we're more awake now that ever to the fact that 'success' can also relate to the type of positive societal impact a company can make.


With all that in mind, let's delve into the key findings from the report and explore how time spent on decisions that improve diversity in early-stage business is time spent on building for success - in its many forms.


The Business Case for Diversity


For nearly a decade, McKinsey's Diversity Matters series has highlighted the correlation between leadership diversity and company performance. The 2023 report (the 4th of its kind) emphasises that the business case for diversity is stronger this time around than ever, showing, amongst many other interesting metrics, a significant positive relationship between diverse leadership teams and financial outperformance across various industries and regions.


In this iteration of "Diversity Matters", McKinsey dove into their biggest data set yet: 1,265 companies, 23 countries, and 6 geographical regions. And it's not just the breadth of the sample size that excites me (though who isn't excited by a good sample size, really?). This year, the report emphasised that 'success' in business isn't just financial - it's also a measure of the positive impact being made on communities, workforces, and the environment.


In UK startups, where my work is predominantly focussed, fostering diversity from the very earliest of stages is essential for long-term success. Research consistently shows that companies with diverse leadership teams achieve higher financial returns and that employees and customers alike are more motivated to stick around when a business is open about how much it prioritises a Mission.


Sure, this is clearly correlative data not causative. This is a frequent argument from the other side of the table as to why outspoken critics of biassed hiring practices need to pipe down and stop questioning the status quo. However, the correlation is so significant in this batch of data to make it hard to ignore. Especially in an ecosystem where hundreds of millions gets invested every year into businesses built on little more than a bit of a dream, a lot of charisma, and a sprinkling of unconscious bias.


Specifically, December's report showed that the likelihood of financial outperformance for top-quartile companies with gender diversity on executive teams has increased from 15% in 2015 to an impressive 39% in 2023.


Equitable Representation at the Top


Many personal experiences from very recent memory tell me that we have a long way to go to truly achieve inclusion, but of particular interest in this report is the highlight on the progress made in achieving equitable representation at the top levels of companies.


In the UK, diversity-leading companies have reached an ethnic representation average of 28%, which exceeds that of our general population (82% of people in the 2021 census self-identified as belonging to a White ethnic group).


Additionally, leading US companies have achieved 50% representation of women on executive teams. At the time of writing, the US economy is still in operation (let's all keep one eye on Trump's plans...), making the dual case that gender parity isn't just feasible, it's also not the economic death knoll that Team Misogyny would have you believe it to be.


And the potential for further improvements is there. From the report:


Companies with average levels of diverse representation have also shown substantial progress. Eight in ten companies now have at least one woman on their executive team, compared to less than two-thirds in 2020’s Diversity Wins.

Diversity Supports Inclusive Growth


Given the chance, I'll bore you to death from my Northern Socialist soapbox about the importance of putting people over profit and of building companies today that can safeguard our planet for the future after generations of stripping it for material gain.


It's been my experience that most people sit on one side of the debate or the other, so I'll restrain myself to the following. As I mentioned above, the report expands beyond financial performance, also highlighting the correlation between diversity and higher social and environmental impact scores.


Diverse boards and executive teams are strongly correlated with positive societal and environmental outcomes. If you're someone who's interested in building a company that has a positive impact outside of wealth-creation and you're not already prioritising diversity in your leadership team, the data is here to tell you that now is the time to start.


Over half of the sampled companies perform well in community involvement; prioritise the right things now and your startup too can make a meaningful impact.


Five Levers for Change


I will always encourage you to focus not just on the goals that you set, but equally on the plans you set for achieving those goals (read more in my best-selling book How To Write Your Strategy). To that end, how do you turn your intention to be more inclusive in your hiring into clear plans of action? McKinsey recommends five pillars for change:


  1. Commit to a systematic, purpose-led approach to benefit all stakeholders

  2. Embed your strategy in company-wide business initiatives while tailoring to local context

  3. Prioritise belonging and inclusive practices to unlock performance

  4. Embolden and activate champions and

  5. Act on feedback, including dissenting voices


Find the full details in Chapter 4 of the report, which you can download in full (for free) here:



Conclusion


To wrap-up, the McKinsey report reinforces the critical role of diversity in achieving lasting business impact.


For early stage startups in the UK, these findings reinforce the importance of prioritising diversity in your Strategy from the outset.


By fostering a diverse and inclusive culture, your startup can not only improve its financial performance but also contribute positively to society and the environment, and establish a strong foundation for long-term success - a goal not to be sniffed at in our stormy economy.


If you're interested in figuring out a path for your own company to a more diverse and successful future, hit me up for a free Discovery Call via the link below. I'll even bring my own soapbox.




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