Is diversity and inclusion an empty phrase?

Global trends in female representation and cultural diversity at board level, and the importance of diversity and inclusion policies, from Elena Philipova, Global Head of ESG at fintech data firm, Refinitiv.

Do you know this classic riddle? A father and son are involved in a car crash and are rushed to the hospital. The father dies, but the boy is taken to the operating room. The hospital bans surgeons from treating close relatives, so the doctor takes one look at the patient and says, ‘I can’t operate on this boy. He’s my son.’

How is this possible?

Those who have difficulty with this riddle are unable to imagine that the surgeon is a woman and, therefore, the boy’s mother.

A similar principle applies in the business world where some find it hard to imagine a woman as a company CEO, or a member of a cultural minority on a firm’s board of directors.

The varied picture on D&I

Developing a diverse workforce through policies of inclusion is no longer a theoretical concept. In today’s complex global marketplace, a company with a workforce that reflects the community in which it operates has a better chance of producing superior financial results – and rewarding investors.

Diversity and inclusion (D&I) is an issue which is often given lip service – but a deeper look at the data produces a varied picture.

More than 7,000 companies globally are ranked by the Refinitiv D&I Index, enabling it to identify the top 100 publicly traded companies with the most diverse and inclusive workplaces, as measured by 24 separate metrics across four key pillars. The data used to create the index is taken from the Refinitiv Environment, Social and Governance (ESG) database, from which recent analysis has highlighted some interesting D&I trends.

Trends in board-level gender and cultural diversity

For instance, the percentage of companies reporting on their boards’ gender diversity soared to 98% in 2017 from 60% in 2013, among companies that have had an ESG score for the last five years. However, these same companies seem to have a harder time reporting on their boards’ cultural diversity – the proportion doing this rose to 31% in 2017, from 21% in 2013.

When it comes to the actual level of diversity found on boards, it looks like many of those companies haven’t taken the necessary steps to create more balanced gender representation. Women held a disappointing 18% of board seats in public companies, up from 12% in 2013, while culturally diverse directors made up nearly 29%, roughly even with the figure of 30% from 2013.

Quotas may seem like a radical idea to many, but France has mandated that at least 40% of board members at companies in the CAC 40 stock index must be female since 2017. With quotas also in place in Germany and Italy, Europe was found to be leading the way, with 26% female board membership. The equivalent proportion in North America was 20%, while Japan placed bottom, with 5%.

 

Europe also led the charts for boards’ cultural diversity, at 35%, with Japan again bringing up the rear, at 12%. Switzerland was the top country for boards’ cultural diversity, at 56%, which is perhaps not surprising in a country with four official languages. The US ‘melting pot’ is among countries with the least culturally diverse company boards, at just 13%.

The business case for D&I and company-wide diversity

Drilling down into an organisation from the board level, it is critically important for companies to develop diverse talent from within and to invest in the future leaders of the business.

Companies that are serious about creating and benefiting from diverse and inclusive workplaces use information like the one powering the Refinitiv D&I Index to inform their strategies, measure progress and communicate with stakeholders – and the investment community is watching closely. The business case for D&I is compelling as more institutional investors use ESG metrics to enhance their investment strategies and inform their thematic solutions, such as the practice of ‘gender lens investing’.

Aside from the boardroom, many companies report on the diversity of their workforce as a whole. Here, we see an improvement in the gender balance, but at a much slower pace over the last five years. The percentage of female employees edged up to 35% in 2017, from 33% in 2013. The percentage of female managers, meanwhile stood at 27% in 2017, compared to 25% in 2013, although this proportion was substantially higher, at 35%, in 2016.

A diverse workforce also includes people with disabilities, a segment of the population that has frequently faced barriers to employment. Progress here has been promising, although a lot more could be done by businesses. The number of companies reporting on percentages of employees with disabilities is still very low, at 17% as of 2017, despite this being an increase from 9% in 2013.

So where are these trends going? Some 85% of companies in the ESG database have a D&I policy, but just 17% report D&I targets against this policy. Companies need to be committed to delivering against those policies and investors need to flag the companies that are following through with some real progress.

Management training and career development tracks

There are some promising trends around management training and policies for career development – crucial for attracting talent and maintaining a positive company culture. The percentage of companies with management training soared to 66% from 35%, and 78% of companies in the database now have career development tracks, up from 40%. Among geographic regions, Europe was the standout performer in both areas, with North America trailing.

In the future, D&I information will become an increasingly important indicator for investors as we are able to successfully overcome gender stereotypes illustrated in the riddle above. We need to push for greater transparency and standardisation on this information and other  metrics measured by ESG. That way, we will be better able to understand the linkages between diverse teams and sustainable financial growth, and make more informed investment decisions.

Elena Philipova is Global Head of ESG at Refinitiv. Learn more about the diversity and inclusion ratings created using Refinitiv ESG data.

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