The Johnson Papers || “Glass Ceilings, Glass Walls and Sticky Floors” – Diversity, Equity & Inclusion – The Continuing Challenge for Boards
We are delighted to release our latest instalment of The Johnson Papers series.
A challenge companies and their boards have attempted to resolve for some years is the task of developing and delivering dynamic diversity policies. Policies that bring diversity, equity and inclusion to life in their organisations in order to achieve the vital potential of all staff. Most large companies internationally have made significant formal efforts to do this, but the results have proved so far disappointing. A recent definitive global survey by McKinsey and the World Economic Forum indicates “at the current rate it will take another 151 years to close the global economic gender gap at all levels” (McKinsey 2023; WEF 2023).
Boards have long employed Dashboards of critical indicators to maintain leverage in controlling and reducing performance problems. For example, in many industries health and safety has significantly improved as a result of direct board involvement (before the involvement is with the relevant external regulators). Issues of diversity, equity and inclusion deserve this degree of board attention in a regular Agenda item backed up with serious measurement. The seriousness of this unresolved issue for example is demonstrated by recent revelations of epidemic levels of sexual harassment in Australian workplaces (Fox 2021).
With years of policy work and many practical initiatives to develop diversity in business employment internationally there is often still a sense of everything has changed, but nothing has really changed.
This was dramatically confirmed recently by the ongoing diversity disaster at the CBI (Confederation of British Industry) where a series of high profile allegations of misconduct, sexual harassment and rape at the CBI have pushed it into crisis, facing collapse as high profile members such as John Lewis, BMW, Aviva and Mastercard abandon membership in protest at the organisation (Fotaki 2023).The vital point to grasp is that an important role of the CBI is to offer thought leadership for UK industry and to develop best practice. Credibility as the “voice of business” running high profile workshops on good employment diversity policy is now in tatters.
In a determined effort to redeem itself the CBI has replaced its CEO, refreshed its board, reformed its culture, and promised to do better in future, but as Fotaki (2023) argues, this:
“comes after accusations of brushing aside concerns and complaints, and a failure to remove alleged offenders—never mind a failure to recruit staff with appropriate attitudes and values in the first place. It is extremely difficult to achieve a cultural reboot without altering an organisation’s core beliefs and assumptions and redesigning its governance. Changing these difficult-to-measure elements takes more than the right words: it requires a fundamental overhaul of an organisation’s power structures.”
Diversity in Australia
It’s a similar story in Australia – we have become good at diversity policy – but how much has this actually transformed organisations in practice? Only recently the Human Rights Commissioner Kate Jenkin´s report into bullying, misconduct and sexual harassment at the Australian Commonwealth Parliament sent shock waves through government (Australian Human Rights Commission 2021). Who could have imagined that at this founding institution of the country´s democracy, mistreatment and the resulting distress could be such a common experience among the workforce of several thousand, the majority of whom are women?
The drivers and risk factors for misconduct were identified in the Jenkins report as:
- Unclear and inconsistent standards of behaviour – inconsistent and unenforced standards;
- Leadership deficit – leadership responses (individual and institutional) which minimise, trivialise, or excuse misconduct;
- Workplace dynamics –a ‘win at all costs’ and high- pressure and high-stakes environment;
- Social conditions of work – a work hard and play hard culture, the expectation of intense loyalty, and fear of becoming a target;
- Employment structures, conditions and systems – a lack of transparent and merit- based recruitment, precarious employment, and lack of policies and processes to prevent misconduct.
Structural Issues Still Need Resolving
The shock revelations from the CBI crisis and the Australian Parliament report regarding misconduct, are manifestations of deeper unresolved structural issues impacting upon diversity and equality of employment opportunity. Among the structural issues that still require serious attention are:
- Improving the application of the equal pay principle
- Combatting segregation into occupations and sectors
- Breaking the glass ceiling: addressing vertical segregation
- Tackling the care penalty
- Better valorising women’s skills, efforts and responsibilities
- Uncovering inequalities and stereotypes
- Alerting and informing about the gender pay gap.
Boards of directors can play a leadership role in articulating a clear case for gender balancing initiatives at economy, company and individual levels clearly indicating the benefits of gender balance for employment, achieving company goals, and ensuring that at every stage in their lives economic incentives exist for women and mothers to work and to achieve their full potential.
Business behaviours have to change before these structural issues will be adequately addressed. As Hayne noted in the Royal Commission, given that boards and senior management are responsible for the conduct of organisations, “close attention must be given to their culture, their governance and their remuneration practices”.
Diversity and Inclusion: The Performance Premium
The considerable benefits of improving gender diversity in the workplace are now well established. For example, a 2018 McKinsey Global Institute study on gender equality in seven countries in the Asia Pacific region points to “compelling evidence of a correlation between gender diversity in companies and their performance.” Although noting that correlation does not equal causation, the research shows that companies in the top quartile for gender diversity on their executive teams are 21% more likely than other firms to report above average profitability. McKinsey also found that companies with three or more women on their executive committees scored higher on organisational health, on average, than companies with no women at this level.
In a definitive survey of 33,000 senior executives from over 3,000 companies stretching across 46 countries, Gender 3000, Credit Suisse argues “the representation of women in senior management should be a key metric from a shareholder’s perspective when analysing the relevance of diversity for financial and share price performance” (Credit Suisse 2021a). The business case for diversity has received a resounding endorsement in the substantial international research conducted by Credit Suisse and published in an annual series of reports over the last decade:
“With regards to business performance, we find clear evidence that companies with a higher participation of women in decision-making roles continue to generate higher returns on equity, while running more conservative balance sheets. In fact, where women account for the majority in the top management, the businesses show superior sales growth, high cash flow returns on investments and lower leverage.”Dawson 2016
The idea of women as an untapped and wasted resource is the key motivation for European action to improve the number of women in leadership. Increasingly the direct benefits to business performance that stem from gender equality are now widely cited (Klettner, Clarke and Boersma 2016).
Barriers to Workplace Diversity
Despite the many legislative and corporate initiatives in recent decades to promote diversity and inclusivity in the workplace there is much evidence that gender equality has not yet been achieved. A European Union survey records “Women in the EU, across the economy, earn on average over 16% less per hour than men do. This gender pay gap has been plateauing over the last 5 years. At the current rate of changes, it would only be closed at the breach of the next millennium. The recent stagnation raises questions as to the need to strengthen and adapt existing initiatives: gender inequalities in the labour market have been contained, but not erased” (EU 2019:2).
The EU report highlights:
- Pervasive segregation in the labour market.
- Persistent stereotypes fueled by inadequate work-life balances policies.
- Discrimination allowed by a lack of transparency.
The ILO supports this analysis citing evidence that the gender pay gap is not explicable by any objective labour market characteristics that normally influence the determination of pay. What factors do explain the gender pay disparities? The ILO report insists that education levels in most countries is not the issue: “Women wage employees across the world have just as good – if not better – educational attainments than men. However, occupational segregation and the polarization by gender of industries and economic sectors stand out as key factors. Women continue to be underrepresented in traditionally male occupied categories and within similar categories women are consistently paid below men, even if women’s educational attainments are just as good or better than those of men in similar occupations.”
Australian data shows that in the 25 – 33 age group, 50% of women now have a Batchelor’s degree, as opposed to 33% of men. Active boards will capitalise on this educated talent pool and ensure that good recruitment policies, flexible career paths and long term succession planning are all in place and monitored.
As shown in Workplace Gender Equality Agency’s Scorecard for 2022 , more employers are regularly reporting the results of Pay Equity Audits to their boards. These consistently show a gender pay gap in both fixed and discretionary remuneration.
The McKinsey research identified the top three barriers to increasing gender diversity in top management across the Asia Pacific as:
- “Anytime, anywhere” performance model (a work model requiring unfailing availability and geographical mobility at all times)
- “Double-burden” syndrome (women balancing work and domestic responsibilities)
- Absence of female role models.
One of the important lessons we learned from the COVID-19 crisis was that working online from home was more feasible than imagined.
As the composition of boards changes in Australia, with more women succeeding as Non-Executive Directors, the messaging within organisations becomes more important than ever. The role and responsibilities of a board absolutely include ‘setting the tone at the top’
Australia Could Do Better
Though Australia internationally projects an image of a 21st century economy that is confident, contemporary and robust – the state of diversity, equity and inclusiveness, is depressingly similar to the rest of the developed world. Recent substantive research by Cooper and Hill (2023) reveals the parameters of this inequity that is a signal duty for the boards of Australian companies to resolve. Cooper and Hill claim there is a “pervasive architecture of gendered difference:”
The results are a significant disparity in hours for paid and unpaid work, and flexibility tends to be on unfavourable terms rather than helpful, and there is frequent disrespect in terms of harassment and bias. What women in Australia want from work is identified by Cooper and Hill (2023), which seem reasonable aspirations for Boards to deliver on through policy frameworks, regular scrutiny of behaviours and close monitoring of results. Linking behaviours and results to remuneration will ultimately drive home the importance of these deliverables. In order of priority, what women want at work is clear: Respect, Security in work, Decent pay, and Flexibility to meet their (varied) needs.
Blockages in the Executive Pipeline
Securing the commitment of corporate leadership to removing the barriers to workplace opportunities for women is paramount if transformative change is ever to take place. The participation of women in executive management and as board directors is an essential part of this process. The extensive international movement for greater participation of women on boards of directors has yielded results in many countries whether by establishing mandatory targets or by businesses setting and achieving their own targets (Klettner, Clarke and Boersma 2016). While significant progress has occurred in the last ten years in the international campaign for greater participation of women on corporate boards, with a steady rise in diversity of boards across the regions, numbers are stagnating, and progress in Australia has slowed.
However, while boards have become more balanced, often the blockages in the advancement of women through the executive pipeline have proved more difficult to clear. McKinsey identifies “industry archetypes” where the attrition of women from the talent pipeline is similar.
- Low entry industries where there is a small proportion of women even in entry-level positions; these industries include technology, information technology, automotive, energy, and basic materials.
- Middle barrier industries where there is a significant drop-off in the share of women in middle management compared with the entry level; these industries include healthcare, infrastructure, logistics, and travel and transport.
- Glass ceiling industries where the share of women in top leadership roles is low; these industries include financial services (asset management, banking, and insurance) and professional services.
Boards of companies in these industries must pay special attention to monitoring the attraction, retention and progression rates of female employees if any advances in dismantling these ‘industry archetypes’ are to be made.
An interesting observation of Credit Suisse is that though women find difficulty in advancing through established management functions, they are having more success with new fields of management for example though men compose over 80% of technology directors, women form above 50% of sustainability directors in both Europe and North America. It might be the case that the progress of women in executive management is associated with greater attention of environmental and social responsibility.
Boards cannot afford to become complacent about this issue: while the focus on securing greater participation of women on boards has enjoyed some success around the world, the lack of women at the top of corporations is caused partly by the continuing disappearance of women lower down in the corporate hierarchy. This suggests that any policy for diversity ought to be targeting, or at least taking into account, the reasons for women’s departure from middle management and not focusing solely on leadership positions.
The assumption that the lower participation rates of women in management positions will resolve itself in time by growing acceptance does not square with the continued low representation of women in management. Boards must focus on how companies can respond to the specific lifecycle challenges faced by women to enable them to play the full role they can in building better businesses, and to satisfying the clearly identified needs of women at work across the continents: Respect; Security; Pay and Flexibility.
Thomas Clarke is a Fellow of the Royal Society of Arts, and editor of the Cambridge University Press Elements in Corporate Governance book series. Formerly he was Professor and Director at the UTS Centre for Corporate Governance.
Australian Human Rights Commission (2021) Set the Standard: Report on the Independent Review into Commonwealth Parliamentary Workplaces, Australian Human Rights Commission https://maps.finance.gov.au/circulars/independent-review-commonwealth-parliamentary-workplaces-report
Cooper, R. and E. Hill (2023) Are We There Yet? Gender Dynamics in the Post-Pandemic Future of Work, Gender Equality in Working Life Research Initiative University of Sydney, sydney.edu.au/GEWL
Credit Suisse (2021a) The CS Gender 3000 in 2021: Broadening the Diversity Discussion
Credit Suisse (2021b) Women and Work after COVID-19, Special Report September 2021
Dawson, J. (2016) Credit Suisse Gender 3000: The Reward for Change
European Commission, EU Action Plan 2017-2019: Tackling the Gender Pay Gap, European Commission
European Institute for Gender Equality (2019) Gender Equality Index, EIGE
Hayne, K M (2019) The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry
Fotaki, M. (2023) Crisis at Britain´s CBI holds Lessons for Others, Social Europe, 8 June 2023 https://www.socialeurope.eu/crisis-at-britains-cbi-holds-lessons-for-others
Fox, C. (2021) Enough Enough, Australian Institute of Company Directors (AICD), June 20
Hill, E. and Cooper, R. (2023) Gender Dynamics in the Post-Pandemic Future of Work, Gender Equality in Working Life Research Initiative University of Sydney, sydney.edu.au/GEWL
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Klettner, A., Atherton, A., Clarke, T., Improving Gender Diversity in Companies, University of Technology Sydney
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McKinsey (2023) Diversity, Equity and Inclusion Lighthouses 2023, DEI Initiatives Report, McKinsey
MGI (2015) The Power of Parity: How Advancing Women’s Equality can add $12 Trillion to Global Growth, The McKinsey Global Institute 2015 Report
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World Economic Forum/McKinsey (2023) Global Parity Alliance: Diversity, Equity and Inclusion
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