What role does diversity play in success?
October 08, 2014
It’s true that a key part of any success is driven by the strength of the team around you. That’s not just a technically capable team but one which can empathise with you and truly understand what is needed. I lead PwC’s global deals business and in this role I am constantly looking at what makes a successful deal, whether buying, selling or divesting.
To me success and diversity go hand in hand. Over time I have realised creating teams that include the best people who come from a range of perspectives and backgrounds inspires collaboration, energy, passion and ultimately financial success. Taking the theme of diversity and exploring how to use the diverse nature of individuals in your team to drive value in a deals context can transform the result.
What does diversity mean?
It means different things to all of us and certainly arouses different emotional responses in each and every one of us. In business, whether we talk about equality, inclusion or diversity, essentially this means promoting an environment that really values difference and nurtures innovation.
When I came over from Ireland to join the UK firm in 1987, I had some pretty bloomin’ rough edges and was definitely somewhat different than the business was used to at the time. I was lucky that the partners and managers I worked with did not try and take a hammer to these edges. Instead, the more creative aspects of my character around problem solving and presentation were encouraged. The team accepted me with my quirks which was crucial for my personal development and also for the success of the wider team.
Benefits of diversity
As an example, let’s take gender.
The Davies report published in February 2011 put forward recommendations for “Women on boards”. Findings published in the report show strong stock market growth among European companies is most likely to occur where there is a higher proportion of women in senior management teams. Companies with more women on their boards were found to outperform their rivals with a:
- 42% higher return in sales;
- 66% higher return on invested capital; and
- 53% higher return on equity.
However a recent review by the Davies Review steering group shows that women now account for a fifth (20.7%) of all board positions in the FTSE 100, up from 12.5% in 2011 but still well short of Lord Davies’ target of 25% by 2015. The bottom line is that this needs to change – a higher proportion of women evidently have a positive impact on performance.
Let’s also think about cultural diversity
"Is there a payoff from top-team diversity?", an ethnic diversity study by McKinsey, reports that, for companies ranking in the top quartile of executive-board diversity, return on equity (ROE) was 53% higher, on average, than for those in the bottom quartile. At the same time, earnings before interest and taxes (EBIT) margins at the most diverse companies were 14% higher, on average, than those of the least diverse companies.
Cultural diversity is a real boon for companies – you can’t say enough about the real insight, knowledge, experience and genuine empathy that employees from a varied background can bring. This isn’t just in terms of ground level experience, it’s also about the creativity and innovation they can bring to daily working life.
What it means for deals and investor expectations
With much of the external investor interest in mergers and acquisitions (M&A) focused on growth and how growth is achieved, it is important to encourage a more diverse and edgy talent pool. Having a diverse workforce across all spectrums such as gender and ethnicity is essential. Different backgrounds enhance your ability to compete in the community and indeed the global market. In fact some believe a diverse workforce can go a long way to demonstrate social responsibility and social awareness.
The world is a changing fast. To be successful in business and to execute successful deals organisations need to adapt by having a deeply ingrained moral fibre that recognises and values difference which, in turn, will act as the engine room for creativity, innovation and competitiveness, all of which are key business enablers.
Too often the importance of needing a diverse team is overlooked. Understanding what diversity means and how it can benefit in doing deals is essential. In the end it comes down to diversity being a must have, not a nice to have!
What’s your view on the impact of diversity in business and getting deals done? What will it cost your organisation if you get your talent pool wrong? Share your thoughts and comments below or schedule a meeting if you'd like to discuss things more confidentially.