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A Toast To Inclusivity

From Orchestra Pits to Corporate Boardrooms, Diversity Pays

When I was working as a research analyst at a famous beer company in the 1980s, I presented a conjoint study. The CEO was a data driven executive - it was not uncommon to be asked for the confidence interval or fit of the model during a presentation. It was an exciting place to be an analyst. The CEO once remarked “Every good decision is thirty percent research and seventy percent gut”. My boss, the director of the research department, responded “I’d like to be vice president of gut, sir.” “Ha ha,” said the CEO, “That’s my job.”

As guts go, the beer company CEO’s was pretty good, shepherding the company from a 20% market share when he took the helm to more than 50% over the next decade. But even with all this success I could see that gut decisions shouldn't outweigh data driven decisions. Social scientists are exquisitely aware of things like inherent bias and the backfire effect, the illusion of explanatory depth and Hawthorne effects - we know many of our decisions are limbic/automatic, not really decisions at all but more like habits of thought that have been allowed to settle, unchallenged, into our psyches. Sure enough, when the CEO moved on and was replaced by another CEO who didn't share his excellent beer gut (so to speak) the company lost its way.

The efficacy of the gut was most famously tested in the world of symphony orchestras. In the 1970s, symphony orchestras were composed almost exclusively of males, mostly on the recommendation of the conductor, i.e. his gut decision. But the introduction of blind auditions had a transformative effect; today, American orchestras are made up of 63% men, 37% women.

Learning of this transformation, Silicon Valley VC John Greathhouse urged women in a memorable 2016 Wall Street Journal op-ed to consider disguising their gender by using their initials instead of their names. “A gender-neutral persona allows women to access opportunities that might otherwise be closed to them,” he reasoned.

The point of the orchestra audition process, of course, is that women are hired more often by symphony orchestras when unconscious biases against women is consciously stymied. Greathouse’s op-ed highlighted the very human tendency to try to accomplish change while preserving the very structures that make it necessary. It is this tendency that gets in the way of a truly inclusive workplace that reflects the diversity of the population.

“Initial impressions might be positive or negative — but they are seldom neutral,” Greathouse noted, and he is not wrong. Studies have shown that the less time someone has, the greater degree they rely on their gut, rather than data, when evaluating someone for the first time. This actually gets at the core of the issue with Greathouse’s suggestion, which should not be chalked up to sexism - he was clearly trying to improve things, and that deserves acknowledgement. Rather, the issue here is something we all suffer from - a faulty gut.

Our gut decisions are based on our experiences and habits, including any unconscious bias that we are carrying around with us. Cognitive behaviorists call these habits your personal schema, which is basically your particular filtered way of seeing the world. Personal schema are invaluable to the busy business person, enabling rapid decision making...but they are dangerous too, limiting one’s focus to familiar approaches that worked in the past, but may not be appropriate in the context of changing circumstances, like women and minorities graduating from college and entering the workforce in increasing numbers, for example.

The orchestra study researchers offered a way forward we can all learn from, concluding

“With effort, we can overcome our biases to some extent, but we are continually tasked with needing to correct ourselves.”

Widening our apertures

Medium’s Ross Fubini has called for the business community to confront the intellectual dishonesty inherent in ‘going with the gut’, pointing out it is not enough to pay lip service to the idea of diversity without consciously adjusting one’s pattern matching habits, which may cause hiring managers to prematurely narrow their aperture before candidates have a chance to prove themselves.

That’s fine, you may be thinking, but an orchestra sounding better is different from a company being more profitable. But the orchestral example holds true in business too - according to an analysis by McKinsey, businesses with the most ethnically/culturally diverse boards worldwide are 43% more likely to experience higher profits.

McKinsey based its research on a data set of more than 1,000 companies across 12 countries, using two measures of financial performance – profitability (measured as average EBIT margin) and value creation (measured as economic profit margin). It found a statistically significant correlation between a more diverse leadership team and financial outperformance:

  • Companies in the top-quartile for gender diversity on executive teams were 21% more likely to outperform on profitability, 27% more likely to have superior value creation.

  • The highest-performing companies on both profitability and diversity had more women in line (i.e., typically revenue-generating) roles than in staff roles on their executive teams.

  • Companies in the top-quartile for ethnic/cultural diversity on executive teams were 33% more likely to have industry-leading profitability.

The McKinsey findings not only indicate that inclusivity and diversity can be a key differentiator among companies, but also show there is a penalty for bottom-quartile performance on diversity: overall, companies in the bottom quartile for both gender and ethnic/cultural diversity were 29% less likely to achieve above-average profitability. In other words, non-inclusive companies are financial laggards.

Leading companies like to think of themselves a data driven, yet when McKinsey tracked 346 companies over a three year period, it noted that despite the demonstrated financial benefits of diversity, most did not become notably more inclusive over time: the representation by women on executive teams increased by just 2 percentage points, and ethnic and cultural diversity by just 1 percent. As of September 2020, the ranks of Fortune 500 CEOs contained just 36 females - just over 7 percent. Just 1% are black, 2% are Asian, and 2% Latino.

The trend of underrepresentation of women and minorities that we see in business and academia is present in Hollywood as well. According to the Geena Davis Institute on Gender in Media, among the characters in the top-grossing films of 2019, male characters outnumber female characters two-to-one, and male characters appear on screen, and speak, twice as often as female characters. White characters appear more often than all characters of color combined; LGBTQ+ characters are virtually nonexistent. One might conclude that males talk so much more on screen because that’s what viewers expect/pay for, except that is not what the data say. Research demonstrates there is more money in films where women are the leads or share the lead than when males lead alone. A lot more money, actually:

  • films led by women grossed 15.8% more on average than films led by men

  • films featuring male and female co-leads earned 23.5% more on average than films with male or female leads alone

So how do companies become more inclusive and diverse?

The best answer might be data, i.e. employing familiar classical measures boards and investors have used to hold executive teams to account. Many companies have adopted the elegant NPS measure of customer experience - an NPS measure for employee culture, like that suggested by DirectLine in a Research World interview last week, is one way to center the goal and benefits of inclusiveness with data.

A study reported by Harvard Business Review offers support for the benefits of measuring employee NPS, finding teams with inclusive leaders were

  • 17% more likely to report that they are high performing

  • 20% more likely to say they make high-quality decisions, and

  • 29% more likely to report behaving collaboratively

Another stratagem to improve inclusiveness is evidenced by a research-driven diversity intervention, such as that conducted by Skidmore College social psychologist Corinne Moss-Rascuin. Moss-Rascuin conducted a study on gender bias among STEM faculty, including an experiment in which scientists evaluated the resumes of two candidates with identical qualifications and experience, differing only in name - one John, one Jennifer. Despite an identical resume to John's, Jennifer was perceived as significantly less competent; as a result, the scientists in the study were less willing to mentor Jennifer or to hire her as a lab manager, as well as recommending she be paid a lower salary - on average 13% less than John.

In an effort to reduce implicit gender bias among academic scientists and to increase their motivation to address the underrepresentation of women in STEM, the Skidmore researchers developed a diversity course. More than a hundred scientists were instructed about Moss-Rascuin’s original findings, as well as other research on gender bias; they discussed and drew their own conclusions about the results, then went on to practice strategies to reduce gender bias at their own institutions.

The participating scientists were surveyed before and after the course to see if the interventions led to changes in attitudes. Findings showed the course significantly reduced gender bias and that the scientists showed a stronger, more assertive approach to pursuing actions that would close the gender disparity in STEM fields. The reason for closing the gap is not just about social justice but a matter of national interest and security - STEM leadership remains just as vital to our national security as it was when Sputnik launched, at the time triggering a revolution in US education. Yet, the US graduated only a few more STEM students in 2009 (15,496) than in 1985 (15,009). In an all hands on deck emergency like STEM education, inclusiveness is key to competitiveness.

CEO Dave Steward frames inclusiveness as an innovation enabler. Seward is the chairman of his privately owned $12 billion company, World Wide Technology, the largest black-owned business in America. He notes “Innovation doesn’t happen without a person of color or a diversity of thought being at the table in order to challenge the status quo.”

There is much evidence to support Seward's view. According to New American Economy, 44% of Fortune 500 companies — including the brands Apple, Costco and General Electric — were founded by immigrants or their children. Those companies collectively employ 13.7 million people, with revenues of $6.3 trillion. Dropbox founder Arash Ferdowski, the son of Iranian immigrants, echoes Seward's hypothesis. “Regardless of our personal politics, we have a chance to come together, reject racism and reaffirm our commitment to build a brighter and more tolerant future. Kansas welcomed my family and gave me the confidence to succeed in ways my parents could never have dreamed of. I want future generations of immigrant families to get the same opportunity — so that they can build bright futures here and lift us all up along the way.”

The Beautiful Music of ROI

Silicon Valley venture capitalists and Fortune 500 companies face a challenge: sticking with the tried and true gut decisions that have more often than not lead them to invest in white male leadership and white male-led companies...or, move away from their personal schema/gut into a world that includes the very real rewards of investing in women and other under-represented groups.

The Scientific American report Diversity in Science: Why It Is Essential for Excellence reinforces the lessons of orchestras and STEM professors: for diversity to be effective, it takes the right working environment. At the individual level, it takes conscious effort to be on the watch for unconscious biases and to overcome them. At the organizational level, it takes processes, procedures and an ethos of acceptance - something the Skimore STEM research shows us can be effective.

The nation’s most accomplished musical organizations underwent a tectonic shift when they discovered and rooted out gender bias to become more inclusive and diverse. But it didn’t just happen on its own - it required positive action, and an active consciousness. What might the business landscape look like if we actively seek to end underrepresentation of all types in the leadership ranks? Evidence suggests quite a lot of companies will be quite a bit more profitable. The data are in, and inclusiveness and diversity have a high return on investment. So why aren’t all companies racing to out-inclusive one another?

It’s this researcher’s opinion that we can expect the growing preponderance of data, along with the seismic upheaval of work environments, work cultures, and work practices, will have a galvanizing effect on a vanguard of companies agile enough to pivot with the changing times. In a profoundly changed world, going with your gut is tantamount to flying blind - there isn’t enough history with the new normal yet. The companies that optimize inclusiveness will have a better chance of surviving and thriving.

In a profoundly changed world, going with your gut is tantamount to flying blind.

When orchestras adopted ‘conscious correction’ in their audition methods, the stated goal was not to increase the representation of women, but to field the best musicians for the orchestra. The elimination of bias resulted in raising the standard of the quality of music...but also shifting orchestral gender balance by a large margin.

Similarly, without such a ‘conscious correction’ among businesses and VCs, it is fair to assume that, as in the case of the musicians and STEM professors, many of the most promising investments/leaders/talent are going unrecognized. A data driven approach to eliminating unconscious bias and embracing inclusiveness as a strategy for success can yield great benefits - happier, more engaged employees, more innovation, more competitiveness, and more profitability. How will your organization rise to the challenge?