Companies with inclusive leaders perform better

Companies with inclusive leaders perform better
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The crossroads between senior leadership and inclusion has never been as critical as it is today. On a seemingly weekly basis, organizations are receiving negative press and pressure to take action due to behaviors by senior leadership related to topics of diversity and inclusion (D&I), such as harassment, discrimination and bias.

The impact of taking a reactive approach to D&I is swift and significant. Studies examining CEO indiscretions related to harassment and discrimination estimate that the average shareholder value companies stand to lose is 4.1 percent overnight, which translates to, on average, $226 million in market capitalization. 

The stakes are even higher in recent years, with single cases of sexual harassment or inappropriate language leading to as much as $4 billion lost in market capitalization, or 7 percent of market value on average.

Organizations likely undervalue specific senior leadership competencies around D&I. As a comparison, take the current organizational investment in mitigating other corporate risks, such as cyberattacks and data fraud.

A recent study by Verizon suggests that the average loss in market capitalization following a cyberattack is only about 1 percent. Why, then, does organizational risk associated with D&I not receive the same level of attention?

We are encouraging our clients to think more proactively about selecting and developing inclusive leaders, which must consist of providing clear feedback and a roadmap around inclusive leadership behaviors. 

We recognize that most cautionary tales on D&I only serve as a lesson in “what not to do,” but there is little clarity on “what to do.” Our second annual Diversity and Inclusion Pulse study, which captures feedback on leadership styles from over 1,800 senior leaders worldwide, finds that a specific collection of leadership traits come together to define inclusive leadership.

Several of these behaviors directly address preventing managerial indiscretions, including the creation of a safe workplace environment for all employees and holding oneself accountable toward inclusive management styles.

In addition, when observing these behaviors in specific senior leaders, we find a number of positive team and individual outcomes.

For instance, when individuals see inclusive leadership behaviors in their manager, 92 percent indicate their team as being empowered to perform at a high level. Only 26 percent can say the same when not witnessing inclusive leadership behaviors.

Similar trends are found for team innovation, which is seen 90 percent of the time by those experiencing inclusive leadership behaviors. Conversely, only 30 percent found their leaders facilitating innovation when not witnessing inclusive leadership behaviors.

At an individual level, 93 percent of employees who saw their leaders behaving inclusively felt as if they could be their authentic selves at work, compared to only 30 percent who were not experiencing inclusive leadership.

These findings reflect the power of inclusive leadership above and beyond behaviors that likely inhibit managerial indiscretions. With the average diversity of the workforce increasing over the next several years, ensuring senior leadership is equipped with these behaviors is critical. 

To deliver this value to immediate teams and the greater organizational culture, senior leaders must proactively champion safe and open conversation around D&I topics in the workplace. They must have courage in holding others accountable to inclusive behaviors and setting goals to hold themselves accountable. 

They must take time and attention to truly understand and empathize with a diverse workforce, noting the significant strengths and challenges of each member. Finally, they must leverage this safe climate and understanding of personnel to assemble diverse teams and enable increased performance. 

In concert, these behaviors by senior leaders can not only empower direct reports to live up to their collective potential, but can set a tone from the top that drives inclusive leadership throughout the organization.  

We at Russell Reynolds Associates are seeing evidence that senior leadership may be the key factor in building and sustaining a successful diverse and inclusive workplace. 

It is time for firms to not only act to protect themselves from senior leaders “missing the mark” on D&I, but to select and develop their leaders to lead inclusively and capitalize on the potential of a diverse workforce.

Anthony Abbatiello leads executive search and leadership consulting firm Russell Reynolds Associates’ global Leadership & Succession business. He brings more than 20 years of leadership management consulting to advise clients in all industries.