Article

Diversity's Bottom Line

By Joel Kranc for Financial Executives International Magazine

General Motors (GM), having just avoided collapse and having outsiders navigate the auto giant through tough times, did something extraordinary late in 2013. For the first time, GM promoted a woman, Mary Barra, to the role of chief executive officer. Barra, who started with the company as an intern 30 years ago, served most recently as the chief of product development and quality for all GM cars and trucks. Arguably, she will be one of the highest-profile female CEOs in the United States and possibly the world.

While this move represents a positive step for diversity at the highest levels of corporate management in North America, is it a true reflection of what is occurring overall?

Diversity and company policies to promote it have certainly gained attention in recent years. Many companies have launched initiatives promoting diversity in the workplace, but often the numbers indicate much remains to be accomplished.

According to the Calvert Investments 2013 Diversity Report Examining the Cracks in the Ceiling: A Survey of Corporate Diversity Practices of the S&P 100, a “leaky” pipeline to management persists. For example, notes the report, women are often hired as frequently as men, however, their representation in management roles decreases with each step up the corporate ladder. The report says 56 percent of S&P 100 companies have no women or minorities in their highest-paid senior executive positions.

Also, the report stresses, although women make up 19 percent of board of director positions within the S&P 100, they represent only 8 percent of the highest-paid executives.

A separate report from Forbes Insights titled Diversity & Inclusion: Unlocking Global Potential, Global Diversity Rankings by Country Sector and Occupation, states that out of 1.5 million chief executives in the U.S., just one-quarter are women, and only one in 10 represents an ethnic minority. The report shows long-established cultural norms persist and that “tackling these diversity challenges in the U.S. and abroad is going to be extremely challenging.”

There are, however, steps that can tip the balance, and much of it can come from the C-suite and CFOs of the companies interested in making headway on the diversity challenge.

Deborah Dagit has been a chief diversity officer for more than 22 years, including 12 years at Merck — her most recent position with a large company. Currently, she runs a diversity consulting practice in Washington, NJ. She says diversity is a long-term commitment that requires genuine support from the very top of an organization.

“Companies that make progress not only have verbal commitment but also have a CEO that is directly involved with the diversity officer, and has hired a skilled practitioner, regardless of where [they] report,” she explains. It’s also important, notes Dagit, that those diversity officers have enough leverage to access senior leaders, and sufficient resources and budgets to get things done. Accountability also plays an important role to ensure progress is measured and moving in the right direction.

Dagit explains return on investment and measurable results do not take long to surface. A minimum of about two to three years is needed to see concrete results. She cites IBM, which established a multicultural-focused marketing effort that pursued specific sales opportunities which focused on women, minorities, LBGT [Lesbian/Bisexual/Gay/Transgendered] and others. Over a 10-year horizon, IBM was able to add an additional $1 billion to its bottom line by dedicating a part of its sales force to the community, sponsoring events, advertising in LBGT publications and dealing with suppliers supportive of the initiatives. “It’s the equivalent of an emerging market in the U.S.,” explains Dagit. “For companies doing business around the world, having more diversity can offer you more credibility as well.”

Enter the CFOs

Besides the moral imperative of creating a diverse workforce (and C-suite), there  certainly can be several bottom-line benefits to diversity policies. Consulting firm Deloitte, in its study CFO Insights: The Diversity Imperative authored by Kaplan G. Mobray, U.S. diversity programs leader and Dr. Ajit Kambil, global research director CFO Program, says, “diversity may not seem a critical priority on the CFO’s agenda. However, as we look beyond the recession, thinking critically about diversity can be vital to the finance organization and a company’s growth.”

Certainly members of Financial Executive International (FEI) are looking at the practicality of such inclusiveness and how best to implement it into their organizations. Renita Wolf, a former area CFO for Wells Fargo, a current senior strategy consultant with the firm, and a 15-year member of FEI in the Rocky Mountain chapter, sits as chair of a working sub-group that provides chapter outreach under the Diversity and Inclusion Committee.

Wolf says her action team is charged with sharing best practices for chapter members to learn from one another and implement the best suggestions from member companies.

“The purpose of the action team is to increase the diversity of FEI membership to reflect the diversity of our profession and to create a culture of inclusion,” she explains. Her sub-group provides chapter leadership with guidance and resources that help increase diversity at the local level.

Specifically, she says, her group is creating a library of diversity information sources for members. In addition, providing best practices and leadership tool kits to help motivate a culture of inclusion is part of the group’s mandate. There is also cross-pollination and dialogues with organizations such as the National Association of Black Accountants (NABA). Finally, diversity sessions are being considered for upcoming FEI summits.

Some in the community have ideas that, obviously, reflect their own company and personal experiences. Mahesh Shetty, COO and CFO with Encore Enterprises and FEI member in Dallas, says companies generally look at diversity in two ways “and the issue is still in an evolutionary state.” The first approach is through the lens of their customers, he explains. Companies attempt to represent the population in their workforce so they can better appeal to their customers and the population at large. Government agencies and college admission officers follow this approach.

Also, Shetty notes that companies should focus on profit and remaining economically viable, rather than acting as a “welfare” organization for individuals. The idea behind this method, he notes, is to create profit, which is ultimately better for the community by creating jobs and economic stability for everyone.

“I think this issue is complex, emotional and evolving,” says Shetty, “and it is a generational thing. I think the younger generation is more color- and gender-agnostic, and better able to work collaboratively across borders and ethnicities than the generation that is in executive positions today. It will take time and leadership,” he adds.

Mary Jo Green, senior vice-president and treasurer with Sony Corporation of America and an FEI member since 1988, says that 40 years ago, there were not many women who had majored in finance and economics and thus were not available for senior finance positions. Now she finds she is interviewing more women candidates than she did in the past. “When I went to school I was the only woman in my classes,” she says. “That is no longer true. Now it’s the other way,” she adds. “There are more women taking economics and finance so I think there is a larger pool of women to select from, and I see that when I am interviewing.”

Over the years, Green, a veteran finance and accounting professional, faced her own discrimination and impediments to advancement. Now she says, changing opportunities and attitudes make the environment easier for women and minorities.

Sony, being an international company, has had perhaps less of an issue with diversity than other companies. “Sony has been great,” adds Green. “When I was interviewing with them, it was more about who was the right candidate; gender has never been an issue here for anybody.”

A theme that emerges continuously is the need for commitment from the very top being essential for any diversity program to work — something Rohini Anand, senior vice-president and chief diversity officer for quality-of-life company Sodexo, agrees is critical. “But it has to be beyond the CEO,” she explains. “[There] has to be a commitment from the entire executive team and down through the organization.

“The CEO has to hold his or her teams accountable in order to achieve the kind of change they are interested in getting,” adds Anand.
Beyond educating the leadership and getting them on board, Anand says ensuring the notion of inclusion, as part of the overall business strategy, is essential. “As a result of our commitment to both a diverse workforce as well as to engagement and inclusion, we have been able to grow the business. It’s a differentiator for us, [and] a competitive advantage.”

Anand says there are two other drivers to aid with diversity strategies. One is clear accountability measures that track recruiting, promotion and retention among women and minorities, as well as qualitative metrics in reinforcing inclusive behaviors. And to engage the entire organization and others, a distributed leadership model involving councils, employee network groups and others enables ongoing diversity strategy discussion and development.
“It’s all of those levers coming together that have helped to engage people and change the culture within the organization.”

Practical Purposes

But why, specfically, should CFOs care about diversity within their profession as well the rank and file of the organizations they work for?
Deloitte’s report says there are three issues that are critical for CFOs when managing diversity: The globalization of financing, the need for next-generation talent and the simple fact that growth requires diverse talent.

To achieve this, the report says organizations must go beyond traditional “representation” issues around diversity and move to “cultural dexterity.” This can mean acknowledgement of different backgrounds and include incorporating work calendars with all holidays, for example, so meetings or conferences are scheduled with this perspective in mind.

Cultural training, especially when team members are spread throughout the globe, is key. Says the Deloitte report: “As CFOs create more global and diverse finance organizations they will have to invest in cultural dexterity to enable high performance. This includes their own communications and role modeling of behaviors in diverse teams, but also investment in cultural awareness programs.”

CFOs can also look to affinity groups — based on gender, ethnic backgrounds and other criteria — that help their workforce network and socialize outside of traditional functional or other areas. Affinity groups, says Deloitte, can help retention efforts by allowing employees to connect and support each other. Ultimately, affinity groups can support cultural dexterity efforts and “mitigate culture shock” by helping visiting staff from another part of the globe integrate more quickly within the local community.

Finally, CFOs need to look at current diversity programs and question if they are enhancing, developing and promoting a company’s brand in the market. “While many CEOs have engaged with or even led diversity efforts within their organizations, generally CFOs seem to be absent from the conversation. CFOs have an opportunity to take the lead to better align investments in diversity to corporate performance.”

You are Here

Some advocates say corporate America is still mostly paying lip service to the diversity issue. Although programs are being put in place, there is much that can still be done, especially at the C-suite and CFO levels. “If we were to do a bell-curve, I would say the majority of corporations, I would give a C or C-,” says Dagit. “They are going through the motions without a whole lot of teeth in it. Their goal is to pass, not to make progress.” Of course there are companies doing great work as well, she adds.

But changes are occurring, especially as the business cases for diversity becomes evident. Dagit says that while a recent focus on the LBGT community makes good business sense, diversity within the marketplace is now seeing a shift toward people with disabilities as Baby Boomers age and develop certain ailments.

Overall, the financial and CFO communities have an enormous role to play related to diversity; both within their own ranks as well as the general population of the companies they serve. Stigmas are lifting and people are “owning” their identities more. With that comes change, albeit at a slow pace.

Reproduced with permission from Financial Executives International. The opinions and experiences expressed by the author or subjects do not necessarily reflect those of Women in the Boardroom.

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