How Diversity in Executive Teams Contributes to Financial Success

Organizations with high levels of diversity and inclusion perform better on key business metrics, according to a new report and the experiences of health system leaders.

The business case for diversity and inclusion was made in 2015, when McKinsey & Co. issued the report “Diversity Matters.” Its examination of about 360 firms in three countries showed that organizations that prioritize diversity and inclusion outperform those that do not.

More recently, the consulting firm took a closer look, surveying more than 1,000 companies in 12 countries to examine how diversity—defined as a greater proportion of women and ethnically/culturally diverse individuals in leadership roles—correlates with financial performance. In January 2018, its new report—”Delivering Through Diversity”—included these findings:

• Companies in the top quartile for gender diversity on executive teams were 21 percent more likely to outperform on profitability relative to their fourth-quartile peers and 27 percent more likely to have longer-term value, measured as economic profit margin.
• Companies in the top quartile for ethnic/cultural diversity on executive teams were 33 percent more likely to lead their industries in profitability.
• Companies in the bottom quartile for both gender and ethnic/cultural diversity on executive teams were 29 percent less likely to achieve above-average profitability than all other companies studied.

About 10 percent of the companies studied were in the healthcare sector, which included insurance, pharmaceutical, and provider organizations. Because the study was limited to publicly traded companies, few, if any, U.S. health systems were examined. But Sundiatu Dixon-Fyle, PhD, a McKinsey associate partner, said the findings are largely relevant to health systems because they were consistent across all geographies and industries.

@McKinsey’s latest 2017 study reaffirms the global relevance link between #diversity and #company #financial outperformance. https://t.co/kdalZ1OBl9 pic.twitter.com/2DXqfGamXj

— McKinsey & Company (@McKinsey)
January 19, 2018

The main takeaway of the research is that greater diversity and inclusion at the executive level are linked with superior financial performance—and the emphasis on the executive level is key. Health systems tend to have more employee diversity—a higher proportion of women and non-majority workers—than many industries, but their executive teams are generally less diverse.

McKinsey took a deep dive into the inclusion and diversity efforts of 17 companies to understand how those efforts influence financial performance. Dixon-Fyle, who previously served as a management consultant for McKinsey’s Health Systems and Services sector, shared how health systems can benefit from efforts to improve diversity.

Winning the war for talent. Because of current and projected shortages of healthcare workers, employees have options—and they want to work for diverse organizations that value a wide range of perspectives and offer opportunities for advancement.

Improving the quality of decision-making. Citing research published in Harvard Business Review, Dixon-Fyle says more diverse management teams make better decisions, make them faster, and see better results as a consequence. As health systems move to value-based payment systems and population health management, quick—and good—decisions have never been more important.

Increasing innovation and customer insight. “This one is particularly relevant to health systems because they serve all ethnicities,” Dixon-Fyle says. “The ability to understand patients who have diverse profiles in order to best serve them is extremely helpful.”

Improving a company’s reputation. Dixon-Fyle points to U.S. health systems that have positioned themselves as leaders in fairness and equity. “That is part of their ethos and their brand, which is helpful for attracting talent but also for attracting and retaining customers and business partners, which can help their business,” she says. “The logic applies across industries, certainly including health care.” 

Diversity at the Top

After a reorganization last year, the Rush academic health system—including Rush University Medical Center, Rush-Copley Medical Center, Rush Oak Park Hospital, their outpatient facilities, and Rush University—created a new board of trustees to oversee the system-wide vision and strategy. The 13-member board includes eight men and five women, with two individuals from underrepresented minority groups.

This diversity is intentional, reflecting more than a decade of work to make the Rush system and its 2,500-student health sciences university reflect the communities in which they operate.

Diversity and inclusion at the top is only one of the medical center’s goals. “That’s important because the senior ranks are most visible, but any component done in isolation is not sufficient to move the dial on diversity,” says Larry J. Goodman, MD (pictured at right), CEO of the Rush system and Rush University. “You’ve got to be pushing in all the different areas.”

Over the years, a series of policies and plans have created a culture that prioritizes diversity and inclusion. From the way applicants are evaluated for slots at Rush Medical College, to the process for recruiting job candidates, the awarding of supply contracts, the bathroom signs, the health system’s internal United Way campaign focus, investments in the community, the width of doorways, and the ability to adjust examination tables to easily accommodate people with disabilities—everything is considered with an eye toward diversity and inclusion. 

The benefits contribute directly to the organization’s performance, Goodman says. For one thing, prioritizing diversity broadens the field of candidates for job openings and promotions, increasing the likelihood that Rush secures the best talent available. Secondly, it increases employee engagement. “People like to work for an organization that wants to be welcoming,” he says.

Moreover, patients gravitate to such a health system. Provider organizations often unintentionally make life more difficult for the very people they are serving. “For some individuals, a private bathroom is extremely important. The label on the bathroom door is extremely important,” Goodman says. “Bathrooms that have doors that aren’t big enough to accommodate a wheelchair are screaming ‘don’t be here’ to some people.”

Goodman and other top executives serve on Rush’s Diversity Leadership Council, which oversees a five-year plan for achieving system-wide goals and implementation of strategic drivers to help meet the goals. For example, the current plan, adopted last year, calls for Rush to build a workforce that, by 2022, has 7 percent representation of veterans and 7 percent representation of people with disabilities in all job categories.

Diversity in Business Partners

Diversity can be measured in numbers and percentages, but a less-quantifiable concept—inclusion—is more critical to an organization’s success. Dixon-Fyle encourages health systems to develop strategies to ensure inclusion both internally—for example, are diverse staff members empowered to contribute fully to the organization’s goals?—and outside their operations.

“Are they thinking about their business partners and encouraging participation in their supply chain from diverse businesses?” she says. “That’s an outward-looking element of inclusion.”

#Executive #teams of outperforming #companies have more #women in line roles (typically revenue generating) versus staff roles. https://t.co/KJmaa9CKeU pic.twitter.com/f0FtD6S7EQ

— McKinsey & Company (@McKinsey)
January 20, 2018

At CHRISTUS Health, Timothy Martin, contracting manager for supplier diversity, helps women-owned, minority-owned, and veteran-owned businesses prepare to win contracts and fulfill them successfully. This supplier diversity program, in place for nearly two decades, is one of many ways in which CHRISTUS Health, which operates more than 60 hospitals in the United States, Mexico, and South America, makes diversity and inclusion an organizational priority.

“We provide the opportunity to come to the table with the bigger suppliers when they’re ready,” Martin (pictured at right) says. “Part of my job is making sure they are ready when the opportunity comes.”

The health system has annual supplier diversity goals at the regional and system-wide levels. Martin tracks progress toward the goals monthly and reports data to an organizational dashboard. And supplier diversity is one of many performance metrics that figure into executive compensation.

Diversity in the Ranks

Henry Ford Health System, a six-hospital system in Detroit, expects to have a diverse workforce and an inclusive culture. That’s why its human resources department analyzes every work unit in multiple ways: new hires, retention and turnover, performance evaluations, employee satisfaction scores, involuntary terminations, and more.

That work supports the health system’s goal of building a truly diverse and inclusive organization—and it helps Stephen Hathaway (pictured at right), senior vice president of finance and chief revenue officer, find the right fits for the more than 1,000 positions he oversees.

He remembers a time when employees were expected to succeed in any slot that was available. Now he wants employees whose skills, personal attributes, and preferences match a specific position.

“It’s more powerful to harness the things that we’re great at than to try to shore up the things that we’re not good at,” he says. “So, instead of having people who are all identical and can do everything, I’ve got to have people who are lined up with what’s needed in a particular role to leverage their talent, and, frankly, their enjoyment.”

It takes more work to recruit a good candidate pool, identify a job-specific best choice, and make sure new hires thrive and want to stay in the organization, but the effort is worthwhile, Hathaway says: “The notion of having diverse talent in your organization that is lined up with the work, to me, is a business imperative.”

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Lola Butcher writes about healthcare business and policy topics for several HFMA publications.

Interviewed for this article: Sundiatu Dixon-Fyle, PhD, associate partner, McKinsey & Co., London; Larry J. Goodman, MD, CEO, Rush University Medical Center, Chicago; Stephen Hathaway, senior vice president and chief revenue officer, Henry Ford Health System, Detroit; Timothy Martin, manager, Supplier Diversity, Contracting and Resource Utilization, CHRISTUS Health, Irving, Texas.