CEOs

Diversity drives profits, but it is still lacking in the board room

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Key Points
  • Companies lagging in gender and ethnic diversity were less likely to achieve above average profitability, according to McKinsey research.
  • Despite this finding, there remains a lack of diversity in both boardrooms and among leadership and managerial roles at many companies. 
  • "Work needs to be done to engage leaders around the social capital they feel is needed to open their networks and allow other[s] in," said Monica Poulard Hawkins, CEO and founder of Professional Pipeline Development Group.
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Tracking diversity in the boardroom

The board room is where important decisions are made. Recruiting, firing, cost savings, M&A — all needs the board room's backing. Experts say diversity of thought is needed in this setting to spur new ideas and think through different options.

Yet research from executive recruiter Spencer Stuart shows just under one in four new S&P 500 directors are minorities. That's despite growing evidence that diversity increases a company's return on investment.

In fact, companies lagging in gender and ethnic diversity were less likely to achieve above average profitability, according to McKinsey. Researchers at the consulting firm found that companies with more diverse executives were 33% more likely to see above average profits.

Diversity reports published by big tech companies such as Amazon and Apple show that while the companies have been hiring people of color, in most cases, the level of diversity decreases at the leadership and manager level.

According to Amazon, Blacks make up 26% of the company's workforce, but only 8% of its managers. At Apple, 9% of its employees are Black, but at the leadership level, the percentage drops to 3%.

Diversity coaches say these statistics shed light on the challenges minorities face in getting promoted to senior roles.

"Clearly, more needs to be done. Providing mentorship could be the key," said Jeffrey Sonnenfeld, senior associate dean for leadership studies at Yale School of Management.

Executives are looking for ways to incorporate diversity into their model when sourcing future deals and screening for companies that have diverse boards. 

"Blacks understand and have the capacity to operate within and throughout enterprise ... globally to drive change and growth. Work needs to be done to engage leaders around the social capital they feel is needed to open their networks and allow other[s] in," said Monica Poulard Hawkins, CEO and founder of Professional Pipeline Development Group, a boutique management consulting firm.

Data compiled by HIP Investor Ratings shows 91% of S&P 500 companies have carved out a policy to drive diversity and equal opportunity but only 14% have outlined a set of targets and objectives around diversity for managers. This disconnect sheds light on a glaring problem facing corporate America: executives are not taking enough action to drive diversity efforts.

Problems like these have pushed companies like Mastercard to define inclusion as a leadership skill.

"We provide this skill building not as traditional, standalone "diversity training," but rather by embedding it into our entire leadership curriculum at all levels — for entry level employees, mid-career managers and our most senior executives," a Mastercard spokesperson said. 

R. Paul Herman, founder of HIP Investor Ratings, said implementing EEO-1, a federal compliance survey that looks at race, ethnicity, gender and job category, across companies is one way to tackle this issue.

"Releasing the EEO-1 forms, which are required by the government but typically confidential, boosts transparency and accountability. Firms like Intel openly share the level of pay for employees by racial category and gender category, and Apple and Travelers openly share the number of employees by race and gender," said Herman.

—CNBC's Ritika Shah contributed to this story.