Month: February 2018

Quantitative data on diversity and business results from McKinsey and Goldman

Note: I’m experimenting with publishing content first in my newly-launched newsletter, Fieldnotes, and then here on my blog. Aside from some minor edits, this blog post is taken from the first edition of Fieldnotes sent out earlier this week. Subscribe here or feel free to take a peek at the first issue.

Diverse boards (and executive teams) lead to better results for shareholders and there is rigorous research from reliable sources to prove it. McKinsey released a report on diversity this month that got a fair amount of coverage but I also uncovered some intriguing data from Goldman that barely got any coverage. Below is what you need to know from each.

McKinsey’s “Delivering through Diversity” report (PDF) contains an analysis of 1000+ companies in 12 countries. This WSJ story has a good summary. Key data:

  • Companies that ranked in the top 25% in terms of the ethnic mix of their executive teams turned out to be 33% more likely to outperform competitors on profits than those in the bottom 25%.

  • Companies with the most women on their management teams were 21% more likely to achieve above-average profitability, compared with those with relatively few women in senior, decision-making roles.

  • Still a LOT of work to do. Among the 346 companies included in its 2015 study, the collective share of women on executive teams has since risen only 2 percentage points to 14%, while the proportion of ethnic and cultural minorities has climbed just 1 percentage point to 13%. This is, of course, pathetic.

Research that got very little coverage but is must-read is Goldman’s detailed 40-page report “The PMs Guide to the ESG Revolution: From Article of Faith to Mainstream Investing Tool” (PDF). The report focuses purely on ESG measures that boost stock price and generate “alpha” (see this for extended definition of “alpha”) over a 3-5 year period. The key finding: gender diversity ranks the highest of all of the factors they studied as companies with higher ratios of female employees saw an average annual alpha of 3.3% across all sub-sectors. If you don’t want to read the report, listen to Derek Bingham of the GS research team discuss it in this podcast (btw, Goldman’s podcast series is quite good).

At this point, if you’re a CEO or other senior leader and you don’t have a direct hand in building a more diverse company, you’re being negligent as a business leader and working against the long-term interests of your company.

(Yet. . . activist investors are more likely to target female CEOs. Firms with female CEOs were 50% more likely to be targeted by activists and approximately 60% more likely to be targeted by multiple activists as noted in Harvard Business Review. Go figure.)

The Slow Burn podcast on Watergate

Slate’s Slow Burn podcast on Watergate is amazing. As they describe it:

You think you know the story, or maybe you don’t. But Watergate was stranger, wilder, and more exciting than you can imagine. What did it feel like to live through the scandal that brought down a president?

Join Leon Neyfakh for an eight-episode podcast miniseries that tells the story of Watergate as it happened—and asks, if we were living through Watergate, would we know it?

As advertised, the podcast covers Watergate in a way that feels like you are experiencing it while it was happening rather than simply looking back at an event where you already know the outcome. Not surprisingly, the events of Watergate have some interesting parallels to our current political landscape.

I’ve read Woodward and Bernstein’s books All the President’s Men and The Final Days and find Nixon a fascinating political figure and the podcast covers ground I didn’t know about. I’ve been a bit of a “Watergate junkie” for many years in part because the events of Watergate coincided almost perfectly with my early life. The Watergate break-in itself happened on June 17, 1972, just two days after I was born. The chairman of the Senate Watergate Committee was Sam Ervin, the senator from my home state of North Carolina, and I grew up hearing people talk about him in reverent tones. Ervin was a very particular kind of Southern man that I knew well growing up. He came off as a folksy, down-home grandfather, often referring to himself as “just a country lawyer” without noting that he was actually a Harvard Law graduate. I grew up with lots of similarly-modest people in the South like Ervin who had crushing intellects and I’ve always enjoyed how those people tended to get the best of others who thought they were smarter. Ervin also recorded an album (!) called Senator Sam at Home in which he did readings of popular songs like “Bridge Over Troubled Water” and told stories like “Jus’ Right Likker.” You really can’t make this stuff up.

In any case, check out the podcast. It’s really great. Each episode is about half an hour and entertaining all the way through.