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.)

Becoming a Reboot CEO coach

I’m really honored and excited to announce that I’ve joined forces with my friends at Reboot and am now a CEO coach and facilitator under their umbrella. Reboot is helping shape the next generation of leaders who are reimagining the way business is done and I deeply identify with the vision. Jerry Colonna is a co-founder of Reboot and has been my coach since the summer of 2011, when I stepped into the CEO role at Etsy. When Jerry started coaching me back then, he was more or less a solo operation. Jerry reached a point where he wanted to scale his vision for coaching but realized he needed to build an organization to do that. I was honored to witness Jerry conceiving of Reboot and scaling it with his equally amazing co-founders. Jerry and Reboot have life-changing impact on the lives of entrepreneurs as evidenced by some of the testimonials and this beautiful portrait of Jerry and his work in Wired. Working with Jerry and Reboot has definitely been a life-changing experience for me and very much shaped my high-level philosophy on leadership as stated in my Reboot bio:

I believe “strong back, open heart” leadership is the key to building great companies. The strong back is represented by fiscal discipline, strong process, and accountability. The soft, open-hearted front are values, purpose, connectedness, and compassion. Organizations and people are at their best when they manifest both in equal balance.

I’m profoundly honored to be coaching under the Reboot umbrella and to have the opportunity to help and support CEOs in their leadership journeys. (Yes, I used the word “honored” a lot above because I truly am!)

With that bit of news out of the way — what is “coaching” anyway? Doug Silsbee’s book The Mindful Coach: Seven Roles for Facilitating Leader Development offers a simple definition that I really like: “any relationship where you are interacting with another person in service to his or her learning, growth, and change.” Being a CEO can be absolutely insane all by itself and Jerry helped me deal with the pressures of the roles during a period of extraordinary growth and change at Etsy, from chaotic startup to public company. But it wasn’t just “business.” During my time as CEO of Etsy, my wife and I adopted a child and I became a father. The coaching experience was highly integrated, meaning that it took my whole life into account. The same heart and soul that you put into being a CEO are the heart and soul you put into the rest of your life and relationships. As much as our culture demands the separation of “personal” and “business,” they are fundamentally integrated. Thinking of them separately means “dis-integration” and ultimately harms organizations and teams.

I see the work ahead as paying forward at least a small part of the generosity, care, and presence that I have received in being coached by Jerry. One Saturday morning last May, I got the call that meant my time at Etsy was over. My last day was Tuesday, just three days later. I hung up, stepped away from the phone, told my wife the news, and then immediately called Jerry. In the blur of the next three days, I was in regular contact with Jerry as all the logistics of my departure left little room for anything else. On my last night as CEO, Jerry came over to the Etsy office and we sat in the dark on the roof and talked. I don’t remember much of what we we talked about but I remember that Jerry was there and present for me during a difficult time. If I do nothing else in my role as coach, I hope to model the presence that Jerry taught me through his presence.

I am focusing on a very small number of high-impact engagements with my coaching practice. If you think I can be helpful to you, feel free to reach out or fill out the contact form over at Reboot and someone will be in touch.

Dr. King’s dream is my dream, too

Today, we in the US pay tribute to Dr. Martin Luther King, Jr. in a national holiday honoring his legacy. I am grateful that we have such a holiday to honor Dr. King. The meaning of the holiday is expressed beautifully through the words of King’s widow, Coretta Scott King:

On this day we commemorate Dr. King’s great dream of a vibrant, multiracial nation united in justice, peace and reconciliation; a nation that has a place at the table for children of every race and room at the inn for every needy child. We are called on this holiday, not merely to honor, but to celebrate the values of equality, tolerance and interracial sister and brotherhood he so compellingly expressed in his great dream for America.

It is a day of interracial and intercultural cooperation and sharing. No other day of the year brings so many peoples from different cultural backgrounds together in such a vibrant spirit of brother and sisterhood. Whether you are African-American, Hispanic or Native American, whether you are Caucasian or Asian-American, you are part of the great dream Martin Luther King, Jr. had for America. This is not a black holiday; it is a people’s holiday. And it is the young people of all races and religions who hold the keys to the fulfillment of his dream.

The expression of Dr. King’s dream in his famous “I have a dream” speech (full video) is all the more remarkable because it wasn’t planned. It came forth spontaneously when gospel singer Mahalia Jackson — there on the podium behind Dr. King — raised her voice and said, “Tell ‘em about the dream, Martin!” You don’t hear her exclamation in the audio, but you can see the change in Dr. King in the video. He had been looking down at his notes throughout the speech but after Mahalia Jackson’s plea, he looks up from the podium (video) and doesn’t look down again for quite a while as he utters his soaring words, sometimes with his head tilted towards the sky. Even setting aside the incredibly inspiring content of the speech, it is a remarkable display of rhetorical skill.

Dr. King’s dream has grown more personally meaningful to me with every passing year. Five years ago, my wife and I welcomed an adopted son from Korea into our family, making our family a multi-race family. Our family is a tribute to the purity of love — my wife, son, and I are not related to each other by blood but bonded only by our love for each other. That unconditional love for my beautiful son has opened my eyes to racism in a way they had never been opened. My son has been asked what is “wrong” with his beautiful eyes. People have said upon just meeting him, “I bet he’s good at math” (he isn’t particularly good at math). I’ve learned that these comments and other things are “normal” and that Asians are the most-bullied in school. We simply do not live in a color-blind, post-racial society even in 2017. That is why Dr. King’s words remain so important today and more meaningful to me than ever before: “I have a dream that my four little children will one day live in a nation where they will not be judged by the color of their skin but by the content of their character.” (video)

Like Dr. King, I can see a world where we can reach across the boundaries of race and culture to build lasting bonds of love based on our common humanity. I know this is possible because I’ve experienced it with my own family. I’ve learned that one of the tragedies of racism is that it prevents people from seeing the humanity of others and opening themselves to love and be loved by people who are only superficially different from us. I’ve experienced the profound love that can happen when you erase those boundaries and it gives me hope.

On this “people’s holiday,” Dr. King’s dream is my dream, too. And I will always be grateful to Mahalia Jackson for saying to Dr. King: Tell ‘em about the dream, Martin!