CNEXT CEO: How to Create a Diverse Senior Executive Leadership Pipeline

Cheryl Stokes

Friday, June 2nd, 2023

A recent BCG study suggests that increasing the diversity of leadership teams leads to more innovation and improved financial performance. In both developing and developed economies, companies with above-average diversity in their leadership teams report a greater payoff from innovation and higher EBIT margins. On average, companies with diverse management teams experience a 19% increase in revenue compared to their less diverse counterparts.

Continued evidence of an improved bottom line means mounting pressure on HR to diversify leadership and improve equity and inclusion. In fact, a recent survey showed 35% of HR leaders say diversity, equity, and inclusion are among their top five priorities. So how can companies effectively diversify leadership teams?

Avoid the identity bias pitfall.

Often the barriers to diversity and inclusion in executive circles are those that one might expect—promotions and hiring decisions are often based on relationships and "identity bias"—the sense that if colleagues are more "like me," they will fit in better. Instead of looking for employees who will “fit in” with the current company culture, look for talent who can add value to your business. Hire more diverse employees in all roles, not just the C-suite. If you have a diverse pool of front-line or manager-level associates, promote from within. If your senior executive leadership team has no diversity, bringing in diverse high-potential candidates will be challenging. To achieve greater diversity in the senior executive leadership pipeline, identify high-potential leaders early, invest in them, and plan their development for the long term.

Increase emphasis on developing diverse leaders.

BIPOC and women experience slower promotion rates than their peers and suffer a “worse perception of leadership potential,” Gartner reported in its 2021 Leadership Progression and Diversity Survey. HR managers' top reason for lacking BIPOC and women in leadership roles was “not having enough diverse leadership talent in the pipeline.”

Identify leadership development partners to guide and support your organization. They can provide an unbiased view of your current state and help you build a plan to prepare leaders from diverse and underrepresented communities for increased responsibility.

Everyone is responsible, but the CEO is accountable.

Senior leadership, especially the CEO, has an outsized impact on the culture and inclusiveness of the organization. What the CEO says, does, prioritizes, and measures will be replicated throughout the organization. This impact is critical when it comes to DEI and accountability for results. At the end of the day, that accountability rests with the CEO. The CEO must authentically connect the company's DEI goals to the purpose, vision, and objectives so that everyone understands DEI as a strategic priority of the business and is committed to getting results.

Gartner analysis shows the progression of underrepresented talent stalls in mid- and senior-level positions. The CEO and senior leaders must be accountable. Everyone is responsible for fostering DEI, but nothing happens if no one is accountable.

Company executive leadership plays a significant part in developing and promoting high-potential diverse employees into leadership roles. Like any other transformation, the CEO's leadership and clear expectations lead to results. Integrating DEI measures into leaders’ performance evaluation processes to ensure mutual understanding of and commitment to DEI as a strategic priority is a step in the right direction.

Influence DEI at the Board Level

A board with weak corporate governance may comprise long-tenured directors or directors who share personal ties with the CEO and have less relevant business experience. It may also suffer from issues such as groupthink or low-effort norms. These can negatively impact board oversight and performance by decreasing the independence of board members and the likelihood that they will express diverse views or challenge management proposals. Given the critical role that the board plays, this can be a severe detriment to a company.

A global survey of over 2,300 directors and senior executives found that 64 percent of the participants believed their board lacked directors with the right combination of skill, background, experience, and perspective to probe management’s strategic assumptions and navigate the fast-paced global environment.

Develop, promote, mentor, sponsor, and expose diverse leaders to opportunities. Retain high-potential diverse leaders and move them through the executive pipeline as opportunities surface. Considering board members are experienced corporate leaders, we must diversify the senior executive pipeline if we are ever to have an opportunity to influence diversity at the board level.