To Expand the Pool of Diverse Candidates, Companies Must Rethink Risk

August 22, 2018 – We are long past the point in which companies must be reminded about the importance of diversity within their senior ranks.

The pendulum, in fact, has now swung the other way: Search firms are continually asked by clients to bring them diversity candidates — and, often, only diversity candidates.

For recruiters, it is gratifying that the demand for diversity candidates has increased so dramatically, and they are excited to help clients find the diverse talent that truly can transform their business.

But the fact is that companies seeking to increase the diversity of their leadership ranks can’t simply outsource the solution, according to Todd Hutchings, Egon Zehnder’s managing partner in Los Angeles and Palo Alto, in his report, “Rethinking Risk in Developing and Retaining Diverse Executives.”

“When a company wants to conduct an external search for a senior-level diversity candidate with a proven track record, our experience has been that the decision to look outside rather than inside is driven by two forces: 1) The company wants to increase the diversity of its senior ranks quickly and 2) It wants to do so with minimum risk,” said Mr. Hutchings. “Both of these impulses are understandable, but there are reasons to use caution with them.”

The lack of diversity in the senior management of many industries springs from long-standing inequities in hiring, development and promotion. “Successfully recruiting a senior diversity executive from somewhere else solves that organization’s immediate need without addressing the underlying problem: Everyone chasing the same limited pool of talent does nothing to expand the pool, which is the only real solution to a complex challenge,” said Mr. Hutchings.

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Organizations can expand the pool of diversity candidates for senior roles by making it a priority to cultivate the most promising mid-level diversity executives already within their company, he said. But doing so requires a serious rethinking of risk.

Facing Risk

“When presented with the possibility of promoting the current (diverse) controller into the CFO role, for example, many organizations will focus on the risk of underperformance and turn to recruiting an established (and, many times, non-diverse) CFO from the outside,” said Mr. Hutchings. “But what organizations frequently don’t realize is by avoiding one risk at all costs, they actually are incurring the much more significant risk of having great talent recruited away from them. From our vantage point in the middle of the talent market, we have seen this happen far too often.”

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Diverse boards make better decisions and lead to improved company performance. Validation and prodding by institutional investors and state and city government as well as all types of non-profits, a revealing 1,805 companies out of 3,192 in a gender diversity index created by 2020 Women on Boards have zero or just one women on their boards.

If organizations can get a more accurate reading of the risk involved in a stretch promotion, they may find that it less risky than it seems. They can do this by looking past the traditional competencies like strategic orientation and ability to influence in their evaluations. “Our research into many such cases has shown that candidates with some or all of four key personal attributes — curiosity, insight, engagement and determination — have the agility and temperament needed to adapt to the changing conditions and unforeseen challenges that stretch promotions commonly bring,” said Mr. Hutchings. “Indeed, such candidates can end up outperforming others who lack those personality traits but check all the traditional boxes.”

A more accurate assessment of an internal candidate’s potential to grow into a new role is a powerful way of mitigating the risk that comes with stretch promotions. This, as a result, increases the flow of diversity candidates into the upper tiers of leadership. “But this is not the only risk that must be considered in order to expand diversity,” said Mr. Hutchings. “Just as organizations may have to make an educated leap of faith when moving a mid-level diverse executive up to a senior position, so, too, are those executives weighing the risk of assuming that if they reject an offer to go elsewhere, their potential will be recognized and translated into opportunity where they are.”

Related: Key Activities to Drive Diversity and Inclusion Strategies

Minimizing the risk borne by diverse executives requires organizations to take a close look at their culture and support mechanisms to evaluate whether their commitment to diversity is strong, consistent, effective and free from unconscious bias and other forces that might undermine it, said Mr. Hutchings. “Companies that tend to recruit diverse leadership from the outside rather than cultivating it from within can easily skip over this important self-evaluation and end up with a more anemic diversity environment than they realize,” he explained.

Self-Evaluation

Mr. Hutching suggested that organizations ask the following:

• Do the diversity executives in the organization feel they have equal access to both formal training and informal mentoring?
• Is the composition of the senior-most ranks of the organization such that a diverse executive feels that ascending to that level is a realistic possibility?
• Does the organization have a track record of developing and promoting diverse leaders from within? Is the promotion process transparent and accessible?

Pay particular attention to diversity and inclusion programs. “These programs can be highly effective if they reflect an authentic commitment to promoting internal diverse talent to senior leadership positions but can exacerbate tensions and dissatisfaction for diverse talent if such programs exist merely for optics,” said Mr. Hutchings.

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New efforts toward improving diversity are on their way over the coming year, according to a new report by Glassdoor. One in three (35 percent) hiring decision-makers expect to increase investment in diversity and inclusion and only three percent expect it to decrease. 

But it isn’t only diverse executives who closely examine the inclusiveness of a company’s culture. “We once regretfully turned down an assignment from a Fortune 100 company to recruit a top-level female executive to the leadership of the company’s services division,” said Mr. Hutchings. “A careful reading of the role specification against the talent marketplace quickly showed that there were only a half dozen women from other companies who could step into this specialized position—and each of those women was at a company that was more genuinely diverse and inclusive than our potential client.”

Related: Establish a Diversity Baseline and the Money Will Follow

“As a result, we knew it would be virtually impossible, no matter what salary and perks were offered, to successfully recruit one of these women to this new opportunity. Enterprises such as this can increase the diversity of their senior leadership — but only by taking a long-term view centered on leveraging their internal pool of diverse executives.”

A Broader Truth

This example, ultimately, is but an extreme case that highlights a broader truth: For diversity and inclusion to reach meaningful levels, organizations must move beyond the relatively “quick win” provided by external recruiting, said Mr. Hutchings. Instead, they should focus on assessing, developing and retaining the diversity talent already on board. “Doing this effectively will naturally grow the number of diverse executives in the candidate pool for senior positions, which, in turn, will increase the diversity of an organization’s senior leadership in an authentic way,” he said. “That is the surest path for a company to be known as an employer of choice for talented diversity candidates—no matter whether they come from within the company or from without.”

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Mr. Hutchings, who joined Egon Zehnder in 2005, has deep expertise in talent assessment and recruiting across the heath-care, commercial, finance, technology, and strategy sectors. He works closely with companies seeking management assessment and evaluation of executive leadership potential. He also advises corporate boards.

Prior to working at Egon Zehnder, Mr. Hutchings served as director of business planning and strategy for Roche Diagnostics, where he led Big Data analytics and directed market insights. He was also a consultant with McKinsey & Company and the Monitor Group. Earlier in his career he worked at GE in corporate business development and on the corporate audit staff.

Related: Path to Profitability: The Business Case for Board Diversity

Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; Stephen Sawicki, Managing Editor; and Andrew W. Mitchell, Managing Editor – Hunt Scanlon Media