Most now agree that we will be entering a “new normal” as we move out of the acute phase of the Covid-19 pandemic. For corporate UK, that may mean pivoted business models being made (semi) permanent and/or flexible and remote working as standard. What is less clear is how our reshaped companies will look in terms of diversity, in their staff teams overall and senior leadership teams in particular.

Yet the impact of Covid-19 on diversity is vitally important not only to individuals affected, but to the recovery of firms and the economy as a whole.

The evidence of a correlation between business performance and diversity was strengthened again this month. McKinsey’s third research report on the topic, this time called Diversity Wins, confirms their 2014 and 2017 findings. Companies with more women at the top outperform those with limited or no women in their leadership teams.

Beneficial results were more pronounced when considering ethnic and cultural diversity as well as gender. Importantly, McKinsey’s Diversity Wins brings an improved data set (including 15 countries and over 1,000 large companies) to the body of research, including notable studies like Credit Suisse’s Gender 3000, linking diversity to better business outcomes.

It doesn’t matter how you cut the data or which geographical area you look at: diverse teams deliver better results.

Covid-19 and progress on diversity

Given this proven imperative, the business challenges posed by the Covid-19 crisis should accelerate progress on diversity. After all, we know there will be large-scale redundancies in some industries as the government’s unprecedented furlough scheme tapers off. We also know other businesses will be growing rapidly, as consumer demand shifts to online and delivery services. Large-scale shifts in personnel could result in the step change in diversity which, in my opinion, is long overdue.

Yet, it is far from clear this is what will happen. Research by Alexandra Kalev, professor in the department of sociology and anthropology at Tel Aviv University, is showing that women today are already being hit harder by the Covid-19 recession—and to a greater extent than they were post the 2008 financial crisis. This is because women, and minorities, are over-represented in industries that are having the highest lay-off rates, and or where they are more likely to be in roles seen as less profitable or lower-ranking and therefore more expendable.

That is unfortunate enough, but it gets worse. Rather than look to the data and embrace new ways of working in a crisis, Kalev’s research suggests in times of stress our unconscious biases are heightened. Managers’ tendency is to revert to their “traditional” models of what a talented or high-potential employee looks like (usually quite a lot like themselves), which means that minorities within teams are much more likely to be let go.

Gender pay gap delay

We must also remember that it is not simply diversity alone which drives real business results. McKinsey’s report confirms that just putting together diverse teams does not necessarily make a difference.

This new report highlights the importance of inclusion to a company’s success. However, inclusion is somewhat less tangible than diversity. It results from modern leadership techniques which enable all team members to contribute equally. Inclusive leaders value a range of perspectives and know how to use them to drive innovation.

The extent to which all team members are valued and supported is not as simple to measure as diversity demographics. The closest metric in the UK that we have reported so far, in scale, is the gender pay gap—illustrating how far women’s contribution to an organisation is valued compared with men’s. And this is where corporate UK is in real trouble, in my view.

Prior to the Covid-19 crisis it was mandatory for firms with over 250 staff to report on their gender pay gap by 5 April the following year. With the Covid-19 lockdown plunging business, and indeed society, into crisis just weeks before this year’s deadline, the government cancelled the 2020 reporting requirement and it is yet to announce a rescheduled gender pay gap reporting date. It must do so, and urgently.

Requiring a gender pay gap report is not excessively onerous on hard-pressed businesses. With just a few weeks’ notice, all firms would have had plenty of time to gather the data they needed to report and—if not—that data will still be readily available to them. Indeed, around half of eligible UK firms have submitted a gender pay gap report. As of the 25 May, 5,373 companies have reported their gender pay gap data, against 10,855 companies who reported last year (by April 2019).

It is vital that the requirement to report on gender pay gaps is maintained, not only to give us a national data-set, but to ensure firms have vital operational information as they move through these challenging times. The gender pay gap is the best data available at scale to show where in your firm Diversity & Inclusion (D&I)  is bedded in, and where it is lacking.

Data has to be the starting point for adopting a systematic business-led approach to D&I which enhances your bottom line. It is also the foundation effective leaders use to make the kind of tough decisions required by the Covid-19 crisis. That is, to make their decisions strategically and with regard to key lessons from business research.

Leaders and laggards

Most interestingly to my mind is the different type of gap shown in the McKinsey research. The space between corporate diversity leaders and laggards is widening—both in terms of the extent of their diversity and their business performance.

McKinsey not only found that companies with more than 30% women on their executive teams are significantly more likely to outperform than those with between 10% and 30% women at the top, but that “there is a substantial performance differential—48%—between the most and least gender-diverse companies”.

Diversity Wins shows companies in the top quartile for ethnic/cultural diversity in their executive teams are 36% more likely to experience above-average profitability (25% for gender alone). Those in the fourth quartile of gender and ethnic diversity are 27% more likely to underperform on profitability.

It is this trend I expect to see exaggerated by the Covid-19 crisis. Some firms will revert to outdated business models and allow biases to drive their business decisions. Others will draw on the data, invest in inclusive leadership and use diversity to drive innovation. All boards must consider which side of the gap their firm is poised to end up on.

So please watch out for comments like “D&I is a luxury we cannot afford” during the crisis because McKinsey believes that “these companies risk tarnishing their licence to operate in the long term and could lose out on very real opportunities to innovate their business model and strengthen their business recovery”.

Fiona Hathorn is CEO of Women on Boards UK.