OTC 2022: Diversity Failures are Hurting the Bottom Line

HOUSTON—When McKinsey & Co. crunched the numbers linking diversity to financial performance, the results were clear and, to some extent, brutal.

Companies that had achieved a significant level of gender diversity, i.e., representation of women on executive teams, were 25% more likely to experience above-average profitability and rank in the top quartile of the industry than those in the bottom quartile in 2019. Further, the gap had widened from 15% in 2014 and 21% in 2017.

When ethnic diversity was considered, the gap widened even more. Companies that prioritized inclusivity were 36% more likely to land in the top quartile than those that occupied the bottom quartile.

“We see that you have better decision-making when you’ve got different voices and different perspectives.”—Kassia Yanosek, Consultant, McKinsey & Co. Inc.

Oil and gas industry leadership, in particular, is very much a man’s world, the research showed. One or no women were represented on 73% of executive teams in oil and gas. The power industry, by contrast, flipped the equation: only 25% of executive teams had only one or no women.

“There’s a rationale, a reason for having diverse organizations,” said Kassia Yanosek, partner in McKinsey’s Houston office, and leader of the consultancy’s oil and gas strategy work in the Americas, at the Offshore Technology Conference (OTC) on May 2. “We see that you have better decision-making when you’ve got different voices and different perspectives. So, some of this is, how are you going to outperform in a world that is increasingly becoming complex? Particularly for this industry, as we face the transition and the changing environment [it’s important] that we have more complex, more diverse thinking, and solutions that are credible.”

But while data may reinforce the positives of building a diverse workforce, the practical challenges are considerable. Encouraging young women to join the oil and gas industry is difficult enough, but in the mission of keeping them in the organization so they can move up through the ranks toward the C-suite, energy companies have faltered.

“If we’re really going to recruit the best and brightest we’ve got to be an inclusive environment, that all of those students want to come and work in our business,” said Stephanie Hertzog, CEO for North America energy and resources for Sodexo.

Hertzog noted that while women made up about 30% of entry-level positions, they only comprised 10% of those in the C-suite, indicating that the problem of a small population of women in the lower ranks was compounded by losing many along the way.

“If we’re really going to recruit the best and brightest we’ve got to be an inclusive environment, that all of those students want to come and work in our business.”—Stephanie Hertzog, CEO, Sodexo Energy

That is illustrated by a common path to the highest levels of a company: running a P&L division. Women who begin in operations often step back when they decide to start a family.

“Operations can be very demanding, particularly at those early levels in operations where you’re a site manager, you’re a district manager, and really have very little control over your schedule,” she said.

The result is that these younger employees take their talents to other areas of the company and, as they move up, they find it difficult to move back into operations. At many companies, leadership in operations is a key metric of who gets to advance to the C-suite. Part of what Hertzog aims to do is encourage those she mentors to pursue a round-trip ticket back to operations.

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