Cultural diversity is a key driver of business performance. Research has shown that executive and workforce cultural diversity is linked to increased innovation and creativity, market share, improved financial performance and brand reputation.
The importance of cultural diversity in leadership ranks is underlined by the increasingly global connectedness of business and trade. More and more organisations are considering multicultural strategic alliances and supply chain diversification. Increasingly CEOs are diversifying their supply chains and working with suppliers in a wider range of territories to maximise efficiency and cope with unanticipated disruptions.
Delivering on such multicultural strategic alliances requires a culturally diverse and capable leadership team, one able to respond appropriately to complex cultural systems and influence, negotiate and build trust across cultural boundaries. So how do Australian boards actually fare when it comes to cultural diversity? Not particularly well unfortunately.
How culturally diverse are Australian boards?
In an Australian first study conducted by Diversity Council Australia and Deakin University, we found that most boardrooms are dominated by people from Anglo-Celtic cultural origins and they do not actually reflect the cultural diversity of the broader Australian community. In fact in each of the ASX 100, ASX 200 and ASX 500 listed companies, only a quarter of directors are from culturally diverse backgrounds compared with a third in the wider Australian community, and only 5% are from Asian backgrounds versus 8.5% in the Australian community.
On the positive side, the representation of directors from Asian backgrounds amongst all listed companies is increasing. In the last decade, there has been a 74% increase in Chairs from Asian backgrounds (3.5% to 6.1%); 61% increase in directors from Asian backgrounds (5.9% to 9.5%); and 14% increase in CEOs from Asian backgrounds (4.4% to 5.0%). And culturally diversity more broadly is also growing – by 16% and 22% for chairs and directors from culturally diverse backgrounds.
But there has been slower progress in larger companies and among CEOs. In the last decade there has been only a 4% increase in CEOs from culturally diverse backgrounds compared with a 22% increase in directors from culturally diverse backgrounds.
Opportunities in Asian markets
The emerging and rapidly growing economies of east and south Asia offer Australian organisations significant business opportunities. Three of Australia’s five largest trading partners – China, Japan and the Republic of Korea – are in Asia. Currently more than three-quarters of Australia’s exports go to Asia. While there are approximately 500 million people in Asia who could be regarded as middle class, this is forecast to rise to 1.7 billion by 2020 and 3.2 billion by 2030, meaning Asia will account for about 60% of global middle-class consumption.
Recent research by PwC found Australian businesses have struggled to turn these opportunities into successful growth. The firm surveyed over 1,000 Australian business leaders to understand the extent of their involvement in Asia, and what, if anything, was holding them back. It found just 9% of businesses are currently operating in Asia and only 12% of Australian companies have any experience of doing business in Asia at all; 65% have no intention of changing their stance towards Asia in the next 2-3 years; and of Australia’s large companies, half are doing business in Asia but only 23% have staff on the ground in-market.
These results clearly show that Australian business is a long way from the level of engagement, investment and commitment needed to secure a long-term share of the region’s growth. And the lack of culturally diverse and capable leadership teams is a key part of the problem.
What's holding Australian boards back?
So why are our boards and organisations so slow to harness the cultural diversity in our wider community? DCA’s Cracking the Cultural Ceiling research released last year sheds some light. We investigated the barriers that were preventing Asian talent in particular from reaching the top – and we believe other diverse talent would experience similar barriers.
We found cultural bias and stereotyping was the biggest barrier, according to the Asian talent we surveyed. Only 18% of Asian talent felt their workplaces were free of cultural diversity biases and stereotypes. Many regularly experienced bias and stereotyping, including about their cultural identity, leadership capability, English proficiency, and age. Women from Asian backgrounds experience a ‘double disadvantage’.
The predominance of a ‘Westernised’ leadership model was the second biggest barrier. Some 61% of people we surveyed felt pressure to conform to existing leadership styles that are inherently ‘Anglo’, e.g. over-valuing self-promotion and assertive direct communication, while undervaluing and misinterpreting quiet reserve, deference and respect for seniority.
Lack of relationship capital was also a barrier for Asian talent. Only one in four had access to mentors or professional networks and even less has access to sponsors; similarly low levels feel included in workplace social activities.
The other major barrier was that the business case for culture is still not understood. Only 15% of people we surveyed strongly agreed their organisation leverages its workforce cultural diversity to better service clients.
This failure to take advantage of culturally diverse talent in some ways reflects our history, the waves of migration to Australia and perhaps our geographic isolation. And it is perpetuated by a leadership that continues to hire in its own image.
Like gender diversity, however, cultural diversity on boards isn’t just a nice to have. Research clearly shows that board-level and workforce cultural diversity are linked to enhanced organisational performance and firm profitability – particularly when organisations are pursuing innovation and growth strategies. Research also shows that people with overseas immersion experiences and multiple cultural identities display more creativity and are better problem solvers and more likely to create new businesses and products. And the higher the proportion of senior leaders who are Asia capable, the more likely business performance will exceed expectations.
Building cultural capability for the future
So what should organisations do to address the problem? In our experience, they first need to look within to see how much cultural diversity they already have. Doing so allows them to maximise the talents of their workforce and build cultural capability from the ‘inside out’.
Organisations should better value global experience and multiple cultural identities, and the benefits these cultural assets can bring, when making recruitment, promotion and appointment decisions. They should be proactive about engaging board and executive talent from a broad range of cultural origins.
Where cultural capability is lacking, they should invest in building it – that is, their leaders’ ability to adapt as they interact with people with different cultural backgrounds to their own.
So the question needs to be asked, for how long will the profit and performance of Australian companies continue to be compromised by this lack of diversity? Let’s hope not too long for the sake of business and the wider economy.