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Small businesses beat larger rivals on inclusion and diversity

Diversity matters in business. Organisations perform better, make more money and attract superior talent when they have a culture of inclusivity and diversity. McKinsey & Co, one of the world’s foremost consultancies says that there is a distinct financial advantage in inclusivity and diversity.

And it seems that small businesses are beating larger companies on diversity and inclusivity.

Financial advantage for small businesses

The research by McKinsey & Co shows that businesses in the top 25% for gender diversity are around 21% more likely to perform better than those in the bottom 25%. It included 1,000 organisations across 12 countries and examined every benchmark for diversity. It shows that organisations in the top 25% for ethnic diversity are a third more likely to see higher than average profitability than those at the bottom.

Diversity most obviously impacts the financial performance of a company when it’s embedded in executive teams and managerial positions. This correlation exists across all countries in the research. However, ethnic minorities in particular, are still under-represented in executive teams around the world.

Small businesses generally more diverse

As financial performance is linked to diversity within managerial and executive teams, it’s logical that small businesses outperform larger companies in this area. A Marketing Week report backs this up. Its annual Career and Salary Survey suggests that UK small businesses do better than larger rivals in terms of diversity and inclusivity. Furthermore, organisations with a strong diversity culture are more attractive to potential new hires.

The survey, which was collated from 4,415 marketing professionals, also shows that some business sizes and industries are still under-representing diverse groups of employees. For example, religious groups are the most likely to be under-represented in medium sized businesses (those with 50-249 people) at 20.8%, followed by large companies (250+ employees) at 19.8%. The best result for inclusivity in this area is with small businesses at 11.5%.

Around 50% of respondents in the gambling and gaming sector report that ethnic minorities are under-represented, followed by media at 42.5% and the public sector at 42.5%. Overall, ethnic minorities are least likely to be under-represented in small businesses.

Stark contrast between large and small businesses

Medium sized companies (50-249 employees) employ fewer LGBT employees, with 18.9% saying they’re under-represented. Small businesses again score highest, with just 7.5% of respondents saying that they feel LGBT employees are under-represented within companies under ten employees.

Another stark contrast can be seen with employees with mental or physical disabilities. Almost 41% of respondents feel that they are under-represented in large businesses, but just 13.8% report the same for small businesses. Similar ratios can be seen with other categories, including single parents and older employees.

Government moves to increase gender diversity

While the statistics for small businesses are encouraging, the Government is working to, in particular, increase gender diversity. A majority of MPs recently backed a recommendation by the Association of Accounting Technicians (AAT) to extend its ‘Women in Finance Charter’ across all businesses within the UK.

As it stands, the Charter suggests that firms within the financial services sector commit to four key actions:

  • Name a senior executive as accountable for gender inclusion and diversity.
  • Set targets internally for gender diversity within senior management.
  • Publish progress every year.
  • Make sure the senior executive team’s pay is linked to the delivery of gender diversity targets.

This was signed by 300 financial services businesses, and its impact is therefore confined to this sector. AAT wants to see it renamed ‘Women in Business Charter’ and cover all businesses.

While the financial sector has been making some progress, a report from the Tech Talent Charter shows that they’re falling behind. The report says that the UK’s tech sector is failing to include women into tech roles. The UK average number of women in technological roles is only 19%, despite the Charter’s launch in 2018 with the aim of being more proactive in terms of delivering better gender diversity in this sector.

James Turner, Managing Director of Turner Little Limited says: “Multiple reports show that small businesses in the UK are outperforming larger companies in terms of inclusivity and diversity. This is perhaps unsurprising given that small businesses are often disruptive, innovative and forward-thinking, while larger companies can become lost in years of tradition and old-fashioned thinking.

“Every measure of diversity inclusion is shown to be greater in small businesses than medium to large. It’s the same across every sector, as well as across multiple countries. It’s encouraging that small businesses are further ahead when it comes to delivering inclusivity expected in 2019.

“However, it’s also clear that there is still much to do across every sector to encourage diversity. The financial advantages are there for the taking, and it’s hoped that further Government measures will continue to encourage inclusivity across the UK.”

About Turner Little
Founded in 1998 in Yorkshire, UK, Turner Little is a specialist UK and offshore company formation, banking and corporate services provider. Our services include company formation, UK and offshore banking, asset protection, credit correction/repair, trademarking and trusts. Other services include Internet services, mail forwarding, wills and probate. Turner Little’s vision is to offer the best possible service, together with market leading products.

Turner Little and its affiliates do not provide tax, legal or accounting advice. Material on this page has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.