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Firms are at pains to promote diversity in their leadership and at the entry level. But what about the vast mass of employees in between? Socially minded investors need to have middle managers in their sights too.

The terms for middle management — “permafrost,” “the frozen middle” — are generally miserable. “Frontline managers” is often preferred. However they’re described, the divisional heads and group leaders who sit below an executive committee do much of the hiring, firing and promoting. They have the biggest day-to-day influence on employees’ working lives.

When the UK arm of auditor KPMG wanted to understand whether people from working-class backgrounds faced barriers at the firm, it found the most underrepresentation in its middle ranks. That exemplifies a wider issue with many efforts to diversify the workplace.

Campus recruitment refreshes the bottom tier annually with a blank slate, and just a handful of board appointments can bring new perspectives to a company’s upper echelons. But it’s much harder to change the main body of an organisation.

At issue is the need for companies to pay just as much attention to attrition and promotion as they do to hiring. That may be more time-consuming and costly. But get it right, and the returns may be higher.

This currently appears to be a blind spot for leaders. A 2018 US survey by Boston Consulting Group found that older men (aged 45-plus) perceived recruitment to be where most obstacles to diversity lay, whereas women and ethnic-minority employees saw more obstacles in advancement.

“Firms have made progress on recruitment. What they haven’t done is figure out what’s going to happen once people have come in,” says BCG MD and senior partner Matt Krentz.

A recent review by UK television and radio regulator Ofcom echoes this point. When it looked at the practices of British broadcasters, it found that not enough effort went into progression. “Across some underrepresented groups, retaining staff would have a bigger effect on future diversity than increasing recruitment alone,” it said.

A high-quality pipeline of junior recruits can be weakened almost from the get-go. New starters need frank and constructive feedback on how to improve their performance to gain promotion. Might managers feel more comfortable giving that to those who match their particular demographic? Other obstacles can surface mid-career. LGBTQ staff who were not out at work when they started with an employer may feel constrained from coming out later, worrying that this will risk their chances of advancing, Krentz says.

Inflexible working patterns may hamper the progress of women after having children, denying them middle-management roles that are the gateway to the most senior ranks of a firm. Badly worded job ads can needlessly narrow a candidate pool. A posting may give the impression of regular international travel when trips may be required just once or twice a year, deterring those with family responsibilities who would readily apply if the specification was more accurate.

And if the culture isn’t inclusive — that is, one where all staff feel valued — the risk is that a mid-level external hire leaves not long after joining. BCG found that employees were nearly three times more likely to look for jobs elsewhere if they perceived a lack of commitment by direct managers to diversity and inclusion.

These dynamics can be self-reinforcing. If groups that are underrepresented in the firm don’t advance to middle management themselves, a lack of diversity among role models reinforces the sense of a glass ceiling.

Investors should put pressure on companies to set out how they are approaching these challenges — for example including the results of anonymous surveys of staff morale and intentions-to-stay in annual shareholder reports. Simple procedural steps can make a difference too, such as withholding appointments until the hiring panel has seen a number of candidates that would strengthen diversity.

But a lot of this is to do with recognising that management is a particular skill and requires an investment of time. Managers may need better training and support to do it well. Such an approach could be buttressed with a budget for a more dynamic hiring strategy, being always on the lookout for talent rather than waiting to fill a hole.

As UK think-tank New Financial has argued: “Effectively managing diverse teams can take more time than managing people who look, act and come from a similar background to you ... launching an inclusive recruitment campaign might take more time to find a broader bench of candidates than using a personal network.”

Of course, investors shouldn’t relent on shaking up homogeneous boards and pushing firms to secure a varied pipeline of entry-level talent. But it will be wasted if the people firms hire don’t stay long enough to create genuine change.

Bloomberg Opinion. More stories like this are available on bloomberg.com/opinion


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