How Empathy and Competence Promote a Diverse Leadership Culture

Meaningful diversity and inclusion actions are now seen as mandatory for new generations entering the workforce.1 But the effectiveness of current measures in the finance sector falls short of these expectations. The 2021 Women in the Workplace study conducted by McKinsey and LeanIn.org found that women in North America remain dramatically underrepresented in financial services.2 In particular, women are still promoted at lower rates than men at every step of the leadership ladder, and these differences are exacerbated for Black, Asian, and Latina women.

Well-intentioned efforts focusing on recruitment, quotas, and compliance are not enough to achieve the next stage in gender equality. Prevailing workplace narratives that emphasize the constraints that separate men and women also hold back progress. If we endlessly highlight that women have had lower levels of labor market attachment, women will continue to be viewed as riskier hires for leadership roles. Meaningful change requires a culture shift — a dedicated effort to equalize opportunities so that all employees can thrive, regardless of gender.

Our experience working with organizations in the financial services sector sheds light on the importance of focusing on workplace culture. In September 2020, we conducted a study with 1,700 professionals across the financial sector to understand current attitudes and drivers that contribute to the lack of a pipeline to leadership positions for women. The survey results revealed that perceived workplace fairness is important for all employees, regardless of gender; it predicts satisfaction and lower turnover intentions. Yet there were large differences in how employees viewed their experiences and ambitions based on whether they worked in an environment with a relatively high or low share of men.

To explore how businesses can create environments that equalize opportunities for women instead of hindering productivity and creating dissatisfaction, we followed up the initial survey with 79 in-depth interviews with women across functions with high and low shares of men. They were asked to describe headwinds and tailwinds in their careers. Those in high-share roles were income generators, such as traders, investment bankers, and asset managers. Those in low-share roles worked in either compliance or communications. In analyzing their responses, 10 clear themes emerged that were then matched to actions businesses can take.3 The most important takeaway was that managers who understand the value of women to organizations play an essential role in moving the needle in a meaningful way. The women we interviewed didn’t want affinity groups, quotas, or more mentoring. Instead, they called for their managers to give them equal opportunities, voice, and visibility.

The survey results show that having a manager who gives equal opportunities to men and women on their teams matters. Respondents indicated that being exposed to a mediocre manager can limit future opportunities, pay increases, and career advancement. Yet diversity, equity, and inclusion (DEI) initiatives too often shy away from addressing the role of managers in this area. Fortunately, engaged leaders can be encouraged to create an inclusive culture. In what follows, we draw four lessons based on behavioral science for creating environments where everyone can succeed.

Dismantle ‘Old Boys’ Culture’

A large number of empirical studies have shown that when employees trust management to be fair, they are more committed.4 However, the experience of the women we interviewed speaks to the issue of an “old boys’ culture” status quo in the finance sector, where familiarity bias and affinity bias create obstacles for gender progress. Women cited that “getting drinks after work,” “playing golf,” and the “ability to banter” affected who received opportunities. Research by Zoë B. Cullen and Ricardo Perez-Truglia corroborates these findings.5 In their study, male employees who socialized with their male managers were promoted at disproportionate rates compared with women, regardless of their performance.

This uneven allocation of opportunities for personal career progression is concerning. Managers are often unaware of how affinity and familiarity influence their decisions and may be unintentionally excluding women. The good news is that being aware and motivated to change one’s behavior can help lessen the impact of implicit biases in decision-making. At an organizational level, making decisions visible to managers can compensate for bias, nudging self-correction. Auditing who is getting stretch assignments, pay increases, and promotions, and making that data easily available and transparent to managers, gives managers the autonomy to see for themselves whether they are unduly benefiting some employees on their teams above others.

Build a System That Values Empathy and Competence

To meet the increasing need to work with teams that are often culturally and physically disparate, managers must be technically skilled and also have the ability to create a sense of shared direction and commitment within their teams. Our research reveals that managers who can successfully balance these skill sets demonstrate high competence and high empathy: They empower their teams, influence equal opportunities for progression, and are pivotal in successful transitions back to work. Their superiors also see them as better at their job.6 In contrast, managers who have low competence and low empathy drive toxic environments. (See “Competence-Empathy Manager Environments.”)

Empathy and competence are intertwined skills for effective leaders. A large-scale McKinsey survey highlights their importance when it comes to behaviors, with four categories greatly contributing to overall leadership effectiveness: being supportive, operating with a strong results orientation, seeking different perspectives, and solving problems effectively.7 These core leadership behaviors should be taught to individuals as soon as they enter an organization.

It is imperative that organizations reward managers who lead with true empathy and inclusivity rather than those who engage in virtue signaling. The women we interviewed spoke of some managers “faking” empathy because they were cognizant that it would be rewarded. Real inclusivity and empathy can be spotted and fostered by seeking out evidence on how managers interact with their teams. For example, does a feedback poll from a meeting the manager chairs suggest that they are ensuring that all voices are heard? Does the manager have a track record of onboarding and offboarding women for maternity leave in a manner that retains them in the organization? Does the manager’s 360-degree feedback suggest that they actively listen to colleagues and team members, with no reported gender differences? Gathering data on these questions through observing meetings or surveying employees is a good pulse check as to whether a particular manager is leading inclusively and with empathy and supporting psychological safety for employees.

Break Down Norms Into Behaviors

To create meaningful change, organizations also need to take a critical look at existing social norms. Psychology has shown us that when people interact with others at work, they act and derive part of their identity based on the groups they belong to.8 This can lead to in-groups, where norms are defined by a homogenous majority and can benefit those who strongly assimilate into that category. Many of the women interviewed in our study described how different norms are accepted for men and women within their organizations. For example, women’s mistakes are more likely to be punished, whereas men’s are viewed as growth opportunities. In addition, when women achieved something big within the organization, they were more likely to be seen as “being lucky”; however, men in the same circumstances were given accolades for their skills and ability. These examples align with research by psychologist Tomas Chamorro-Premuzic, who emphasized that men are likely to “fail up” because it is generally difficult to select competent male leaders over incompetent ones.9 Instead, decision makers often take confidence and “playing politics” as proxies for performance.

Experiment With Flexibility

With the widespread shift to remote and hybrid work models as a result of the pandemic, most employees — both men and women — expect greater flexibility regarding where they work.10 One effective way to explore the effects of different work arrangements on operations, talent attraction, and retention is to take an experimental approach. In the first stage, this means involving all functions in the conversation and reviewing existing evidence on the gains of flexibility in its various forms versus the status quo. Shifting the narrative toward an iterative approach allows people to investigate alternative working arrangements and iterate as future inputs and circumstances arise. Leena Nair, head of HR at Unilever, believes in doing everything in the spirit of experimentation.11 This means not only thinking about hybrid work but also future-proofing the workforce by focusing on reskilling.

As the command-and-control leadership style moves out of favor, forward-looking companies are recognizing that inclusive leadership styles offer a comparative advantage. For DEI efforts to be effective in the financial sector, meaningful changes need to occur at the manager level. Training managers on inclusive leadership and emphasizing their role in bringing diverse voices together to spur innovation is key to supporting these efforts.