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Fashion Has a Diversity Problem on the Business Side, Too

BoF examined the 15 largest public companies in fashion and found that diversity is lacking at the highest levels of leadership.
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By
  • Chantal Fernandez
BoF PROFESSIONAL

NEW YORK, United States — Whether it's a design director or a part-time store sales associate, every single person interviewing for a job at 3.1 Phillip Lim goes through chief executive Wen Zhou, who says the 13-year-old brand's staff of about 120 employees from over 25 countries is its most valuable asset.

As an immigrant herself, Zhou understands the value of different perspectives. She moved to the United States from China as a child and grew up on the Lower East Side in Manhattan, where she says the Asian community was often treated like “the invisible race.” But Zhou says that never wanted to use her background as an excuse to not succeed in fashion, and avoided thinking about how others might stereotype her based on her race.

"Fashion is supposed to be the most advanced industry, but we are often seen as a follower when it comes to diversity and women's issues," she says. "Change is already happening, but it's never quick enough."

Zhou’s global point of view is in vogue right now in fashion. Brands are adopting the language of inclusion and diversity in their marketing campaigns, and some are casting more diverse models for advertisements and on the runway.

But more often than not, inclusivity doesn't extend into the executive suite like it does at 3.1 Phillip Lim. Many companies including luxury leaders Kering and LVMH have developed programs and strategies to foster female leadership and diversity in their companies. But when British companies reported their gender pay gap data last month, fashion and beauty brands were among the worst offenders, including Victoria's Secret and Burberry. Louis Vuitton's appointment of Virgil Abloh, a Ghanian American, as its new men's artistic designer, made waves in part because so few non-white designers reach that level.

Among the executives making those key hiring decisions, there is even less diversity.

BoF examined the 15 largest public companies in fashion and apparel by market capitalisation and found that the vast majority (73 percent) are led by white male chief executives. The companies included in the survey were LVMH, Nike, Inditex, Dior, Kering, Hermès, TJX, Richemont, Adidas, Fast Retailing, Luxottica, Ross Stores, VF Corp, H&M, Swatch Group and Tapestry.

On average, men and women of any ethnic minority represented only 11 percent of the board of directors at these companies. Among US fashion companies, representation averaged 22 percent, seven points higher than American companies surveyed in a January 2018 McKinsey report. In Europe, the average dropped to only six percent. Of the largest 15 companies, six have no minority representation on their boards: Fast Retailing, H&M, Hermès, Inditex, Luxottica and LVMH. (See our note on methodology at the end of the article.)

One reason for the lack of diversity: fashion companies prefer to hire from competitors. It’s not a practice that is unique to the industry, but it exacerbates the problem.

“It’s a merry-go-round [of talent],” says Steve Baggi, leader of the retail and consumer practice at Green Park, a London-based executive search and advisory firm. You have to work harder to get [more diverse talent].”

Baggi says many retailers found success through top-down “command and control” management structures, which put a priority on execution. Diversity was a lower priority, though many firms have made progress in promoting more women in recent years, he says.

“The world is changing now and we need people to think differently in order to be successful,” Baggi says. “Diversity is just one piece of that jigsaw puzzle.”

According to the McKinsey report, companies with the most ethnically/culturally diverse boards are 43 percent more likely to deliver higher profits. The report posits that more diverse companies are better able to attract and retain talent, as well as improve their customer service and decision-making.

“Diverse teams are also better able to target and distinctively serve diverse customer markets... which command an increasing share of consumer wealth and which could represent untapped markets for some companies,” said the McKinsey report.

Harvard Business Review found in a survey of 1,700 companies that those with above-average diversity — in terms of gender, education, age and other factors — were more innovative, generating 19 percentage points more sales from products introduced in the last three years.

Macy’s is often cited as a company with higher than average diversity on its board, whose independent directors include five women and three ethnic minorities. “At Macy’s, Inc. we are committed to diversity across all aspects of our business,” said Marna Whittington, the company’s lead independent director, in a statement. “We believe diversity of thought is most important, and we encourage as many perspectives and experiences as possible.”

Jen Rubio, co-founder of luggage brand Away, says the company’s leadership needs to reflect the diversity of the brand’s growing consumer base as it enters new markets. Rubio herself represents part of that audience as a Filipino American immigrant. The company’s board is small, only 4 people, but 3 members are women and 2 represent ethnic minorities.

“We know diversity fuels innovation and drives growth,” she continues. “We appear to more diverse than a lot of companies, but I think all companies have a long way to go to fully represent the audience they are trying to reach, and that is something we are trying to do.”

Leadership behaviour is a key part of this, too. In today's politically aware era, shareholders and consumers care about the people who lead the companies they invest in and shop from — and the values that those leaders infuse into the business. H&M faced boycotts and a decline in stock prices after the release of a "racist hoodie" online, which featured a young black model wearing a sweatshirt with a monkey on it.

It's yet to be seen if or how reports of a toxic work environment at Nike — which led women at the company to organise and report their conditions directly to chief executive Mark Parker, followed by the resignation or exit of at least six senior male executives — will impact consumer sentiment. But the company's internal woes have made headlines and what might have once been a company matter is squarely a public matter now.

Baggi says the first step towards increasing leadership diversity is recognising that there is a problem. He says most businesses incorrectly think there aren’t enough diverse candidates in the market to choose from. But it requires a change in approach, both for external hires and internal promotions. Every business needs to evaluate the “pinch points” within the organisation that keep some people from surpassing middle management and send others on a fast track.

Another important realisation is that the selection process is ripe with bias — unconscious attitudes and decisions made by everyone — that limits candidates. The most obvious example is favouring candidates who attended certain universities.

Baggi used supply chain as an example: a company could hire someone from the aerospace industry, which has much higher gender representation. “Are we looking at the usual suspects, and how are we looking at the diverse worlds in adjoining sectors as well?” Asks Baggi, adding that every organisation should be actively looking at an external pool of candidates in the layers immediately below the executive committee. “In the next five years seven years, they are the people that are going to get on the executive committee,” he says.

As for the early glass ceiling breakers like Zhou, she has learned to no longer turn a blind eye to her unique background. “I learned that I have to embrace my ethnicity and embrace my background,” she says. And I can do things to create change…. It feels really good, it’s a game changer time right now.”

*Note on methodology: BoF recognises that diversity means different things to different people in different parts of the world. For this report, we followed the McKinsey's rubric and assessed gender and ethnic/cultural diversity based on publicly available data available on corporate websites, annual reports, and other websites. We define ethnic group majorities and minorities as they are understood in different countries. In the United States and Europe, white people of European ancestry are the majority group.

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