How to close the diversity gap in Silicon Valley

Silicon Valley companies recognize the need to improve their gender and racial diversity. While they embark on a journey to solve this complex problem, they can learn from companies in other industries that have already made diversity a priority.

At Kaiser Permanente, a health care system based in Oakland and number two on the 2015 DiversityInc Top 50 Companies for Diversity list, nearly half of the company’s executive team and more than one-third of its physicians are women. Nearly 60 percent of its workforce of 175,000 are, in the company’s words, “people of color.” This commitment to diversity and inclusion started at the top. CEO Bernard J. Tyson recognizes the importance of that commitment, as did his predecessor, George C. Halvorson. Kaiser Permanente is committed to providing culturally competent care for all of its patients, who collectively speak more than 160 languages.

Today, no Silicon Valley company is on DiversityInc’s Top 50 list. But reinvention is in the DNA of Silicon Valley. It’s time for the U.S. center of innovation and wealth creation to be a model of inclusion and diversity, too.

Diversity should be a critical component of a company’s culture because it both is the right thing to do and makes business sense. Diverse companies outperform homogeneous ones. One study showed that a 1 percent increase in gender diversity correlates with a 3 percent gain in revenue, while a 1 percent increase in racial diversity correlates with a 9 percent gain in revenue. Diverse companies have better reputations—and by bringing together different points of view, they are also more innovative—than less diverse companies.

Diversity opens up new pools of talent for Silicon Valley as well. BCG projects that U.S. demand for computer programmers, for example, will rise 20 percent each year through 2020. (See Code Wars: The All-Industry Competition for Software Talent, BCG Focus, May 2014.) Silicon Valley companies will be unable to hire enough programmers to fill all available positions unless they more effectively recruit women, blacks, and Latinos.

Diversity does not just happen. Companies must make investments and demonstrate commitment, execution, and accountability to reap the benefits.

Several Silicon Valley leaders have taken action with regard to diversity. Notably, Salesforce CEO Marc Benioff is currently reviewing compensation for all 16,000 employees to ensure pay equality, while Brian M. Krzanich, Intel’s CEO, announced a $300 million diversity initiative. This support is critical.

CEOs and senior leaders need to promote diversity in public, in the boardroom, in their day-to-day interactions with their direct reports, and with employees. They need to set an overall tone of inclusion and respect for racial and gender differences.

Without CEO support, the pressures of everyday business and the forces of inertia will overpower diversity initiatives. It should not be any surprise that, at diverse companies, CEOs are more involved in diversity efforts—and hold their senior team accountable for diversity results—than at homogeneous companies.

Of course, once started, diversity cannot stop at the top. Ultimately, middle managers will be responsible for building and maintaining a diverse workforce, which is why companies need to address diversity comprehensively.

Following last year’s release of diversity data, Silicon Valley companies have acknowledged that they need to do better. Women constitute 31 percent of the global workforces of 20 top West Coast tech companies, for example, and 23 percent are in technical jobs. But women make up 30 percent of the computer science, math, and statistics degree holders nationally. Within those companies’ U.S. workforces, blacks hold 4 percent, and Latinos 5 percent, of the technical jobs, compared with 9 percent and 7 percent of computer science, math, and statistics degree holders nationally, respectively. (Blacks and Latinos each make up about 14 percent of the U.S. population.)

Executives will need to look beyond these topline numbers and conduct quantitative and qualitative analyses of their workforce through surveys, interviews, benchmarks, focus groups, and quick pulse checks. The data should be broken down by business unit, function, and region.

The point of such a diagnosis is not to lay blame but to improve. Such data typically reveals pockets of best practices that can be replicated. The findings also may indicate places to dig further for evidence of unconscious biases in hiring, promotion, and retention practices. This level of transparency and thoroughness demonstrates commitment to employees and recruits—much more so than simply releasing raw, topline diversity statistics.

This root cause analysis allows companies to turn the page and start creating a diverse and inclusive workforce in a new way. The results should be on the dashboards of senior executives and business leaders and refreshed regularly.

The existing pool of women, blacks, and Latinos with degrees in science, technology, engineering, and math is too small. Even so, Silicon Valley can do a better job of hiring those who are graduating with technical degrees. This is a business opportunity—a chance to draw from untapped pools of talent.

College Recruitment. Silicon Valley companies can improve the way they market themselves to women, blacks, and Latinos. Few companies, for example, reach out to historically black colleges and universities (HBCUs), women’s colleges, or schools such as Clemson University, which graduates the highest number of black computer scientists in the U.S. They should also double down on schools such as the California Institute of Technology, Carnegie Mellon University, and Harvey Mudd College, which award large numbers of technical degrees to women.

Apple’s pledge of more than $40 million to the Thurgood Marshall College Fund for diversity programs is a positive step. So is Silicon Valley’s support of HBCU I.C.E, which sponsors career development workshops at Google and Facebook.

Silicon Valley, however, can do more. For example, through its Project View initiatives, IBM invites female and minority job applicants—more than 2,000 so far—to spend two days at the company. Almost half the participants eventually receive an employment offer.

Hiring Practices. Job referrals, which are a key source of leads in Silicon Valley, tend to mirror the current employee pool rather than expand it. Similarly, interviews that focus on achieving a good fit with the company can damage the chances of women, blacks, and Latinos. The unconscious biases of the interviewers can cause them to unintentionally hire candidates who are like themselves.

These challenges can be overcome through mechanisms such as training, more inclusive recruiting pools, and blind resume screening: half of all Google employees, for example, have participated in workshops on unconscious bias, and some orchestras have achieved greater diversity by using blind auditions.

Leveraging professional associations of women, blacks, and Latinos also makes sense. IBM, for example, partners with the Society of Women Engineers, the National Society of Black Engineers, and NACME.

Shifting demographics demand that all U.S. companies, not just those in Silicon Valley, value diversity. By around 2020, more than half of U.S. children will be members of a minority race or ethnic group. By 2044 or so, non-Hispanic whites will be in the minority.

Silicon Valley companies need to be prepared for this new world. Technology companies have a hard time holding on to the women, blacks, and Latinos they do hire. These groups report lower job satisfaction, fewer development opportunities, and higher attrition rates than men and Asian Americans.

Fortunately, the workplace issues that drive employee dissatisfaction and attrition can be fixed. But companies cannot fix what they do not fully understand. This is why metrics are so important. These numbers may expose unconscious bias in decisions about promotions, development opportunities, and evaluations. Women, blacks, and Latinos, for example, generally report that they are less likely to be invited into high-potential programs or to receive the same training and development opportunities as men and whites. The numbers also may reveal a corporate culture that creates an uncomfortable work environment for women, blacks, and Latinos. In that case, company-wide training on inclusion, respect for differences, and conflict resolution may make sense.

Any comprehensive solution to the lack of diversity in Silicon Valley must address venture capital. Venture capital firms provide the money, mentorship, and connections that have ignited and lubricated the region’s phenomenal growth. The start-ups they fund are a key source of talent for large tech companies via acquisitions, reinforcing the racial and gender profile of Silicon Valley’s C-suite. There can be no solution to diversity within the Valley without the support of the venture community.

From 2001 to 2013, start-ups headed by a woman received only 3 percent of venture funding, even though it has been shown that a female presence in the executive suite increases a start-up’s chance of success. Blacks make up less than 1 percent of the leadership teams of Silicon Valley start-ups. In the first half of 2010, the last period with available data, ventures headed by blacks did not receive any funding in California. The research does not reveal whether the applicants’ pitches were rejected—or whether they never even got in the door.

Venture investment has always been part science, part art. Investors rely on their skills in pattern recognition—also known as gut instinct—when deciding with whom to place bets. But they will need to “think different,” in the words of Apple’s famous advertising campaign, if they want to help improve diversity and inclusion in Silicon Valley.

Diversity should start at home. Venture firms with female partners are two to three times more likely to fund businesses run by women. Unfortunately, the share of venture capital partners who are women has declined from 10 percent to 6 percent over the past 15 years. Intel is trying to correct this imbalance by starting a $125 million fund to invest in start-ups with diverse founders or executive teams.

Ultimately, investing in start-ups headed by women, blacks, or Latinos is pragmatic. Farsighted venture firms can fund profitable opportunities that their competitors unconsciously overlook.

This article is published in collaboration with BCG Perspectives. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Erica Carlisle is a BCG Principal in San Francisco. Matthew Kropp is a BCG Partner & Managing Director in San Francisco. James Lowry is a BCG Senior Advisor in Chicago. Michael Sherman is a BCG Partner & Managing Director in Dallas. Sanjay Verma is a BCG Partner & Managing Director in San Francisco.

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