Diversity & Inclusion's Next Big Global Act:

The Work We'll Need To Do

55thth 5th International Diversity & Inclusion Seminar5th International Diversity & Inclusion SeminarBarcelona, SpainBarcelona, Spain

February 24, 2012February 24, 2012

Maurice Cox

New Bern NC

What we will cover today

• Where are we on this D&I journey

• How have we done on some core practices

• A PepsiCo case study

• Final thoughts

• Q&A/discussion

Perhaps this is the D&I version of half time—we’re not losing the game, but are we winning?

“Because in either the game of life or football the margin for error is so small. I mean one half step too late or to early you don't quite make it. One half second too slow or too fast and you don't quite catch it. The inches we need are everywhere around us. They are in every break of the game every minute, every second.”

--Al Pacino in “On Any Given Sunday”

Obsolescence and irrelevancy is more prevalent than ever

Dictatorships

Businesses

Tec

hnol

ogy

Society

?

For the last 20 years or so, D&I has been trying to get the mix just right, like Noah’s Ark

“It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change.”

- Charles Darwin

How well have we done in D&I?

• What impact have we made in D&I?

• Have we adapted well enough?

• How do we make the mix work better?

• What is our future?

• For the Fortune Global 500, female CEO’s are up as well as those in the C-Suite

• Women make-up on BoD’s has improved, but not enough

• In the U.S., C-Suite representation of people of color is up but BoD representation is actually down

• D&I increasingly seen as added value to most enterprises

We are continuing to make progress, but it still depends?

When it comes to CEO's and how they rate D&I, it can be puzzling

External Hiring 39%Goals & Accountability 50%

AgreeShift to Global Diversity 21.43%Broader Focus (HA, AA) 0%Less Resources for Diversity Mgmt 16.66%Challenges Retaining AA Talent 72.73%

44%

39%

0%

10%

20%

30%

40%

50%

Internal ED Pipeline External Hiring

46.67%

81.49%

42.86%

50%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

Level of Commitment fromTMT

BOD Understands Importanceof Diversity

Diversity Mgnt AchievingGoals

Diversity is a Top 3 StrategicGoal

Source: Confidential

Boards of Directors are in the middle

Global Board Directors (Men)

*Source: Heidrick & Struggles, Women Corporate Directors and Harvard University survey Best practice oncorporate governance globally

51.00% 51.00%48.00%

8%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

Diversity is key priorityin the firm

Is seating a diverseBoD a priority for the

board

Has the board adoptedmeasures to advance

diversity

Boards are satisfiedwith director level

diversity

The actual work we do

• Purpose of benchmark study was to determine the level of D&I Purpose of benchmark study was to determine the level of D&I integration/frequency in organizational development/talent practices*integration/frequency in organizational development/talent practices*

• 28 member companies responded28 member companies responded..

3M Allstate Assurant Bank of America

Best Buy BMS Boeing Citi

Corning CVS Duke Energy Eli Lilly & Co.

Ford Motor Co. Halliburton Intel John Deere

Johnson & Johnson Nike Parker PepsiCo

PfizerPacific Gas &

ElectricPrudential Shell

State Farm Toys ‘R’ Us Union Pacific VF Corp.

How well have we done in D&I?

*Source: Mayflower Survey by Dr. Alan Church VP OMD, PepsiCo, Inc.

Does your company include D&I in...?

Note: Not all companies provided information for all categories.

Core HR Practices

D&I Items in Organizational Surveys

Total # of D&I Items on Survey

Note: Not all companies provided information for survey items.

Select Comments

• “We have other questions probing areas of trust and teamwork… Our tactic is to include diversity characteristics in our analysis models, rather than ask more than just a few specific diversity questions.”

• “Although we have items that speak to D&I, they are not specific to it. We are fairly early in our D&I journey. We do have harassment and discrimination training, but I do not consider that D&I.”

• “Targets for D&I have remained consistent over the years and cover three areas: gender (% of females in senior positions), nationality (% of local people in country management positions) and inclusion (% favorable of the [D&I program]).”

• “Yes, in both the standard opinion survey and the leadership survey. In addition we include responses to engagement and culture questions as part of our analysis.”

D&I Items in Organizational Surveys

Total # of Items on Survey % of Total Survey Items that are D&I

Note: The numbers on these two charts do not correspond to each other.

D&I Items in Performance Management

Select Comments

• “Every professional employee is expected to have one D&I related objective on their People Results (there are three other categories as well) which accounts for 50% of their total compensation.”

• “We have two sets of competencies, one around our company Values, within the PM process for all salaried employees and this includes the value of The Individual, which includes some behavioral statements around diversity.”

• “We track retention of high potentials who have gone through our diversity programs.”

• “Yes, but not universally. In many units, employees have specific goals related to diversity, which they set, and they are held as accountable on these as any other goals.”

• “It is linked to Executive bonuses.”

• 17 (61%) of member companies include D&I in their performance management processes.

D&I Items in Talent Management

Select Comments• “A ‘diversity profile’ of the candidate is used (called out) in the talent management/ slating

process.”

• “In talent reviews, the ‘how’ discussion of an individual getting their results will sometimes include ‘respects and champions diverse employees.’ ”

• “Our talent acquisition process includes consideration of diversity to have an employee population that reflects the customers we serve.”

• “We require diverse interview slates for open positions and track % diverse slates interviewed. We have a strategy for diverse sources of talent (e.g. we participate in diversity career fairs, leverage social media and sourcing through diverse organizations and conferences).”

• “We look at diversity of the talent pools and ensure we have diverse slates for all key positions.”

• 17 (61%) of member companies include D&I in their talent management processes.

D&I Items in Training

Select Comments

• “Not specifically - it is used as a lens in our manager and leader training.”

• “Some courses are mandatory for leaders however, most of the diversity and inclusion courses are provided on a ‘pull’ basis.  The ‘pull’ has been tremendous across the company.”

• “We have a three-tiered training program that is centrally funded.  We also have on-line learning to support D&I, as well as one-off unique programs in each part of the business.”

• “Yes, minimal. We require all new supervisors participate in a diversity workshop focused on ‘managing across generations’. We are developing/updating a broader curriculum to include ‘unconscious bias, micro messaging and leveraging diversity for innovation and growth.’ ”

• “We have a course for managers, employees, and production employees.”

• 16 (57%) of member companies include D&I in their training agenda/ curriculum.

D&I Items in the Leadership Model

Select Comments• “[We are] currently in the process of creating a leadership model and … D&I is/will be

a dimension included in the model as it is emphasized in all other aspects of our work.”

• “Although diversity is considered within our leadership model it is not a key dimension.”

• “It's specifically included in the Leadership Competencies, which were introduced last year and are being integrated increasingly in HR processes.”

• “It is one of 9 Key Dimensions which are measured by 7 questions in our 360 process (out of 58 in total).”

• “It isn’t a dimension but we have several elements in our leadership model that align to diversity & inclusion. We look at these elements on an ad hoc basis.”

• 14 (50%) of member companies include D&I in their training agenda/ curriculum.

Additional Results

• Out of the 28 companies that responded, 10 (36%) Out of the 28 companies that responded, 10 (36%) reported that they included D&I in all 5 of the OD reported that they included D&I in all 5 of the OD processes.processes.• On average, companies included D&I in 3 out of the 5 OD On average, companies included D&I in 3 out of the 5 OD

processes.processes.

D&I in OD Processes

Note: Not all companies provided information for all categories.

Summary

• Organizational surveys are most often used to assess Organizational surveys are most often used to assess and integrate D&I, followed by performance management and integrate D&I, followed by performance management and talent management processes.and talent management processes.

– The average number of D&I items on each survey was between 3 The average number of D&I items on each survey was between 3 and 4, so, while these surveys are certainly capturing a D&I and 4, so, while these surveys are certainly capturing a D&I ‘pulse’, they may not be a true diagnostic of the state of D&I.‘pulse’, they may not be a true diagnostic of the state of D&I.

– Two organizations noted that they have conducted separate Two organizations noted that they have conducted separate surveys focused specifically on D&I.surveys focused specifically on D&I.

– Integration of D&I items into the organizational survey can reduce Integration of D&I items into the organizational survey can reduce burden on employees but those items must be chosen burden on employees but those items must be chosen strategically to be sure they are capturing the true state of D&I.strategically to be sure they are capturing the true state of D&I.

• Surprisingly, only half of the member companies who Surprisingly, only half of the member companies who responded incorporated D&I into their leadership model.responded incorporated D&I into their leadership model.

PepsiCo Overall (US Only)

Women of Color

(US)

Men of Color

(US)

White Women

(US)

White

Men (US)

2004 OH 67% 66% 72% 63% 70%

2006 OH 78% 76% 81% 76% 80%

2009 OH 86% 81% 90% 85% 91%

Change from 2006

+8 +5 +9 +9 +11

*US Respondents Only

UnfavorableResponse to

Manager Support*

FavorableResponse to

Manager Support*

Company 67% 86%

Job & Career 53% 83%

Manager Quality 46% 85%

Work Environment 55% 79%

Compensation & Benefits 49% 73%

Overall Satisfaction 59% 86%

Turnover Intention 22% 9%

Discretionary Effort 89% 94%

Accomplishment 62% 86%

Favorable (75%+) Neutral (55% to 74%) Unfavorable (<55%)

Manager Support for D&I Involvement Has Increased from 2004

International Response in 2009 Men: 73%(First year item was asked in PI) Women: 74%International Response in 2009 Men: 73%(First year item was asked in PI) Women: 74%

Impact of support for D&I

PepsiCo Case Study• How we re-ignited our D&I momentum

PepsiCo Case Study

• Losing market share to competition among the fastest growing demographic groups

• Diverse executive turnover (POC/women) was at 22 & 20% respectively, nearly 2x the core group (white males)

• Our diverse population was being promoted a little less often than the core group

• The combination of new hires, turnover and promotions made it impossible to move the needle

• International markets were barely in the game

• Losing market share to competition among the fastest growing demographic groups

• Diverse executive turnover (POC/women) was at 22 & 20% respectively, nearly 2x the core group (white males)

• Our diverse population was being promoted a little less often than the core group

• The combination of new hires, turnover and promotions made it impossible to move the needle

• International markets were barely in the game

• Re-igniting the D&I momentum a decade ago

A PepsiCo Case Study

Key Challenges we were facing in late

Significant changes in our

business structure

Significant changes in our

business structure

• Spun off restaurant group

• Spun off bottling operations

• Actively looking for 3rd business leg

Preparing for management succession

Preparing for management succession

• New challenges/new leadership team

• New culture beginning to emerge

Losing momentum on key initiatives like diversity

Losing momentum on key initiatives like diversity

• Diversity legacy was at risk

• Future was unclear

• CEO put a stake in the ground on the value of diversity CEO put a stake in the ground on the value of diversity and inclusion to the PepsiCo enterpriseand inclusion to the PepsiCo enterprise

– Motivating factors: the business case for PepsiCo—consumer, Motivating factors: the business case for PepsiCo—consumer, customer, employee dynamicscustomer, employee dynamics

– Contracted with Board of Directors and senior teamContracted with Board of Directors and senior team

– Leveraged our external Advisory BoardsLeveraged our external Advisory Boards

– Established initial metricsEstablished initial metrics• 50/50 hiring; parity of turnover & promotions50/50 hiring; parity of turnover & promotions

– Communicated value at every opportunityCommunicated value at every opportunity

Started with the top of the

organization

A PepsiCo Case Study: Executive Ownership

“We believe Pepsi(Co) could build a distinct advantage over its peers by recognizing the need to create more diversity at every level of the organization (from senior management all the way to salespeople on the front-line).”

-- UBS Securities Research Report

Wall Street Had A Point of View on diversity at PepsiCo

Employee Diversity Creates Competitive Advantage

• Added diversity to bonus vs. merit for key executivesAdded diversity to bonus vs. merit for key executives—direct reports to CEO—direct reports to CEO

– Capped total business bonus payouts at 100% if you missed Capped total business bonus payouts at 100% if you missed diversity targetsdiversity targets

– Made the goal in first year; but missed in year twoMade the goal in first year; but missed in year two

– Cascaded to next executive level in year threeCascaded to next executive level in year three

– Today, all managers rated 50% business/50% peopleToday, all managers rated 50% business/50% people

– All people managers now have a diversity & inclusion objectiveAll people managers now have a diversity & inclusion objective

Started with the top of the organization

Revised Performance management

system

A PepsiCo Case Study: Accountability

• CEO & team led leadership development initiative for CEO & team led leadership development initiative for people of color executives and womenpeople of color executives and women

– Focused on building authentic relationships & commitment Focused on building authentic relationships & commitment

– Created 4 ½ day leadership development program led by senior Created 4 ½ day leadership development program led by senior leaders with The Anderson School (UCLA)leaders with The Anderson School (UCLA)

– Focused on African Americans, Latinos and Asians Focused on African Americans, Latinos and Asians – Expanded to womenExpanded to women

Started with the top of the organization

Instituted intervention

initiative against most at risk

groups

Revised performance management systems

A Case Study: Leadership Development

• From 2001-2009, we averaged nearly a 1 pt of growth in representation of diverse executives, including almost doubling of executives of color and 50% jump in women

• Turnover was at parity across all executive groups (people of color/women/white male) and near parity for non-executive population

• Employee hiring and promotions have significantly risen for people of color and women

• Employee engagement steadily improving, with D&I the biggest driver

• D&I has become a capability we can leverage with our customers

• From 2001-2009, we averaged nearly a 1 pt of growth in representation of diverse executives, including almost doubling of executives of color and 50% jump in women

• Turnover was at parity across all executive groups (people of color/women/white male) and near parity for non-executive population

• Employee hiring and promotions have significantly risen for people of color and women

• Employee engagement steadily improving, with D&I the biggest driver

• D&I has become a capability we can leverage with our customers

A PepsiCo Case Study: Making Progress

Results–to-dateResults–to-date

“In the midst of the current recession, many businesses are focusing on what they see as the basics, and diversity simply is not on – or is falling off-their radar screens. But the reality is that diversity and inclusion matter more than ever to future success. Companies are discovering thatto best position themselves for the next business cycle, they need to harness the collective powerof their people across the broadest spectrum.”

Pricewaterhouse Coopers Why Diversity, Why Now

Why Diversity, Why Now

Collaborate and partner more internally; make D&I part of the company’s top business imperatives

Collaborate and partner more internally; make D&I part of the company’s top business imperatives

Invest in more D&I research—”In God we trust; all others must bring data”

Invest in more D&I research—”In God we trust; all others must bring data”

If someone calls you to be on a “best list”, hang up the phone. If they persist, tell them you’ll put it to a vote with fellow employees

If someone calls you to be on a “best list”, hang up the phone. If they persist, tell them you’ll put it to a vote with fellow employees

Get laser focused on those things that move the business/culture; D&I work needs to feel like other work inside the company

Get laser focused on those things that move the business/culture; D&I work needs to feel like other work inside the company

Have a bias for innovation and cultural adaptation. Be more cautious of external activity; exude frugality, unless you’re already at zero

Have a bias for innovation and cultural adaptation. Be more cautious of external activity; exude frugality, unless you’re already at zero

Becoming More D&I Fit

Final Thoughts!

Thank You