German-owned Rolls-Royce is world famous for making luxury cars. They’re built in the UK and the business has thrived. Equally famous is the totally separate company Rolls-Royce PLC, best known for making airplane engines, amongst many other things.
But beyond the brand name and manufacturing expertise, similarities between the two become harder to find. The widely reported success of the car company has not been mirrored by its distant flying sibling.
People make decisions and Rolls-Royce PLC decided a while back to up its game on the recruitment front. Like many companies firmly in the media eye, Rolls-Royce PLC has very publicly embraced diversity and inclusion. Rightly so.
The company has made great efforts to improve, actively promoting its diversity and inclusion policy. Here’s what they say:
We’re working to increase the diversity of our teams. We have a robust strategy and we’re taking deliberate action to increase the representation of different groups. This is good for our business and good for our people: different perspectives help us to make better decisions, innovate and deliver to our customers. Together, we do amazing things.
It sounds like work in progress, and that’s a very good thing. We don’t want a box ticking mentality. This is unfinished business, and it’s heartening to see it acknowledged on their career’s webpage.
But as yet this has had little effect on creating value for shareholders, which is a significant number of us globally. If you’re invested in an index or tracker fund, or have a personal company pension fund, you’re most likely a co-owner of Rolls-Royce PLC.
The reason I’m connecting diversity and performance is very straightforward. Diverse groups, be they management teams or boards of directors, have a much better chance of making better decisions if they recognize and demand diverse views and vigorous debate.
Evidence confirms that people of different cultural backgrounds such as race, education, upbringing or religious beliefs are more likely to reach better decisions—as Rolls-Royce acknowledges in the quote above.
Well, perhaps the policy is just too new and we must be patient. Maybe a decline of 75% in the company’s share price over the last five years has yet to reflect better decision making. But all is not lost: change is afoot. Back in July 2022, the board made an important announcement: Warren East, the long-standing CEO, would step down and be replaced by Tufan Erginbilgic.
Tufan joined in January 2023 and wasted no time fixing a staff meeting to share thoughts with his new colleagues. Here’s what he said from a leaked report to the FT and featured in The Guardian:
The new chief executive of Rolls-Royce has told staff that the engineering company is a “burning platform” that must transform to survive. Tufan Erginbilgic, the former BP executive who replaced Warren East as chief executive at the start of January, said the coronavirus pandemic could not be blamed for what in reality was a perennial underperformance of the business compared with rivals. “We underperform every key competitor out there.” Erginbilgic said in an address at Rolls-Royce’s UK manufacturing site in Derby, which was broadcast to staff globally. “Every investment we make, we destroy value.”
For what it’s worth, I shall give you my take on this. As an owner of the company, what I want to know is how did a group of experienced executives make such catastrophic decisions? Are we kidding ourselves on their diversity and diverse thinking?
Will we be looking at a different model in a few years from now, where a single strong leader calling all the shots is the best way forward? I hope not: we’ve been there already.
So what can we learn? Diversity and inclusion policies only work if there are different opinions. A board may appear diversified, but if they all agree all of the time, the policy has failed.
When Rolls-Royce’s board was destroying value for investors by allocating capital in expensive inappropriate acquisitions, were they all thinking the same way? I’m pretty sure they were.
Let’s look at Rolls-Royce’s board. These are all very accomplished executives with significant track records. When you look a little deeper, you’ll see they are all very similar. Highly educated, upper class, serial members of many boards. With backgrounds in engineering, finance and science.
They all look around the same age and are smiling nice smiles, except the new CEO, who has the look of a man with a big job to do. Well, I hope he gets on with it soon, because everyone inside and outside of Rolls-Royce needs him to succeed.
We need reassurance that his opening address wasn’t that of a man who discourages debate and doesn’t listen to others. He needs to hear people with diverse opinions around the table, and evidence suggests those aren’t present now.
New CEOs often reset expectations and undo the work of predecessors. This is his opportunity to embrace real diversity, inclusion and diverse opinion and debate. He will need all to succeed.