Investing in diversity

Contact Energy has been ranked first out of 6,000 global companies on the 2017 Thomson Reuters Diversity & Inclusion Index, and is embracing diversity in its broadest sense, of thought, age, ethnicity, gender and sexual orientation. But CEO Dennis Barnes writes that they had a sharp wake-up call that started the company on its diversity path.

Businesses have long appreciated the value of investment diversity but it has taken many decades to come around to the value of workplace diversity.

This is changing as the public focus on the disparity between society, where barriers of race and gender are eroding, and the workplace, where European men are still over-represented in senior leadership positions.

Many companies are speeding up efforts to appoint senior female executives and people from different ethnic backgrounds as pressure to disclose the make-up of boards and leadership teams mounts.

Pay equity is also an issue that is increasingly gaining attention, especially as robust research exposes remuneration bias in the workplace. There is also a broader drive to encourage greater diversity of thought inside organisations that transcends traditional demographic groups.

This is commendable on a societal level. Discrimination for the sake of it is unacceptable under any circumstance. But the change is also welcome on a business level. 

Diversity of thought will improve profitability as people from different backgrounds share new ideas, provide insights into untapped markets, and businesses better embody the values of the customers they serve.

There is a growing body of evidence to support the link between diversity and profitability. For example, Morgan Stanley’s analysis of 1,600 global stocks showed the percentage of female employees in a company is positively correlated to returns on equity.

However, diversity in, and of, itself does not drive profitability. Like any seed, it needs fertile ground in which to grow.

Individuals from different backgrounds are more likely to share their views, opinions and insights if they feel their contribution is valued, that there is equality of opportunity, and that they will be recognised for good performance. In other words, culture is key if you want to leverage the benefits of diversity. 

This of course creates a virtuous cycle, where the more supportive the company culture is to different perspectives, the more people from different backgrounds will share their views.

However, a common mistake many firms make is to assume that this culture already exists, and that they are already reaping the benefits of diversity. 

Contact Energy made just this assumption, until we surveyed our own team leaders in 2014 and found out that 73 percent of respondents either disagreed or strongly disagreed with statement that Contact leveraged diversity of thought for innovation. 

It was a sharp wakeup call for us.

Since then we have put in significant effort to ensure we are more open to different thinking, and in turn acknowledge and encourage diversity of thought. 

This was done through mentorship, support programmes, and by identifying roles models within the organisation to pollinate the behaviour we want to encourage. 

We also measure our progress and publish it in our annual report.

We are proud to report that 98 percent of Contact’s female employees earn the same average salary as males within the same salary band. We have equal gender representation on our board, as well as two directors who are of Maori descent and a diverse leadership team.

We have also been recognised for our efforts in this area. Contact Energy ranked first out of 6,000 global companies on the 2017 Thomson Reuters Diversity & Inclusion Index.

This is a great accolade, but we still have more work to do. A recent employee survey found that only 51 percent of employees felt the leadership team supported people who come forward with new ideas and innovations. We are up for the challenge.

Nevertheless, our efforts have made a positive difference to how we operate, as measured by our performance so far [in 2017]. 

For context, it has been a volatile and competitive period for the energy sector. A dry winter resulted in lower-than-usual inflows into our hydro lakes on the South Island, pushing up wholesale electricity prices and squeezing margins. At the same time new entrants into an already competitive retail market meant the whole sector had to work a lot harder for their share of the market.

In the face of these headwinds we have made excellent progress. The cost to serve our customers has fallen 18 percent in the four months to November 2017, even as the number of customers advocating for our brand increased by 30 percent over the same period to +18.5, as measured by Contact’s Net Promoter Score. 

To put this further into perspective, our annual Net Promoter Score was negative in 2015 and 2016. The upside is that we added 2,500 new customers in four months. Our generation business also performed well, managing the dry year by balancing the generation load across our geothermal and gas-fired plants. 

Of course these results were not purely achieved through diversity alone, and are a result of a number of initiatives that have been undertaken over the past few years. But by encouraging diversity of thought within the business we have found creative ways of tackling challenges. 

Another truism of the business world is that firms invest in areas that drive performance and profitability. At Contact we will continue to invest in making our company more inclusive and diverse because it does just that.


Dennis Barnes is the chief executive of Contact Energy, one of New Zealand’s largest listed companies. He has decades of experience in the Australian, English, Scottish and New Zealand energy sectors, and has seen the industry transform from a purely male dominated environment to one where the business benefits of diversity are increasingly being realised. But while Contact is headed in the right direction, Dennis believes the company has more ground to travel on its inclusion and diversity journey.


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