Applying the diversity principle to the tax function is essential
The principle of diversity is well accepted on boards and across entire organisations, but what about diversity within teams? Sandy Markwick, head of the Tax Director Network at Winmark, asked whether a tax team can be more effective through diversity.
The desire for corporations and the teams within them to reflect wider society is borne out of a demand for fairness and equal opportunities. This in itself is reason enough to welcome diversity, but research suggests that it is not just right, but beneficial too, to large organisations.
Research by McKinsey suggests a positive correlation between diversity and financial return. They say that diversity is a competitive differentiator that leads to a growth in market share over time.
Recruiting from the widest possible talent pool ensures that firms hire the best. That is true of the tax function as much as it is for entire organisations. Also, drawing on a wide range of skills, backgrounds and perspectives increases the likelihood that tax (and organisations in general) will consider a wider range of options when it comes to strategic thinking and problem-solving and will be better innovators. If that seems nebulous, consider the opposite – teams made up of individuals who are all the same are likely to stick with what they know. Individuals sharing a background will most likely reinforce established ways of working.
Few would question the need for a diversity of skills in the modern tax function. The role of tax in large businesses has evolved beyond a narrow focus on compliance and reporting, or tax planning which placed emphasis on traditional accountancy skills. Today's tax functions attach increasing importance to communication skills, commercial acumen, business partnering, technology and data analytics as well as legal and value chain analysis.
There is significant complexity and subjectivity in managing tax for large global organisations. Arriving at the right tax numbers is rarely a binary consideration of right and wrong. For every transaction there are likely to be multiple legitimate ways to consider tax, each with valid analysis backed up with evidence. Where there is subjectivity, the role of bias is more significant – and tax in complex groups has a high degree of subjectivity.
While the benefits of diversity of skills is not in question, to what extent is it beneficial to also have cognitive diversity and a diversity of genders, ethnicities, sexual orientations and socio-economic backgrounds?
Again, drawing on a wider talent pool will give teams the best chance of accessing the necessary skills, experience and perspectives to deliver holistic, strategic value in a context of complexity.
Culturally diverse teams are more likely to have, for example, the language skills that help global tax teams fulfil business partnering roles or navigate relationships with overseas tax authorities and advisors.
Contrary to a popular perception of tax as a question of generating the 'right' number, it in fact benefits from diversity of thinking, much like any other function, because of the need for communication, creativity, commercial and strategic sensitivity, etc.
Winmark has conducted gender research into the tax function and estimates 34% of senior in-house tax roles – those heading up a tax function either at group or entity level – are filled by women. That's still some way off from parity with men, but it compares favourably with corporate leadership generally.
The Hampton-Alexander Review, appointed by the UK government to explore ways of improving the gender balance in leadership roles across the FTSE 350, has a target of increasing the percentage of female leaders from 24% in 2017 to 33% by the end of 2020.
Tax is ahead of the schedule on gender diversity in the UK.
However, by contrast, the Hampton-Alexander Review estimates that women make up just 15.5% of FTSE finance directors and 13.5% of chief information officers.
Further research is needed to gather more detail around gender diversity in tax functions and also to examine representation of BAME, LGBT and other minority communities.
Diversity by design
Tax is increasingly automated and enhanced by advanced data analytics. While this may suggest objectivity, artificial intelligence is not neutral, but instead subject to the same biases as those displayed by its architects and those that identify, gather and categorise it.
Machine learning may reinforce the foundational biases of the technology design (men are in a significant majority of software programmers and technology architects). Algorithms can reinforce the status quo rather than challenge it, best illustrated by the exhortation common in online consumer websites: "people who bought x, also bought y".
Increasingly, data is a source of power and influence in organisations. Those that organise and categorise it are not simply reflecting the environment as it is, but also influencing it by determining what is observed and measured and what is not. To understand more on this, see J Sadowski's 2019 research paper on data and society (When data is capital: Datafication, accumulation, and extraction, Big Data & Society), and the research by G Bowker and SL Star on the consequences of classifications (Sorting Things Out: Classification and Its Consequences, Cambridge, MA: The MIT Press, 2000). This points to the importance of diversity in 'upstream' systems design to ensure tax analysis is not limited by a narrow lens.
Diversity versus cohesion
Despite the clear benefits of diversity, it is simplistic to think 'diverse is good and homogenous is bad'.
While diverse teams have greater potential to be high performing, they require greater attention to alignment and trust to support cohesion than is the case with more homogenous teams. Without it, diverse teams can be dysfunctional. Meanwhile, homogenous teams can be effective, albeit for the most part, only in narrow terms. They are unlikely to be successful in the way modern tax functions have evolved.