Workplace Diversity Affects Financial Performance

Organisations with more diverse workforces perform better financially, according to new research.

Global Management Consulting Firm, McKinsey & Company, released a new report – Diversity Matters –  this month showing that companies in the top quartile for gender or racial and ethnic diversity were more likely to have financial returns above their national industry medians.

At the same time the research showed that companies in the bottom quartile in the same categories were statistically less likely to achieve above-average returns.

Director of McKinsey’s London office, Vivian Hunt, said diversity is “probably a competitive differentiator that shifts market share toward more diverse companies over time”.

“While correlation does not equal causation (greater gender and ethnic diversity in corporate leadership doesn’t automatically translate into more profit), the correlation does indicate that when companies commit themselves to diverse leadership, they are more successful,” Hunt said.

“More diverse companies, we believe, are better able to win top talent and improve their customer orientation, employee satisfaction, and decision making, and all that leads to a virtuous cycle of increasing returns.

“This in turn suggests that other kinds of diversity—for example, in age, sexual orientation, and experience (such as a global mindset and cultural fluency)—are also likely to bring some level of competitive advantage for companies that can attract and retain such diverse talent.”

Hunt said the research showed that in the United States there was a linear relationship between racial and ethnic diversity and better financial performance. She said for every 10 per cent increase in racial and ethnic diversity on the senior executive team, earnings before interest and taxes rose by 0.8 per cent.

“The unequal performance of companies in the same industry and the same country implies that diversity is a competitive differentiator shifting market share toward more diverse companies,” she said.

“We’re not suggesting that achieving greater diversity is easy. Women—accounting for an average of just 16 percent of the members of executive teams in the United States, 12 percent in the United Kingdom, and six percent in Brazil—remain underrepresented at the top of corporations globally.

“These numbers underline the work that remains to be done, even as the case for greater diversity becomes more compelling.

“We live in a deeply connected and global world. It should come as no surprise that more diverse companies and institutions are achieving better performance.

“Most organizations, including McKinsey, must do more to take full advantage of the opportunity that diverse leadership teams represent. That’s particularly true for their talent pipelines: attracting, developing, mentoring, sponsoring, and retaining the next generations of global leaders at all levels of organizations.

“Given the higher returns that diversity is expected to bring, we believe it is better to invest now, since winners will pull further ahead and laggards will fall further behind.”