Once again, hard data is backing up the point that diversity is good for business.
McKinsey & Co.’s new study, Delivering Through Diversity, makes the business case for inclusion, reinforcing the link between a company’s diversity and its financial performance and reminding businesses that it should be looked at as a competitive advantage and a driver of growth.
Companies in the top quartile for ethnic diversity in their executive teams are 33% more likely to outperform their industry financially, as measured by earnings before interest and taxes (EBIT) margins, according to the report. The correlation between companies that are more diverse ethnically and above-average profitability has held steady since McKinsey’s Why Diversity Matters report in 2014.
The boost is even bigger for companies that have diversified their board of directors. An inclusive boardroom makes a company 43% more likely to return an above-average financial performance.
The opposite holds true as well: companies that don’t value diversity are suffering financially for it. Companies in the fourth quartile of both ethnic and gender diversity are 29% more likely to underperform compared with their peers.
The McKinsey report, which defines diversity as a greater portion of women and a more mixed ethnic and cultural composition, surveyed roughly 1,000 companies in 12 countries, 33% of which were in the U.S. It notes that despite the proof, black executives continue to be underrepresented, especially black women and especially in the line roles which could propel them to the CEO pipeline.
The Boston Consulting Group recently released its own report, How Diverse Leadership Teams Boost Innovation. It found a strong correlation between the diversity of a company’s leadership teams and innovation within the company that drives the bottom line. Specifically, management teams with above-average diversity reported a higher percentage of innovation revenues—sales from products and services launched in the last three years.
Diverse companies also enjoyed better overall financial performance, with EBIT margins for those companies coming in at nearly 10 percentage points higher than for companies with below-average diversity on their management teams.
“Diversity offers organizations a wide range of benefits, and our analysis shows that having a more heterogeneous team can deliver measurable gains in innovation and financial performance,” said Rocío Lorenzo, a partner at BCG and coauthor of the report, in a statement.
“Multifaceted teams offer a robust range of perspectives, and this allows organizations to formulate strategic solutions that can help them efficiently accomplish their goals, overcome challenges, and bring new ideas to the table.”
The BCG report surveyed employees at more than 1,700 companies in the U.S. and seven other countries across Europe, Asia, and South America. It looked at the management level for diversity across gender, age, nationality, career path, industry background, and education. The study also makes the case that even a small change in the makeup of the management team, or a couple of dozen people for a hypothetical company with 50,000 employees, can make a difference.
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