Diverse businesses have best financial results global study shows

Author Moonshot.news

Published on: 11/12/2023

Businesses with high gender and ethnic diversity show better financial results than less diversified companies . “Despite a rapidly changing business landscape, the business case for diversity, equity, and inclusion (DEI) not only holds, but grows even stronger”, consultancy McKinsey says in a study comprising 1,265 companies in 23 countries. “The business case for gender diversity on executive teams has more than doubled over the past decade.” 

“Companies with representation of women exceeding 30% (and thus in the top quartile) are significantly more likely to financially outperform those with 30% or fewer. Similarly, companies in our top quartile for ethnic diversity show an average 27% financial advantage over others.”

The study says that both forms of diversity in executive teams appear to show an increased likelihood of above-average profitability. 

“Companies in the top quartile for both gender and ethnic diversity in executive teams are on average 9% more likely to outperform their peers.”  

“Meanwhile, those in the bottom quartile for both are 66% less likely to outperform financially on average, up from 27% in 2020, indicating that lack of diversity may be getting more expensive.”

“Companies with greater diversity on their boards of directors are more likely to outperform financially. For the first time, this correlation is statistically significant for both gender and ethnicity.” 

The study says that companies in the top quartile for board-gender diversity are 27% more likely to outperform financially than those in the bottom quartile. Similarly, companies in the top quartile for ethnically diverse boards are 13% more likely to outperform than those in the bottom quartile. 

“These findings support the hypothesis that diversity benefits extend across top corporate leadership to boards, where DEI policy decisions for the whole organization are often made.” 

The study says that while advanced economies see a much higher likelihood of outperformance for executive gender diversity, emerging economies have shown meaningful progress in recent years and may have the most to gain from increasing diversity.

The company says that since it first started tracking data on representation in 2015, women have made substantial gains in the workplace and in leadership. 

“The current global dataset shows that one-fifth of executive team members are women, a third higher than reported in 2020. Eight in ten surveyed companies now have at least one woman on their executive team (up from fewer than two-thirds), while seven in ten have more than 10%.

“Since 2020’s report  Diversity Wins (and with an expanded dataset), we have now seen the highest increase in diversity in a decade and more representation at the highest levels than ever before.”

US companies are currently the closest to representing the population at 20% ethnic representation, but still lag behind the population share of 41%

“This year we once again found that financial impact is linked to increased representation of women on boards. For the first time, we also see a significant association with ethnic representation.”

Result of interviews with diversity leaders on how to improve transformation:

1. Commit to a systematic, purpose-led approach to benefit all stakeholders. Companies should frame and pursue their DEI aspirations—internally and publicly—as core to their mission and embedded into their strategic goals. 
2. Embed your strategy in company-wide business initiatives while tailoring to local context. While DEI strategy is typically shaped at the top, giving local teams license to tailor to local contexts is key to building ownership and local impact. 
3. Prioritize belonging and inclusive practices to unlock performance. Diverse representation will have the most impact within a culture that fosters inclusion and belonging—which also facilitates retaining diverse talent, innovation, and customer centricity. 
4. Embolden and activate champions and allies by providing adequate resources and support. DEI efforts of individual leaders, particularly women, are often less high-profile or officially rewarded, including their contributions to inclusive leadership, allyship, and employee well-being. Companies that recognize these efforts and provide a supportive environment can help these leaders thrive. 
5. Act on feedback, including dissenting voices. A culture of feedback on DEI strategy from the workforce and wider stakeholders can provide valuable insights, identifying both strengths and opportunities for change.