Executive Board Diversity and Performance

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There are many reasons to support organizational diversity, including employment laws, social pressures, and a moral obligation for inclusion. For managers, though, one of the most persuasive arguments is that diversity positively affects the business bottom line.

New research from McKinsey and Co. offers convincing evidence for that argument.

Data were collected from over 1000 companies in 12 countries around the world. The research team found that companies in the top quartile for gender diversity were about 21 percent more likely to be profitable than were their peers.

The impact was even stronger for ethnic diversity, where companies with high ethnic diversity, relative to their less diverse peers, were 33 percent more likely to enjoy better than average profits.

McKinsey & Co. also observed that a lack of diversity was associated with poor performance. Thus, a homogeneous workforce can actually hurt financial outcomes.

The findings held across all geographic regions, meaning that the positive effects of diversity are applicable around the world.

Finally, the researchers observed differences across sectors. Though tech firms are generally high in ethnic diversity, they are largely lacking in gender diversity. On the other hand, the banking industry has improved in gender diversity in recent years.

Vivian Hunt, one of the managing partners at McKinsey and Co., commented that the study offers a “nuanced and holistic understanding of the link between diversity and profitability,” and further noted that, “companies can use diversity to help achieve their key business objectives.”