How does diversity and inclusion help businesses to perform better?

Since Why Diversity Matters was published in 2015, many successful companies regard Diversity & Inclusion (D&I) as a source of competitive advantage, and specifically as a key enabler of growth.

The relationship between diversity and business performance persists. The statistically significant correlation between a more diverse leadership team and financial outperformance demonstrated three years ago continues to hold true on an updated, enlarged, and global data set.

Leadership roles matter. Companies in the top-quartile for gender diversity on executive teams were 21% more likely to outperform on profitability and 27% more likely to have superior value creation. The highest-performing companies on both profitability and diversity had more women in line (i.e., typically revenue-generating) roles than in staff roles on their executive teams.

It’s not just gender. Companies in the top-quartile for ethnic/cultural diversity on executive teams were 33% more likely to have industry-leading profitability. That this relationship continues to be strong suggests that inclusion of highly diverse individuals – and the myriad ways in which diversity exists beyond gender (e.g., LGBTQ+, age/generation, international experience) – can be a key differentiator among companies.

There is a penalty for opting out. The penalty for bottom-quartile performance on diversity persists. Overall, companies in the bottom quartile for both gender and ethnic/ cultural diversity were 29% less likely to achieve above-average profitability than were all other companies in the data set.

Local context matters. On gender, while there is plenty more to do, some companies lead the way in both absolute average diversity and representation in top-quartile – Australia, UK, and US companies make up over 70% of this group.

More diverse companies are better able to attract top talent; to improve their customer orientation, employee satisfaction, and decision making; and to secure their license to operate.

Four imperatives for delivering impact through D&I

Commit and cascade. CEOs and leaders must articulate a compelling vision, embedded with real accountability for delivery, and cascade down through middle management. Commitment to D&I starts at the top. Ensure these efforts are sufficiently resourced and supported centrally. For example, Sodexo has publicly stated its 40% target for women in senior executive roles, has resources in place to drive the strategy in each business line, and also ties 10% of executives’ bonus to achieving its D&I goals.

Link D&I to growth strategy. The D&I priorities must be explicitly defined based on what will drive the business growth strategy. Leading companies do this in a data-driven way. Westpac, for example, tightly correlates its D&I efforts to its growth goals, emphasizing the ten streams of diversity it believes will boost talent attraction and customer retention.

Craft an initiative portfolio. Initiatives in pursuit of the D&I goals should be targeted based on growth priorities, and investments made to both hard- and soft-wire the programs and culture of inclusion required to capture the intended benefits.

Tailor for impact. D&I initiatives should be tailored to the relevant business area or geographic region context to maximize local buy-in and impact. A degree of local customization of overall D&I goals and priorities (e.g., reflecting varying regulatory contexts and differing starting points), and differing extents of wider local stakeholder engagement and cross-sector collaboration

Actions companies can take to develop a robust D&I strategy

• Expanded, updated data set.
• Exploring diversity at different levels of the organization.

Ethnic and cultural diversity’s correlation with outperformance on profitability was also statistically significant at board level. The research found that companies with the most ethnically/ culturally diverse boards worldwide are 43% more likely to experience higher profits. Ethnic and cultural diversity’s correlation with outperformance on profitability was also statistically significant at board level. The research found that companies with the most ethnically/ culturally diverse boards worldwide are 43% more likely to experience higher profits.

• Additional lens on financial performance.
• Broader, more holistic understanding of diversity. How do both inherent (e.g., gender, ethnicity and, where possible, sexual orientation) and acquired (e.g., international work experience, education and training, socioeconomic background) forms of diversity relate to financial performance.
• Insight into company best practices.

Five key ways D&I can contribute to a company’s performance and help drive value creation

• Win the war for talent. Strengthening human capital for their organizations remains one of the top challenges for CEOs globally, and it continues to be seen as a key source of competitive advantage. A diverse and inclusive workplace is central to a company’s ability to attract, develop, and retain the talent it needs to compete. The effects of major trends – globalization, technology, and demographics – create new growth opportunities for companies, while disrupting traditional business models and organizational structures. More diverse organizations have broader talent pools from which to source capability to compete in this changing world.
• Improve the quality of decision making. Published research from academia, corporations, and other organizations supports that diverse and inclusive groups make better quality decisions, often faster, and in a more fact-based manner, with less cognitive bias or groupthink. Further studies show a positive correlation between better decision making and business performance.
• Increase innovation and customer insight. Similarly, research supports that diverse and inclusive teams tend to be more creative and innovative than homogenous groups. Diverse teams bring different experiences, perspectives, and approaches to bear on solving complex, non-routine problems. Diverse teams are also better able to target and distinctively serve diverse customer markets, such as women, ethnic minority, and LGBTQ+ communities which command an increasing share of consumer wealth and which could represent untapped markets for some companies.
• Increase employee satisfaction. D&I management improves employee satisfaction and also reduces conflict between groups, improving collaboration and loyalty. This can create an environment that is more attractive to high performers.
• Improve a company’s global image and license to operate. Even before the current climate raised the stakes on D&I, companies who were leaders in this space benefitted from an enhanced reputation extending beyond their employees to their customers, supply chain, local communities, and wider society. Recent highly publicized issues with gender and racial discrimination highlight that, for many companies, this is also a matter of license to operate.