Diversity of Gender and Color = Better Financial Results

From the Wall Street Journal January  21, 2015

A new study of 366 public companies in the U.S., Canada, U.K., Brazil, Mexico and Chile by McKinsey & Co., a major management consultancy, found a statistically significant relationship between companies with women and minorities in their upper ranks and better financial performance as measured by earnings before interest and tax, or EBIT.

The findings could further fuel employers’ efforts to increase the ranks of women and people of color for executive suites and boardrooms, and thereby reap benefits of the so-called diversity dividend.

McKinsey researchers examined the gender, ethnic and racial makeup of top management teams and boards for large concerns across a range of industries as of 2014. Then, they analyzed the companies’ average earnings before interest and taxes between 2010 and 2013. They collected but didn’t analyze other financial measures such as return on equity.

Businesses with the most gender-diverse leadership were 15% more likely to report financial returns above their national industry median, the study showed. An even more striking link turned up at concerns with extensive ethnic diversity. Those best performers were 35% more likely to have financial returns that outpace their industry, according to the analysis. (The report didn’t disclose specific companies.)

Highly diverse companies appear to excel financially because of their talent-recruitment efforts, strong customer orientation, increased employee satisfaction and improved decision making, the report said. Those possible factors emerged from prior McKinsey research about diversity.

McKinsey cited “measurable progress” among U.S. companies, where women now represent about 16% of executive teams—compared with 12% for U.K. ones and 6% for Brazilian ones. But U.S. businesses don’t register a financial payoff from gender diversity “until women constitute at least 22% of a senior executive team,’’ the study added. (McKinsey tracked 186 U.S. and Canadian companies.)