Diversity and Financial Performance
Years of hard data draws an undeniable link
Photo: pixabay/rawpixel |
Contributed Article Submitted By Invesco Global Thought Leadership
Despite years of research
touting the benefits of diversity in the workplace, it remains a difficult and
controversial topic for some. While some commonly complain that diversity is
incompatible with the pursuit of meritocracy and fosters box-ticking and
tokenism, the reality is that fostering an inclusive culture has intrinsic
value and an unmistakable impact on the bottom line.
Decades of research on the
topic of diversity and inclusion, from its early roots to a growing body of
research that shows a positive impact on the bottom line. A lack of diversity
could even be a risk, according to Christine Lagarde, managing director of the
International Monetary Fund, who famously postulated that Lehman Brothers might
not have collapsed if it had been “Lehman Sisters.”
As investors gain access to more and more data linking diversity
to organizational performance, it’s becoming a key issue for asset managers and
asset owners alike, who can increasingly use it as a criteria for long-term
decision-making. To highlight the importance of considering diversity for
investors, here are four critical data points that clearly show potential for
financial upside:
Workplace diversity drives performance:
According to McKinsey’s report, Delivering Through Diversity,
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. But it’s not just about gender. Companies in the top-quartile
for cultural diversity on executive teams were 33% more likely to have
industry-leading profitability.
Gender diversity on the board improves the bottom line: A 2011
study by Catalyst, The Bottom Line: Corporate Performance And Women’s Representation On Boards (2004–2008), furthers the case for diversity. It shows clear evidence that companies with
more women board directors perform better financially than those with the
least -- a 16% on return on sales and 26% for return on invested capital. At the
same time, companies with sustained high representation of women on the board
significantly outperformed those with sustained low representation by 84% on
return on sales, by 60 percent on return on invested capital, and by 46 percent
on return on equity.
Demographic diversity breaks through “groupthink”:
According to Deloitte’s influential 2011 study, Only Skin Deep? Re-Examining the Business Case for Diversity, diversity in the workplace can also provide companies with a competitive edge
through better and more diverse ideas. As the study points out: “demographics
act as a lead indicator as to whether organisations are drawing from the full
knowledge bank and making merit-based, rational decisions.” Figure 1 shows this
correlation clearly.
Click image to enlarge. |
The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of Invesco Global or TEXPERS.
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