275 GROVE STREET, SUITE 2-400, NEWTON, MA 02466
A few weeks ago, we shared some tips on how to create a more diverse and inclusive workplace.
In the intro, we cheekily referred to some well-respected studies that provide evidence for a correlation between increased diversity and increased performance on various business metrics.
Looking back, we thought we might have done our readers a disservice.
This month, we decided to take a deep dive into the data to show that, far from being a knee-jerk reaction to convey political correctness, an organization’s commitment to diversity, equity, and inclusion (DEI) is now a matter of competitive necessity.
In a study published in the Harvard Business Review, over 1,700 (yes, one-thousand seven-hundred) countries were surveyed across eight countries to assess diversity in management positions by gender, age, national origin, and education markers.
Regardless of company size or specific industry, the results were startling.
The study (conducted in partnership with the Technical University of Munich) found a “statistically significant relationship between diversity and innovation outcomes in all countries examined.”
What’s more, the study also found that the more dimensions of diversity that were represented (like age, gender, ethnicity, etc.), the stronger that relationship turned out to be.
On average, companies with above-average total diversity had 19% higher innovation revenues and 9% higher EBIT margins.
In an attempt to better understand how the companies with above-average total diversity were able to become more diverse than others in the study, HBR found a few key “enabling conditions.”
Firms that practiced equal pay, participative leadership, leadership support for diversity, and open communication practices had better diversity scores, and thus better innovation performance (in this study, they define innovation performance as the percentage of revenues coming from products introduced in the last three years).
Another business case for DEI initiatives is the correlation between higher diversity and higher retention rates.
Companies who report higher levels of gender diversity, supplemented with policies that focus on gender diversity, also report lower levels of turnover. For example, women are much more likely to align themselves with an organization and perceive them as fair if they know women hold leadership positions within that organization.
This is also true for employees of color: In a study conducted in Canada, 50-69% of professionals of color reported a high intent to leave their jobs if they anticipated or consciously prepared for potential bias at their place of work.
If, after reading about the links between diversity, innovation, and retention, you assumed there would also be a correlation between DEI and profit, you’d be right.
A report from McKinsey, which studied 366 public companies, found that those in the top quartile for ethnic and racial diversity in management were 35% more likely to have financial returns above their industry mean.
The study also found that companies in the top quartile for gender diversity are 15% more likely to have financial returns above their respective national industry medians.
Even more insightful, McKinsey found that companies in the bottom quartile for both gender, ethnic, and racial diversity were statistically less likely to acheive above-average financial returns than the average companies in the data set. This is significant because it indicates that bottom-quartile diversity companies aren’t simply “not leading,” they are lagging behind.
Additionally, the study found evidence for a linear relationship between racial and ethnic diversity and better financial performance in the United States, specifically. For every 10% increase in racial and ethnic diversity among senior-executive teams, earnings before interest and taxes (EBIT) rise by 0.8%.
Is your business looking to diversify its workforce with top candidates?
Martin Grant Associates is here to help. We help top organizations across the insurance industry connect with leading diversity talent.
Get in touch with us today to learn more.