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5 Studies on The Business Case for Diversity

By Melissa J. Anderson

Until companies begin to take seriously the strategic value of diversity, efforts to increase gender and ethnic parity won’t get very far. Because businesses rely on numbers to make decisions, diversity practitioners should be prepared with numbers when they make the case for improving corporate diversity.

As Rich Goldberg, VP of Corporate Quality at Cisco says in Diversity Best Practices’ Global Diversity Primer, “Metrics and measurements are essential elements to driving change and raising visibility around the business value resulting from inclusion and diversity.”

He continues, “Metrics provide a common language we can understand and agree upon. Measurements give an objective perspective, allowing us to more easily spot, analyze, and then ultimately address problems. The focus is on the problem, instead of specific behaviors or people.”

And in fact, research into this area isn’t limited to anecdotal, intangible evidence. There’s plenty of cold, hard data on the business case for diversity.

As Jim Wall, Global Chief Diversity Officer for Deloitte said, “There is a lot of research that shows, and we believe, that diverse teams create better solutions to client problems than homogeneous teams.”

1. The Gender Dividend, Deloitte

Deloitte’s research into the connection between women and the economy reveals hard numbers on how women can improve business – for example, Deloitte’s own “Selling to Women” course (created as part of its women’s network) has generated $1.5 million in new business for a total of $750 million in revenue.

As Sharon Allen, former Chairman of Deloite LLP wrote in the report:

“… great value derives not only from women as leaders, but also from the diversity of thought that women can help provide. Deloitte is not alone in benefiting from this phenomenon. In the pages that follow, you can read more about the positive and often double-digit difference in productivity between those organizations with more women as leaders compared to those with less.

“With such powerful results repeated time after time, it is incumbent upon boards to make talent and diversity of talent regularly scheduled items for discussion with senior management. By initiating such focus and oversight at a time when economic growth is greatly needed, boards can be responsive to shareholders in search of returns, and stakeholders in search of brands that are attuned to the full spectrum of consumers’ wants and needs.”

2. The Bottom Line: Corporate Performance and Women’s Representation on Boards, Catalyst

Catalyst has produced several reports showing how increasing gender diversity in the boardroom also improves corporate performance. It’s 2007 report on the subject, “The Bottom Line,” showed that Fortune 500 companies in the top quartile in terms of female board directors perform 53% better than those in the bottom quartile.

The report showed that the impact of increased diversity was not specific to any one industry. It also showed that companies with three or more women on their boards produced better than average return on equity, return on sales, and return on invested capital.

3. Does Diversity Pay?: Race, Gender, and the Business Case for Diversity, American Sociological Review

According to a review of 506 US businesses, workforce diversity pays off. The report shows that the most racially diverse companies brought in fifteen times more sales revenue than those with the least diversity.

Similarly, the ASA says, “For every percentage increase in the rate of racial or gender diversity up to the rate represented in the relevant population, there was an increase in sales revenues of approximately 9 and 3 percent, respectively.”

4. Women Matter 2010, McKinsey & Co.

McKinsey’s research on the business case for gender diversity shows that, among other things, companies with more women women on executive committees perform better financially. The study says:

“Companies with the highest share of women outperform companies with no women. In terms of return on equity, the top-quartile group exceeds by 41 percent the group with no women (22 vs. 15 percent), and in terms of operating results, the more gender-diverse companies exceeds by 56 percent the group with no women (17 vs. 11 percent) (Exhibit 6).

What conclusions should we draw? This statistically significant analysis confirms that companies with a higher proportion of women in their executive committees are also the companies that have the best performance. While this link does not demonstrate causality, it does provide a strong factual basis to continue to argue in favor of greater gender diversity in corporate top management.”

McKinsey points out that this may be the result of a greater mix of leadership styles – its 2008 Women Matter study showed that companies with more leaders displaying traditionally “female” behaviors tended to perform better.

5. Connecting Corporate Performance and gender diversity, University of Amsterdam

In the same vein as the work done by Catalyst and McKinsey, this University of Amsterdam study [PDF] showed that increased gender diversity in top management layers improved financial performance. The research tracked the performance of 80 Dutch companies between 1996 and 2003. But, it says, the research was hampered by the small sample size of companies with women at the top.

The report says:

“A significant correlation was found between the percentages of women on the Supervisory Board and the Total Return to Shareholders. Concluding, there is a relationship between the number of women at the top management layer and the bottom line performance of a company. … There are no significant relationships found between company financial performance and the percentages of women in the Board of Directors and the Higher Management layer. This lack of result could be due to the extremely small amount of women present (Board of Directors) or the very small sample size (higher Management).”

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