3.4 Diversity and economic benefit

Eswaran (2019), writing for the World Economic Forum, explains why the business case for diversity in the workplace is now overwhelming, siting substantial research that demonstrates the advantages, including:

• A study from Boston Consulting Group that found companies with more diverse management teams have 19% higher revenues due to increased innovation.
• A Hays Asia Diversity and Inclusion report in which respondents identified improved company culture, leadership and greater innovation as the top three benefits of a diverse workforce.
• The Deloitte Millennial Survey, which shows that 74% of respondents believe their organisation is more innovative when it has a culture of inclusion.

Asif Sadiq has this to say:

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Transcript: Video 8: The business case for DEI

Asif Sadiq

So we do diversity, equity, and inclusion for many reasons. There’s of course, the legal implications, numerous countries have various different laws that present why we should create equity and inclusion and so on. There’s the moral case, which I hope each and every one of us understands, gets the importance of truly creating a workplace that’s diverse, that’s inclusive, that’s representative of the society we live in. However, the business case is huge.

Businesses that get diversity and inclusion right generate more profitability, better output, more innovation, more creativity. Businesses who get it wrong risk financial losses, reputational risk, and so on. And the truth is, when you think about the future, your future consumers, your future customers, people you engage with, to them, diversity is not an option. They have choices and those choices are important to them. And one of the critical parts of that choice for them is an organisation that values what they believe in.

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Video 8: The business case for DEI

Another useful resource is the Diversity Matters Even More [Tip: hold Ctrl and click a link to open it in a new tab. (Hide tip)] report (Hunt et al, 2023), which also explores the business case for inclusion and diversity. This report is the fourth in a series by McKinsey & Company, who explain that ‘the business case is the strongest it has been since we’ve been tracking and, for the first time in some areas, equitable representation is in sight.’ In terms of financial benefit, their analysis finds:

• Companies in the top quartile for gender diversity on executive teams were 39% more likely to experience above-average profitability than peer companies in the fourth quartile. This is up from 25% in 2020, 21% in 2017 and 15% in 2014.
• Companies with a gender split of more than 30% women on their executive teams are significantly more likely to outperform those with 30% or fewer.
• In the case of ethnic diversity, companies in the top quartile outperformed those in the fourth by 39% in terms of profitability, slightly up from 36% in 2020, 33% in 2017 and 35% in 2014. This has persisted even with eight new economies added in the most recent financial analysis.

The report goes on to suggest five areas of action for companies, based on insights shared during interviews conducted with diversity leaders:

1. Commit to a systematic, purpose-led approach to benefit all stakeholders. Companies should frame and pursue their DEI aspirations – internally and publicly – as core to their mission and embedded into their strategic goals.
2. Embed your strategy in company-wide business initiatives while tailoring to local context. While DEI strategy is typically shaped at the top, giving local teams license to tailor to local contexts is key to building ownership and local impact.
3. Prioritize belonging and inclusive practices to unlock performance. Diverse representation will have the most impact within a culture that fosters inclusion and belonging – which also facilitates retaining diverse talent, innovation, and customer centricity.
4. Embolden and activate champions and allies by providing adequate resources and support. DEI efforts of individual leaders, particularly women, are often less high-profile or officially rewarded. Companies that recognize these efforts and provide a supportive environment can help these leaders thrive. This support could include mentorship and sponsorship, as well as encouraging and celebrating allyship. Leaders could be measured on their contributions to DEI and employee wellness in their performance evaluations.
5. Act on feedback, including dissenting voices. A culture of feedback on DEI strategy from the workforce and wider stakeholders can provide valuable insights, identifying both strengths and opportunities for change. Leaders can use routine company pulse surveys to collect feedback internally, and social listening externally.

If you wish to explore other aspects of the business case for diversity in more detail, Vicari (2024) gives a useful overview with clickable links to a range of studies and surveys.

With this range of potential benefits in mind, and a growing body of evidence to support them, it is clear that for any organisation, diversity and inclusion will play a vital role in future success.