Diversity is good for business — not just from the ethical standpoint, but from the perspective of a company’s bottom-line, according to McKinsey & Company. As a follow-up to its “Why Diversity Matters” study in 2015, McKinsey analyzed over 1,000 companies across 12 countries, looking at their respective profits and value creation.
Companies in the top quartile for ethnic diversity are 33 percent more likely to have above-average profitability than companies in the bottom quartile, according to McKinsey’s report, “Delivering through Diversity.” And essentially the same goes for gender diversity, with companies in the top quartile for gender diversity being 21 percent more likely to have above-average profitability than companies in the bottom quartile.
In the top quartile, financial services are overrepresented for gender diversity while telecom, media and technology companies are disproportionately represented in the lowest quartile. TMT companies in this sample, which are mostly tech firms, have also seen the biggest decline in diversity since McKinsey’s 2015 report.
Diversity at the leadership level — across different types of diversity — also matters. McKinsey found a statistically significant correlation between a more diverse leadership team and financial outperformance.
“Companies in the top quartile for ethnic/cultural diversity on executive teams were 33% more likely to have industry-leading profitability,” the report states. “That this relationship continues to be strong suggests that inclusion of highly diverse individuals – and the myriad ways in which diversity exists beyond gender (e.g., LGBTQ+, age/generation, international experience) – can be a key differentiator among companies.”
Meanwhile, the least diverse companies — the ones in the bottom percentiles for both gender and ethnicity — are 29 percent less likely to outperform in profitability.
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For those who want to make the outdated argument that it’s a pipeline problem, McKinsey notes how women received 35 percent and 33 percent of bachelor and masters degrees, respectively, yet make up just 17 percent of executives at TMT companies. Meanwhile, people of color received 30 percent of the bachelor degrees in science, technology, engineering and math since 2000, yet just 12 percent of executives in McKinsey’s sample are people of color.
McKinsey points to Salesforce as an example of a company that delivers on diversity and inclusion, noting its decision to create a C-suite role of Chief Equality Officer and its work to close the gender pay gap.
“Crafting a truly effective inclusion and diversity strategy is no small effort, and requires strong and sustained and inclusive leadership,” the report states. “But we, and many of the companies we studied in depth, believe the potential benefits of stronger business performance are well worth it.”