Why Diversity Is Good Business

The controversy last month over the U.S. Supreme Court decisions involving diversity (affirmative action and LGBTQ cases) made me think about the related topic of how diversity impacts business management.

Better decisions often result from combining varied viewpoints.

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The fact is, there are well-known substantive studies, containing ample hard data, that clearly demonstrate the positive value diverse thinking brings to the business world. Specifically, two compelling studies were conducted by the Peterson Institute for International Economics and by McKinsey & Company.

Correlation With Profitability

The Peterson research focuses on the issue of gender diversity—in particular the importance of women in leadership roles. It's a massive study, analyzing the performance of nearly 22,000 firms in 91 countries.

The top-line conclusion? There's a definite "positive correlation between the proportion of women in corporate leadership and firm profitability."

This study also makes the key point that the value to an organization comes not from installing a single woman as CEO, but from developing an organic pipeline of female managers. The largest gains in company performance were related to the "proportion of female executives," and the "proportion of female board members"—not simply from having a female chief executive. The presence of a woman CEO did not have an effect on firm performance. "This pattern," the research concluded, "underscores the importance of creating a pipeline of female managers and not simply getting lone women to the top."

Ethnic and Cultural Factors

The McKinsey study, involving 1,000 large companies in 15 countries, describes the business case for diversity as "robust." As with the Peterson research, the McKinsey study found a clear linkage between "gender diversity on executive teams" and "above average profitability."

Additionally, McKinsey examined performance benefits for "ethnic and cultural diversity." Specifically, they found that top-quartile companies (in terms of ethnic and cultural diversity) outperformed bottom-quartile companies by "36 percent in profitability." They concluded that "the likelihood of outperformance continues to be higher for diversity in ethnicity than for gender."

The Value of Perspectives

What to make of these findings? From my own experience in the corporate world, they're not surprising—essentially what I would expect.

When you're wrestling with complex business problems for which the solutions are not at all obvious, perspectives matter. They're helpful—common sense tells you that.

As a manager, you talk with your people and you get different opinions, different backgrounds, different ways of looking at the same situation. Good managers invariably are good listeners, taking in more data than they need, assimilating it, discarding what they don't want, and keeping what they do—to help them arrive at the soundest possible solutions.

In this information-gathering process, I always felt soliciting diverse thoughtful viewpoints was a valuable piece of the decision-making puzzle (as was confirmed at a macro-level by the two studies discussed above).

As a decision maker you never want "paralysis by analysis," but you do want a wide range of ideas from a diversity of sources.