Several New Studies Tie Diversity to Innovation, Profitability

Several New Studies Tie Diversity to Innovation, Profitability

As more research explores the impact of diversity and inclusion on businesses outcomes, the bottom-line case for diversity and inclusion grows ever stronger. Three studies last month added to this growing body of evidence in favor of D&I, finding that gender parity and racial diversity, particularly in decision-making roles, has a meaningful impact on companies’ innovation, productivity, and profitability.

The first study comes from Richard Warr, a professor of finance at North Carolina State University, his colleague Roger Mayer, and Jing Zhao of Portland State University. The researchers’ headline finding is that companies that score well on indicators of diversity tend to be demonstrably more innovative, Fast Company’s Ben Schiller explained in a post highlighting the study last month:

The study looks at the performance of 3,000 publicly traded companies in the years 2001-2014 across nine measures of diversity. That includes whether firms have women and minority group CEOs, whether they promote women and people of color to “profit and loss responsibilities,” whether they have positive policies on gay and lesbian employees (say, offering benefits to domestic partners), and whether they have programs to hire disabled employees. …

The big takeaway: Companies that fulfill all nine positive diversity requirements announce an average of two extra products in any given year, which about doubles the average for a major company (those that tick fewer boxes are less innovative proportionally). Moreover, the researchers find that companies with pro-diversity policies were also more resilient in terms of innovation during the 2008 financial crisis.

The paper does not conclusively prove a causal relationship between diversity and innovation, Schiller notes—companies that invest in diversity may simply be investing intelligently in other areas that impact product development more directly—but combined with what we already know about how diverse teams are more likely to challenge their assumptions and biases, more likely to engage in productive debate, and able to access a wider range of perspectives, the correlation Warr and his co-authors uncovered looks suggestive.

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Does Boardroom Gender Diversity Improve Performance? Some Academics Say No

Does Boardroom Gender Diversity Improve Performance? Some Academics Say No

Over the past few years, multiple studies have suggested that adding more women to the C-suite or the boardroom (where there are often no women to be found) can confer a direct benefit to a company’s competitiveness and financial performance, whether in the form of better governance, stronger reputations, or expanded skill sets among leadership.

Organizational psychologist Katherine Klein, a professor at the University of Pennsylvania’s Wharton School, questions those conclusions. “Despite the intuitive appeal of the argument that gender diversity on the board improves company performance,” Klein writes, a survey of peer-reviewed academic research on the subject tells a different story:

Consider two recent meta-analyses that have been conducted to summarize prior research on the topic. Post and Byron (2015) synthesized the findings from 140 studies of board gender diversity with a combined sample of more than 90,000 firms from more than 30 countries. Pletzer, Nikolova, Kedzior, and Voelpel (2015) took a different approach, conducting a meta-analysis of a smaller set of studies — 20 studies that were published in peer-reviewed academic journals and that tested the relationship between board gender diversity and firm financial performance (return on assets, return on equity, and Tobin’s Q).

The results of these two meta-analyses, summarizing numerous rigorous, original peer-reviewed studies, suggest that the relationship between board gender diversity and company performance is either non-exist (effectively zero) or very weakly positive.

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