The real business case for diversity – why it pays

03 December 2018

The ethical case for promoting diversity and inclusion in the workplace is irrefutable: we all deserve the same opportunities, no matter our identity or background. What’s more, considering the cultural make-up of the UK is far from uniform, businesses have a duty to represent the diverse population they serve.

But fostering a diverse workforce isn’t just the right thing to do – it’s also the option that makes the most financial sense. According to recent figures from McKinsey, businesses with executive teams ranking in the top quartile for racial and ethnic diversity are 33 percent more likely to see their profits grow above the national median for their sector.

In the UK, organisations who boast greater diversity within senior management teams are reaping the benefits of an inclusive culture: for every 10 percent increase in gender diversity, McKinsey found EBIT rose by 3.5 percent. It doesn’t take a genius to see there is a clear correlation between diversity and financial performance – but what factors are driving this?

 

The cost of a negative culture

Organisational culture drives turnover: if employees from diverse backgrounds are made to feel unwelcome – be it from constant microaggressions to workplace bullying – they won’t stick around to wait for staff-wide behavioural change. This is an issue the tech industry knows too well, their famously stuffy leadership teams and male-dominated environments causing a drought of much-needed female talent. According to figures from the Kapor Center for Social Impact, this negative culture is estimated to cost the US tech industry $16 billion each year.

Of course, there are also the reputational costs to consider. When a business or group of businesses earns a negative association with its audience due to a lack of diversity or unfair treatment of their staff, they instantly lose access to large swathes of the talent pool – after all, no one would willingly apply for a role knowing they would face discrimination. With a poor reputation comes a struggle to attract top talent and so, a vicious cycle is created.

 

Creating a virtuous cycle

When a company commits to improving diversity at every level, they benefit in a number of ways. From a recruitment perspective, their employer brand garners a good reputation within the community and facilitates talent acquisition.

A more influential brand with visible role models will naturally find it easier to convince candidates from diverse backgrounds to join their organisation, while a company known for their predominantly white male workforce might struggle. In short – the more diverse you appear to your audience, the more likely you are to gain the competitive advantage in attracting and retaining top talent.

But beyond hiring, diversity has proven to bolster decision making at every level as people with new perspectives are willing to challenge the outmoded ways of operating or offer previously unexplored avenues for opportunity. In turn, the company creates a virtuous cycle of increasing returns from boosting the satisfaction of both their customers and employees.

 

The bottom-line benefits of diversity

According to the American Sociological Association, gender-diverse organisations are 21 percent more likely to benefit from above-average profitability, and two thirds of teams reported to have medium and high levels of racial diversity are 33 percent likely to see higher financial return than their less diverse peers. Meanwhile, teams that have a distinct lack of diversity were 29 percent more likely to underperform.

It’s not hard to see why: after all, when you starve a group from external opinions or insights, you lower their chances of finding creative solutions to ongoing problems. Bring together a group with similar identities and backgrounds and they will struggle to challenge each other or innovate beyond the comfort of what they know.

Today, diversity is a competitive advantage: organisations who have it reap the benefits of an engaged team bringing multiple perspectives to the table. Meanwhile, their homogenous counterparts continue to miss a trick, sticking with what they know for fear of change or through force of habit. For any modern business seeking to grow their profits, it’s clear that diversity is no longer just ‘nice-to-have’.