November 23, 2014

Research Says: Top-Team Diversity Equals Greater Financial Gain

Study: Is There A Payoff From Top-Team Diversity? (McKinsey 2012, Thomas Barta, Makus Kleiner, Tilo Neumann)

Finding: Companies with diverse executive boards have notably higher earnings and returns on equity.

Note about The Woman Effect Research Index: This study was performed by researchers not affiliated with InPower Women. Our Research Index includes all relevant research to the subject of women, business and power. We do not influence how the research was conducted or reported by the researchers. In our abstracts, we focus on pulling out the most actionable advice for individual women. To suggest additional research we should index, or discuss our choice of abstract focus, please contact us

InPower Insight: Increase the diversity of your executive top-team to increase your company financially.

Summary:

Good news if you’re a company looking to increase your financial performance and/or returns on equity – invite more diverse team into your C-Suite and top executive slots. This study by McKinsey demonstrates that companies with greater executive diversity (both gender and cultural) enjoy greater financial performance and returns on equity.

Researchers Thomas Barta, Markus Kleiner and Tilo Neumann did a thorough study of 180 publicly traded companies in France, Germany, The United Kingdom and The United States from 2008 – 2010, focusing objectively on two diversity categories (women and foreign nationals) on senior teams. The results of this study were astounding and more importantly, consistent. For companies in the top quartile of executive-board diversity, returns on equity (ROE) were on average 53% higher, and the earnings before interest and taxes (EBIT) were an average of 14% higher. France was the only country who’s ROE was not consistent with the other country’s results, and yet their EBIT was up 50% from non-diverse companies.

Demonstrating that strategic intent to diversity leadership works, one of the companies that ranked in the top quartile for diversity and performance has made diversity a strategic goal by doing things such as setting hard targets for increasing the number of women in management. Their percentage of women in management is up from 21% three years ago to 30% today, with a goal of 35% by 2015.

The McKinsey researchers are showing that companies that strive to pursue top team diversity and make it a best practice, are likely to see increases on their financial performance and returns on equity.

Career Coaching Tip: These findings are useful for any manager or leader looking to increase the productivity of their team. Diverse teams, in terms of gender, culture, leadership styles and ways of problem-solving produce better business results. Look at the teams reporting to you. How diverse are they? What can you do to diversify? Better team results make you look better. Share this information with others in your firm responsible for hiring.

Category: Impact

Keywords: gender impact on business, diversity, women executives, women leaders, women in business, mckinsey, return on equity, earnings before interest and taxes, ROE, EBIT, c-suite

Original Source

Photo Credit: Andrea Spettaculopura

April Sweazy (121 Posts)

April is a writer, budding artist and deep soulful woman who has spent her career protecting women in every way you can imagine (and maybe some you can’t). Read April’s posts and follow her on Google+ and Twitter.


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Comments

  1. Although this research is interesting, it makes the assumption that having women on the board CAUSES increased ROI and profitability. While this might be the case, it might also be that more profitable companies with better financial results are more sophisticated and therefore put more women on the board. In other words, being more profitable CAUSES the company to have more women on the board.

    This is a classic case of mis-interpreting the research. That is, the writers are assuming a causal relationship, when only a correlation exists.

    • Hi Colleen:
      Sorry I didn’t see this comment until today. I don’t think any of the researchers pretend that the findings are more than correlation, however, the correlation is so strong across multiple studies and methodologies that it’s notable and clearly there are some causal relationships. Also, there are studies that are even more specific demonstrating that blended teams of women and men produce better/smarter results than teams that are one-gender-heavy. This indicates that blended teams bring a wider variety of skills to the table, which produce better results. It makes sense that this works on a company-wide scale as well. If a team is smarter with a balance of genders, then a LEADERSHIP team with balanced genders will be smarter too – and be more likely to produce better results.

      Personally, when I write about this phenomenon I point out that it really doesn’t matter whether women create an environment for high performance or healthy cultures that produce results welcome women into their leadership – practically, both are probably true! In my culture-making work we emphasize equipping individual women and men with skills to develop healthy cultures, which includes making a culture that welcomes the gifts and abilities of all participants. In a test-tube causation is critically important. In human affairs, correlation gets you a long way!

      Thanks for your comment!