Plenty of business owners and team leaders know it’s important to promote diversity in the workplace. Despite this, many of them also never get around to actively prioritizing this goal. There’s a persistent belief that, while diversity is “nice to have,” it’s not a high-priority goal because it doesn’t offer measurable benefits. However, this just isn’t true.
Research consistently indicates that promoting diversity within an organization does bring about actual benefits that can give any company an advantage over the competition. The following are just some of the more noteworthy benefits of making diversity a top priority at your company.
It’s worth mentioning that diversity doesn’t have to provide material benefits to be a worthy goal—it’s worthwhile in its own right. We live in a diverse society and organizations should mirror this, as a matter of principle.
That said, all companies need to make a profit to survive, so this is one way to measure the benefits of diversity for businesses. According to a McKinsey & Company study of 180 companies in major markets across a range of industries, greater diversity at the executive board level corresponds with higher profits. Returns on equity (ROE) were 53 percent higher for companies ranking in the top 25 percent for executive board diversity than companies in the bottom 25 percent. Earnings before interest and taxes (EBIT) at the most diverse companies were 14 percent higher than those at the least diverse companies.
An article earlier this year in Entrepreneur theorized why diversity is linked with greater profitability. Diverse companies attract more talent, a diversity of experiences within a workforce can lead to more innovation, diverse thinking also leads to greater customer satisfaction, and diverse teams resonate with investors.
Culture, gender, class, religion, and other aspects of every person’s identity influence the experiences, skills, and knowledge they bring to their job. It makes sense, then, that a group of people with largely similar backgrounds may have similar opinions and approaches to problem-solving. A diverse company, on the other hand, can pull from a much wider range of competencies and perspectives when problem-solving. If a company’s employees represent a tool box of skills, a diverse company has a more comprehensive tool box to draw from.
Perhaps this is why research shows diverse workforces are generally more productive than workforces that lack diversity. For instance, a study in the Academy of Management Journal found that a 1% increase in racial diversity for a tech company’s management team increased the company’s overall productivity by $729 per employee. Among the Fortune 500 companies, every 1% increase in management’s racial diversity boosted the company’s productivity by $1,590 per employee. The same study also found that companies with more homogenous, less diverse management at all levels were less able to make good business decisions and obtain a competitive advantage.
For most companies, expansion is a major goal. It’s also yet another reason why diversity in the workforce is important. To attract customers in a new market, understanding that market is crucial. Business leaders need to understand how to represent their products to a new customer base in a way that will appeal to those customers. This is much easier to do with a diverse workforce because the demographics of potential new markets will be represented within the company.
Of course, even when your company isn’t expanding to a new market, diversity is still important. The demographics of the US are changing. Non-Hispanic white people represent about 60% of the US population currently, but that percentage has been declining for decades. The US is becoming less white and more diverse. By 2030, the white population will decline to about 55%, but the Hispanic, Black, and Asian American populations will have increased.
When you consider the current population under age 18, America is even more diverse—right now, there are more non-white young people than white young people. Companies must diversify if they want to effectively connect with this rapidly diversifying consumer base.
Stronger Talent Attraction and Retention
No organization can thrive without strong talent. On the job market, your company is competing with others for the best employees. Diversity is important is this respect too because people want to work for diverse companies.
For example, an October 2019 survey by ZipRecruiter found that 86 percent of jobseekers reported that diversity was “somewhat” or “very” important to them when looking for work. Millennials and members of Generation X, who make up the vast majority of the working-age population, were more likely than Boomers or members of Generation Z to report that diversity was “very” important to them.
These are all very practical benefits. Once again, while promoting diversity should be a priority for its own sake, any business owner or team leader should also remember that diversity yields tangible advantages in a number of ways. Research confirms it.