Diversity improves profit

Why you and I need to get that diversity improves profit


A few weeks ago, 250 attendees from 24 various-sized employers in British Columbia gathered at an awards gala for the BC Workplace Inclusion Awards, to recognize champions for inclusive and diverse workplaces. During the awards, attendees were asked to choose the most relevant business case for workplace diversity and inclusion from a list of four benefits such as:

  1. That diversity and inclusion in an organization drives innovation
  2. That it attracts top talent
  3. That it makes teams smarter and
  4. That diversity throughout the organization enhances the company’s performance (either in stock value, market share, or profitability).

The audience chose the fourth option as the most relevant. According to them, the contribution of inclusivity to the value of the company was the most compelling business case. But this is completely different from what public perception in B.C. is. In a poll Vancity conducted earlier this year, residents of B.C. were asked what benefits they thought gender or cultural diversity brought to an organization.

  • 77% felt that diversity would improve company culture
  • 63% believed diversity would increase customer loyalty
  • 60% said diversity led to better decision-making at the leadership level and
  • 60% thought diversity fostered more accountability

But surprisingly, only 50% believed diversity in an organization would lead to greater profits.

For some reason, people participating in the poll didn’t see the connection between improved company culture (which should reduce turnover and the cost of turnover), customer loyalty and decision-making as benefiting profitability.

When a person quits a job it costs a company an average of 1.5 times their salary to replace them. The cost of reduced productivity, additional training, and the time that managers might have to put towards bringing a new person up to speed are reasons why it’s so expensive. Those unseen costs cut deep into profits, share value, and overall performance.

There there are also a few studies that show how diversity and inclusion enhance profits. In a Credit Suisse Research Institute study looking at senior managers at 3,000 companies across sectors in several countries, the findings were that companies “with higher female participation at Board level or in top management exhibit higher returns, higher valuations and higher payout ratios.”
Another study by the Harvard Business Review, found some companies reported a 45% increase in market share (from the previous year) as a result of diversity and were 70% likelier to capture a new market.

The data is clear and convincing. But why the discrepancy between the research and public opinion?

And why is it important to convince the public that diversity and inclusion improves profit? The reason is that leaders in all sectors are part of the larger public psyche. This is especially true in an economy where 95% of businesses are small businesses.

There are also business leaders who don’t believe in the case for diversity and are unconvinced that there is a business benefit to having women on the boards of publicly traded companies. One of the reasons they can resist the research proving otherwise is that the public doesn’t see the connection, either. It’s not that different from getting leaders to acknowledge global warming.

In the end, the initiatives and policy to make workplaces more inclusive of women, Indigenous Peoples, people with disabilities and other diverse employees are only as strong as the public’s perception that this policy benefits society and the economy. Only then will it become easier for leaders of large and small businesses to act on the diversity business case as their friends, peers and neighbours expect them to.

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