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StrategyJul 10, 2018

The Business Case for Gender Diversity

Alex Moore

Diversity & inclusion (D&I) is one of the most important focuses in business today.  In the past year, over 400 CEO’s have committed to CEO Action for Diversity & Inclusion – this list includes the top leader from some of the largest companies in America, including AT&T, GM, Johnson & Johnson, Home Depot, and Wal-Mart.  Through their commitments, they are pledging to advance D&I in the workplace today.  According to McKinsey & Company, “while social justice typically is the initial impetus behind these efforts, companies have increasingly begun to regard inclusion and diversity as a source of competitive advantage, and specifically as a key enabler of growth.”

The business case for valuing diversity and fostering an inclusive work environment has been built based on research and results.  Although D&I covers many profiles, backgrounds, and experiences, for the sake of this blog series – I am going to continue to focus on gender.  I will be sharing why gender diversity matters and how it can fuel higher performance and financial returns for companies.

Research has proven that inclusive companies with diverse leaders are consistently higher performing companies in profitability and value creation, and also in innovation and market growth.

increased profitability and value creation

McKinsey has released multiple reports on D&I’s impact on company performance.  They prefaced their initial research on D&I by saying, “the size of the dataset allows for results that are statistically significant and the analysis is the first that we are aware of that measures how much the relationship between diversity and performance is worth in terms of increased profitability.”  Their key findings prove the business case as it relates to financial performance.  The data they shared was powerful, so they went through a larger-scale exercise in 2017 and released their findings in January 2018’s Delivering through Diversity.

They originally found that companies in the top quartile for gender diversity on their executive teams were 15% more likely to experience above-average profitability than companies in the fourth quartile.  In their expanded 2018 data set, this number rose to 21 percent – and it further proved that gender diversity is correlated with both profitability and value creation.  Top quartile companies on executive-level gender diversity worldwide had a 21% likelihood of outperforming their fourth-quartile industry peers on EBIT margin, and they also had a 27 percent likelihood of outperforming fourth-quartile peers on longer-term value creation, as measured using an economic profit (EP) margin.

Gender diversity on executive teams, specifically, shows a positive correlation with higher profitability across geographies.  This confirms the teams that are making the bulk of the strategic and operational decisions have a strong influence on financial performance when they are more gender diverse.

increased innovation and market growth

There is compelling evidence that gender diversity inspires innovation and drives market growth.  Based on a research study conducted by the Center for Talent Innovation, employees at companies with diversity in leadership out-innovate and out-perform others.  Employees at these firms are 45% more likely to report that their firm’s market share grew over the previous year and 70% are more likely to report that the firm captured a new market.  According to Bersin by Deloitte, companies with Inclusive Talent Management over a three-year period are 1.8 times more likely to be change-ready and 1.7 times more likely to be innovation leaders in their market.  These findings should amplify efforts to ensure that executive ranks both embody and embrace the power of differences.

is it enough to have gender diversity at the leadership level?

Of course, there is no guarantee that gender diversity will drive profitability and innovation.  The power of diversity still needs to be unlocked with enabling practices, like an inclusive culture where diverse ideas are free to be shared and evaluated.  Boston Consulting Group studied How and Where Diversity Drives Financial Performance and found that many enabling conditions for diversity – “including fair employment practices (such as equal pay), participative leadership, top management support for diversity, and open communication practices” are vital to companies actually benefiting from gender diversity.

Their research concluded that firms with these practices in place not only had better diversity scores but as a result they had better innovation performance.  You must embrace the gender diversity on your staff by practicing gender intelligence in order to benefit from it.  As Andrew Warden highlighted in his first blog post in this series, Gender intelligence is knowing how to work better with people of the opposite gender… Gender intelligence isn’t ignoring or merely tolerating differences – it’s celebrating them, embracing them, and understanding how to harness them to improve productivity, innovation, decision making, and growth.  Next week, I’ll cover how applying gender intelligence influences leadership and business results.