The Simple Rationale for Diversity

Our organisations are museums, representations of the past. — Maya Droesler

Maya Droesler tossed off the one-liner above in a tweet stream recently, referring to a post of mine, A Manifesto for a New Way of Work. I had made the case that organizations need massive change, and I catalogued ten or so ways that change would have to manifest itself and why.

This post can be considered as an amendment to that manifesto in the way that we have amendments to the U.S. Bill of Rights, because I did not dig into diversity, there. Here, I am offering up recent research and analysis about the tangible effects of diversity in the workplace; or, contrapositively, the negatives associated with lesser diversity.

And Droesler’s observation is dead on: we lack diversity in business because the makeup of the workforce has changed over the past several decades, as women have moved dramatically into the work of work, and as discriminatory hiring practices have decreased. But as the recent Ellen Pao lawsuit against Kleiner Perkins demonstrates, we have a long way to go before we will get to the broadest conceivable diversity at work.

The fact of the matter is that businesses have every motive imaginable to increase diversity.

Catalyst published a report, The Bottom Line: Corporate Performance and Women’s Representation on Boards, that unequivocally shows that companies with more women on their boards have higher financial success:

Return on Equity: On average, companies with the highest percentages of women board directors outperformed those with the least by 53 percent.

Return on Sales: On average, companies with the highest percentages of women board directors outperformed those with the least by 42 percent.

Return on Invested Capital: On average, companies with the highest percentages of women board directors outperformed those with the least by 66 percent.

McKinsey has published similar results in Is there a payoff from top-team diversity:

The findings were startlingly consistent: for companies ranking in the top quartile of executive-board diversity, ROEs [returns on equity] were 53 percent higher, on average, than they were for those in the bottom quartile. At the same time, EBIT [earnings before interest and taxes] margins at the most diverse companies were 14 percent higher, on average, than those of the least diverse companies (exhibit). The results were similar across all but one of the countries we studied; an exception was ROE performance in France; but even there, EBIT was 50 percent higher for diverse companies.

You’d think these findings would be a strong motivator, and that companies would immediately start adding women to their boards. But because organizations — and the current boards — are stuck in the past, they disregard these results, and continue on as before.

Forbes Insight looked into the connection between diversity and innovation, and found a direct correlation in the mindset of the most innovative companies. Those that are more diverse attract top talent, are more innovative, and their teams make better decisions.

So what is the basis of these benefits? Yes, it is great to mine the financials and show the hard numbers to support diversity, and to hear company leaders extol diversity as key to their success. But what is different when diverse minds are brought together to tackle problems? What makes that work better?

Katherine W. Phillips with her colleagues, Margaret Neale and Gregory Northcraft, wanted to understand the performance of racially diverse teams relative to all white teams. As the Phillips described the research experiment in How Diversity Makes Us Smarter,

Our subjects were undergraduate students taking business courses at the University of Illinois. We put together three-person groups — some consisting of all white members, others with two whites and one nonwhite member — and had them perform a murder mystery exercise. We made sure that all group members shared a common set of information, but we also gave each member important clues that only he or she knew. To find out who committed the murder, the group members would have to share all the information they collectively possessed during discussion. The groups with racial diversity significantly outperformed the groups with no racial diversity. Being with similar others leads us to think we all hold the same information and share the same perspective. This perspective, which stopped the all-white groups from effectively processing the information, is what hinders creativity and innovation.

There are numerous other research findings that support this analysis (several cited by Phillips), so you’d expect that companies would be aggressively accelerating their efforts to become more racially diverse. Well, some are: and those are the most innovative and highest performing companies out there.

Phillips also provides a thought experiment to show how you can improve your personal performance by simply thinking about diversity. Imagine you have an meeting coming up where you need to convince someone to agree with a proposition from you, for example, to invest in your startup idea, or to advocate some initiative in your company, or to support your run for local office. If you imagine someone with very different background from yours, you would likely have to work harder in preparation for the meeting, because you’d need to consider it from a very different perspective from your own.

The rationale for diversity is clear, and it’s evident that work involved in operating in diverse work teams — seeing the world through others eyes — is justified by making organizations smarter, more innovative, and more profitable.

This post was written as part of the IBM for Midsize Business program, which provides midsize businesses with the tools, expertise and solutions they need to become engines of a smarter planet. I’ve been compensated to contribute to this program, but the opinions expressed in this post are my own and don’t necessarily represent IBM’s positions, strategies or opinions.

Written by

Founder, Work Futures. Editor, GigaOm. My obsession is the ecology of work, and the anthropology of the future.

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