This report explores the relationship between diversity, defined as a greater proportion of women and ethnically/culturally diverse individuals, in the leadership of large companies and their financial performance. Based on a larger dataset of more than 1,000 companies across 12 countries, the research reaffirms the global relevance of the correlation between diversity and financial outperformance. The report states that many successful companies see inclusion and diversity (I&D) as a key enabler of growth.

Diversity and financial performance in 2017

The report found that gender and ethnic/cultural diversity, particularly within executive teams, continue to be correlated with financial performance across multiple countries worldwide. Companies that ranked in the top quartile for gender diversity on executive teams were 21% more likely than fourth quartile companies to outperform industry peers in terms of profitability (measured as average EBIT margin). They were also 27% more likely to have industry-leading performance on longer-term value creation (measured as economic profit margin).

Diversity around the world

The research yielded noteworthy differences between countries in terms of executive team diversity. For instance, Australian companies lead the way when it comes to women’s share of executive roles (21%), versus the UK (15%), and the US (19%). The same is true for ethnic and cultural diversity. French and German companies lead the way in terms of the proportion of non-executive directors who are women, at 42% and 29%, respectively. Japanese companies trail far behind with only 3% female representation on their boards of directors.

Delivering impact through I&D

The report concluded that it is not enough for corporate leaders to simply regard inclusion and diversity as a matter of social justice, corporate social responsibility, or even regulatory compliance. The research stresses the importance of designing effective I&D strategies that are aligned with business goals. A robust I&D strategy should focus on the following:

• Building a diverse pipeline: Companies should focus on building diverse talent pipelines to ensure diversity in all levels of the organisation.
• Inclusive leadership: Leaders must be trained to create a culture of inclusion and diverse perspectives, which leads to better decision-making and innovation.
• Accountability: Companies must track their progress on diversity and inclusion metrics, set improvement targets and measure progress over time.
• Empowerment: Enabling all employees to bring their full selves to work is a powerful driver of I&D, and it helps people feel valued and included in the company’s culture.

Methodology

The research is based on an analysis of publicly available data from 1,007 companies across 12 countries. Multiple financial metrics were used to compare company financial performance: profitability, measured as average EBIT margin, and value creation, measured as economic profit margin. The report does not disclose how its sample of over 1,000 companies was selected.

Recommendations

The report suggests that companies prioritise inclusion and diversity as part of their business strategies. Inclusive companies benefit from the full range of backgrounds, experiences, and perspectives of their employees. The report recommends that companies focus on policies and practices that promote diversity, such as flexible work arrangements, offering generous parental leave, and providing unconscious bias training to all employees.