The value of diversity in leadership roles

Increasing the diversity in leadership is good for business.

McKinsey & Company, Scientific American, the Catalyst Information Center, and the International Monetary Fund have all conducted research quantifying the value of diversity in the workplace. In study after study, the research consistently shows that there is a substantial positive correlation between diverse leadership teams and financial performance.

Diversity in leadership is linked to greater financial returns

A2015 McKinsey & Company report looked at the top management and boards of 366 public companies in various industries in Canada, Latin America, the United Kingdom, and the United States and found that:

  • Companies with leadership in the top quartile for gender diversity were 15% more likely to have financial returns above their industry median
  • Companies with leadership in the top quartile for racial and ethnic diversity were 35% more likely to have financial returns above their industry median.

A2018 McKinsey follow-up report looking at over 1,000 companies in various industries across 12 countries also found that:

  • Companies with executive teams in the bottom quartile for both gender diversity and racial and ethnic diversity were 29% less likely to achieve above-average profitability.

This research establishes a correlation for large financial gains to be made for companies prioritizing diversity in leadership and the penalty of lagging behind financially for those companies that don’t.

Here are three additional benefits to increasing the gender and racial and ethnic diversity of leadership:

#1 – Diverse teams produce better solutions to complex problems

In The Difference: How the Power of Diversity Creates Better Groups, Firms, Schools, and Societies, Scott E. Page presents numerous studies that show how diverse groups that display a range of perspectives consistently outperform like-minded experts on complex tasks. One reason this happens is that diverse groups are better at avoiding groupthink, a psychological phenomenon that occurs when groups make irrational or problematic decisions because its members value harmony and conformity over accurate analysis and critical evaluation.

When there is greater gender and racial and ethnic diversity in leadership, there is not one majority group to which everyone needs to conform. Each leader is more likely to maintain his or her individuality and be less likely to blindly follow the group if he or she disagrees. Moreover, diverse leaders look through at the world through their different cultural lenses which lead those types of groups to create better solutions.

#2 – Diversity in leadership can help with retention of diverse staff

Professionals will leave without a second thought if they get a signal that there is no place for growth and advancement at their current employer. Having diversity in leadership communicates to staff, especially diverse staff, that there is a pathway to leadership and shows them a concrete example of what it looks like.

This is becoming increasingly important since it is estimated that population demographics in the United States will be over 51% people of color by 2040. Millennials are already more racially and ethnically diverse than previous generations. As millennials continue to move into the workforce, they will bring that diversity with them and are more likely to stay with companies where they see a path to grow and advance for people who look like them.

#3 – Diverse leaders can serve as mentors and sponsors to diverse professionals and others and build multi-cultural competencies within the organization

Often, informal mentor and sponsor relationships happen organically between people who share a commonality. In psychology, the tendency of people to favor members in their own group is known as an in-group bias or affinity bias. The most salient shared traits are related to outward appearance. Due to the White male leadership composition of many organizations today, women and people of color often have a harder time forming these vital relationships organically with those in positions of power.

When there is greater diversity in leadership, the organization’s leaders can play the vital role of mentor and sponsor for a much broader group of diverse professionals. While organic mentor and sponsor relationships can be rewarding for both parties involved, they often exclude others. Organizations which have formal mentorship and sponsorship programs should intentionally design these programs to encourage employees to develop multiple relationships across lines of difference (i.e., gender, race and ethnicity, and other dimensions of diversity), thereby building multi-cultural competency within the leadership team and the organization at all levels.

Diversity in leadership isn’t inevitable, so companies need to be intentional

With research showing that companies with diverse leadership outperform companies with non-diverse leadership globally, why is progress so slow? Maybe people aren’t familiar with the research. Or maybe people assume progress will happen on its own.

Whatever the reason is, one lesson is clear: a company that is trying to increase its financial returns and be more competitive in its industry should take a long hard look at the diversity of its leadership team. One of the best investments that a company can make is to be intentional about increasing the diversity in leadership by recruiting, retaining, and promoting diverse professionals. That is one competitive business strategy with a proven and handsome return on investment.

Sharon E. Jones is a graduate of Harvard Law School and Harvard College and is the founder and CEO of Jones Diversity, Inc., which offers services to organizations looking to improve their workplace culture and create more diverse and inclusive teams. Her firm’s broad range of consulting services have enhanced the competitive edge of law firms, corporations, and not-for-profits by enabling each organization to fully utilize, retain, and promote diverse individuals into leadership roles.