May 09, 2019

Why diversity is a business imperative

With the exception of a handful of particularly loud chuckleheads on talk radio, most Americans recognize that diversity is a good thing. We get that different people from different upbringings can sometimes have disparate viewpoints but that no group has a monopoly on the best ideas or the most vibrant culture or, really, the “best” or “most” anything.

Somehow, this hasn’t quite caught on in the boardrooms of the most powerful companies in America. Gender diversity, to use just one example, is pretty woeful for the largest 1500 companies in the US. Women make up 5% of CEOs and 16% of director positions even while holding nearly half (47%) of all business degrees. 7% of these boards have at least three women on them while, staggeringly, 100% have at least three men.

Now, it’s worth pointing out that boardrooms have actually gotten more diverse in the past ten years, which, depending on your viewpoint, is either pleasantly reassuring or grimly problematic. But let’s set that aside and operate under the premise that boardrooms–a.k.a. key decision makers–tend to be fairly uniformly white and male. It’s pretty apparent in the data.

But there’s another thing that’s apparent in the data of companies with more diverse boards: they’re more successful. Full stop.

According to Catalyst, “companies with the highest representation of women on their top management teams experienced better financial performance than companies with the lowest women’s representation.” It’s not small either. For example, Return on Equity (ROE) for more diverse boards is a full 35% higher.

And that’s just looking at the boardroom. Josh Bersin did a great round-up of some relevant research in the area, and basically every metric evidences that more diverse companies simply do better than less diverse ones. He highlighted that gender-diverse companies are 15% more likely to outperform their peers. Ethnically-diverse ones are 35% more likely to do so. Diverse organizations have better cash flow, enjoy more innovative workforces, are more likely to identify and build leaders internally, and, well, you get the idea.

There are myriad reasons diversity correlates so strongly with corporate health, both from a bottom-line and cultural aspect. Chief among these is that often times, with a diversity of backgrounds, companies enjoy a diversity of thought. This can be tricky at first, where there can be minor cultural clashes (say, one employee is from a culture where questioning authority is taboo and another is not), but experts say this irons itself out rather quickly. The flipside of these minor disconnects is, as we mentioned, the diversity of thought. Here’s a simple example:

A while back, I had the good fortune to attend a talk on artificial intelligence & diversity. The whole discussion was enlightening, but there was a clip that really stuck out. The presenters were talking about voice-activated home assistants–products like Google Home or Amazon Echo–and how the underlying AI was trained. Mostly, the voices these algorithms learned to understand were the ones like the engineers who made it: Silicon Valley types, engineers mostly, with a smattering of students from Stanford and Berkeley and the surrounding schools in the Bay Area. Because of that, when testing these products in house, it’s easy to assume they work well. It can understand everyone in the office. But the office didn’t have sufficient diversity–here, diversity of speech. So what happened when these home assistants were released? Well, if you have a Memphis accent or a thick brogue or were a Chinese national, they simply couldn’t understand you. And if that product can’t understand you, it’s worthless.

Think of how much easier something like that is to catch when you have a diverse team. Now extrapolate that to whatever product you’re making. If your team isn’t diverse, are they covering your user base? Have they thought of all the possible questions? Have they built with empathy? Diverse voices help solve this–in fact, without them, solving issues like these can be incredibly complex.

And this is just one example among thousands. But it’s a good one to demonstrate just one of the ways diversity is valuable in a business context. It’s anecdotal, sure, but the data we shared above isn’t. Diverse companies just perform better. They come up with more, disparate ideas, and they solve problems more holistically. If everyone in your company looks the same, chances are, you’re only building for people like you. And that’s the surest way to stagnation.

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